'No regulation made under the National Debt Act 1972 relating to premium bonds shall be valid unless:
I beg to move, That the clause be read a Second time.
From 1 July this year, the minimum purchase of premium bonds for savers aged 16 or over increased from £10 to £100. The new clause seeks to reverse that change, which was made by statutory instrument under the National Debt Act 1972, and to ensure, by means of primary legislation, that such a restriction on premium bond purchase can never be so easily introduced again.
Premium bonds were first introduced in 1956. The minimum purchase required then was £1, which in today's prices was the equivalent of £8·43. The minimum purchase was raised to £10 in July 1985, worth £11·79 at today's prices. The original top prize was £1,000. It is now £250,000. However, the structure of the prize system of the premium bond programme is such that overwhelmingly the bulk of the prizes still tend to be in relatively small amounts. A key point about the threshold that the Government are now seeking to establish is that many of the prizes tend to be reinvested as further purchases of premium bonds.
The premium bond system has an absurdly low underlying interest rate of about 6.5 per cent. It is absurdly low in current circumstances, when the base rate is so high.
The rate has not changed in recent months and in a recent written answer the Government have refused to consider changing the underlying interest rate for premium bonds.
It is worth reminding ourselves that premium bonds are a mass appeal product with a large customer base. About 24 million people in this country hold them, and there are about 2·5 billion holdings. There are about 2 billion transactions in any one year and the investment totals about £2·25 billion. The product is clearly extremely popular.
It is also worth pointing out that most purchases of premium bonds tend to be small. The Government have tried to disguise that fact in recent answers, statements and press releases, but the truth was revealed in a parliamentary answer to the right hon. Member for Tweeddale, Ettrick and Lauderdale (Mr. Steel) on 26 May, who had asked
what proportion of the actual numbers of all purchases of premium bonds are currently made under the value of £100." —[Official Report, 26 May 1989; Vol. 153, c. 808.]
The answer was about 80 per cent. So 80 per cent. of purchases of premium bonds under the old rules, which will no longer apply from 1 July, will no longer be possible.
Figures supplied by the Department for National Savings to its trade union side are similarly revealing about the numbers sold in the first three months of this year. In January, the number of purchases under £100 was 169,000 and the percentage of the total 81·1 per cent. In February the number was 135,000, a percentage of 80·5. In March this year the corresponding figures were 140,000 and 81·4 per cent. It is clear that an overwhelming number of purchases of premium bonds are consistently lower than £100.
The Government have presented their case for raising the threshold to £100 somewhat disingenuously. In their press statements and parliamentary answers they have focused on the value of the bonds issued, not on the number of purchases. In an answer on 5 May, the Chancellor of the Exchequer said:
Sales of less than £100 represent only 12 per cent. of the total value of purchases."—[Official Report, 5 May 1989; Vol. 152, c. 255.]
That is the story that the Government have been trying to put across—that this is not important because it affects only 12 per cent. By that they mean only 12 per cent. of the value of purchases; it is 80 per cent. of the number of purchases. Thousands of small savers throughout the country will be profoundly affected by the change that the Government are bringing in.
The Government will claim that they have included a protection for people under the age of 16 or people buying on their behalf. The Department for National Savings admits that it is difficult to judge what proportion of purchases have hitherto been of this type, but the best figures it has been able to supply show that about 5 per cent. of total purchases are made on behalf of people under the age of 16. So the Government's concession for minors is relevant to only a small percentage of purchases of premium bonds in any year.
We advance a number of reasons why we believe the Government are wrong to raise the minimum purchase threshold in this way. First, there is a desperate need to raise the personal savings ratio in the economy. We know that net personal savings are at their lowest since records began. We know that saving has a counter-inflationary effect. We also know that the only method of encouraging personal savings that the Government have so far adopted in the Budget of this year, in instruments brought forward since the Budget and in the Finance Bill, is the massive boost they have given to personal equity plans. The measures that they have brought in for premium bonds restrict the possibilities of saving at a time when it is crucial, for inflationary and macro-economic reasons, to encourage saving.
The hon. Gentleman keeps on talking about savings and investment in the context of premium bonds. Does he really regard premium bonds as an investment, given that whether one receives a return is a total lottery, and the smaller the holding, the more of a lottery they become?
I shall come to that point in a moment. It is the only argument that the Government have hitherto advanced for this measure, and the simple answer to it is that a premium bond holding is undoubtedly a form of saving and as such it counts in the overall savings profile of the economy. Of course it is not a guaranteed investment. It is a form of saving that involves taking a chance, not an assumption of guaranteed return, but it is saving none the less and we need to promote saving rather than over-consumption.
Our second reason is that there is a need to boost the facilities for and prospects of the small saver. By definition, a £100 threshold rules out the chances of thousands of small savers and investors. I urge the Government to listen to what some of them have to say. The first letter was sent to my right hon. Friend the Member for Birmingham, Sparkbrook (Mr. Hattersley) by a gentleman in County Down in Northern Ireland, who writes:
My main concern is the new rules for premium bond purchases which gave hope to the worse off or small investor like myself of maybe some day winning a few thousand, not necessarily the jackpot, but this is now being turned into a club for the rich, or the elite.
In a letter to the Chancellor copied to my right hon. Friend the Leader of the Opposition, a lady in Bromley writes:
The only reason for doing this obviously is to penalise the poorer members of our society who cannot hope to buy bonds when they are such a price. My husband and I are from the so called `Thatcherite' generation for whom things are now meant to be so good. We will not be able to buy one of your bonds from 1st July.
That is the voice of small savers up and down the country. By placing the threshold for a premium bond purchase at £100 rather than £10, the Government are making available opportunities for the better-off at the expense of the small saver—the person who puts aside £1 a week; the investor who wins £50 and then reinvests it; and those who live with the dream that one day they may strike lucky with only a small holding of premium bonds to their name.
Our second major argument is that the change will not only harm the profile of savings in the economy as a whole, but it will especially harm the small savers within the economy.
I apologise to the hon. Gentleman for not having been here for the whole of his speech. I accept that there is some point in what he has said. However, does he not also believe that the change to £100 may turn a small saver into a larger saver? Those who might have been previously intending to invest, say, £30 in premium bonds will find that they must and, therefore, do invest £100 in premium bonds.
There is always some hope when Conservative Members begin to see that there might be some justification in the arguments which are consistently and powerfully mounted from the Opposition Dispatch Box.
In suggesting that the limit of £100 will mean that everyone who perhaps has £20 or £30 to invest will now rush out and invest £100, the hon. Member for Wanstead and Woodford (Mr. Arbuthnot) is assuming that everyone is in a position to do precisely that—but they are not. Many thousands of people want to participate in the premium bonds system in the hope that they will win something at the end of the day, but they are unable even to conceive of investing £100 or anything like it, as the hon. Gentleman suggests that they may be encouraged to do by the new rules.
Thirdly, we are deeply concerned about the whole trend of national savings administration under the Government. Already—about three months ago—rules have been brought in for a minimum £5 deposit in national savings accounts. At the end of last month national savings gifts tokens were withdrawn from sale. It is perhaps worth noting that some two thirds of national savings gift tokens have tended to be used for subsequent premium bond purchases. The whole tenor of Government premium bond advertising in the last year and a half, including by direct mail, has been based on a marketing strategy appealing to large-scale holders of bonds—one suggesting that they have a better than average chance of winning
a good run of tax-free prizes".
The Government are turning bonds into a lucrative lottery for the upwardly mobile. They are in danger of turning other aspects of national savings into a similar vein. The character and the purpose of premium bonds as an attractive option for the small saver without very much money to invest are being lost in the process.
The Government claim that they have reasons for what they are doing and a number of those were advanced in a brief debate in Standing Committee. The Government's first reason concerned the high administrative cost for small amounts of savings. They say that it costs £2 per person to administer a premium bond application, no matter what its value. Of course, such a statement ignores the statistical probability of winning, which becomes greater the higher the value of the premium bond. Therefore, the likely cost of administering the winnings will increase, too. That statement ignores the massive profit that the Exchequer makes out of premium bonds. The 6·5 per cent. rate of underlying interest gives the Exchequer a healthy profit. It ignores also the cost-effectiveness of the administration of the scheme. There are 1,300 staff employed to administer the premium bond scheme, with its 24 million bond holders. Management costs are 1·1 per cent., which I should have thought was somewhat favourable by comparison, for example, with unit trust costs. Therefore, the Government's argument about the administrative costs of the small investor in premium bonds does not hold water and ignores the key point, which is that, whatever the method of saving adopted, small savings will always be administratively more expensive. That is no reason for abandoning them altogether, but it is a reason for deciding that we must accept the cost of administering small savings, come what may.
The Government advanced the somewhat peculiar argument that they believe in promoting quality savings and that premium bonds are a low quality form of saving. That is where the point made by the hon. Member for Beaconsfield (Mr. Smith) comes into play. He was echoing what the Minister said on 20 June in Standing Committee. The point is that purchasers of premium bonds weigh up in their minds, when they go out to buy them, the balance of advantage between the chance of a big win and the guarantee of income against depreciation. They decide what form of savings they want to put their money into. They decide whether they want a guaranteed return to protect their money automatically against depreciation or whether having a flutter with a premium bond or two is something that they would rather do than go for some form of guaranteed income. The important point is that it is they who should make the decision. The Government should not make it for them.
The key is customer choice. It is not up to the Government to dictate in a somewhat lofty fashion what is good quality and what is poor quality saving. 'That is a tawdry argument. It is not for the Government to say that, because there is no form of guaranteed return on premium bonds and that people enter into premium bond schemes thinking that they may have a chance of winning substantially, but knowing equally that they may not, it is a low quality saving and, therefore, they will implement a penal threshold that will prohibit hundreds of thousands of people from going into the premium bond market. It is up to individuals to make their decisions. Until 1 July, that is how the system worked. We are calling on the Government to reverse the changes brought in on 1 July, to stand up for the small saver, and to accept the new clause.
I would not cross the road to buy a premium bond and indulge in that type of flutter, but millions of people like to buy a modest number of bonds in the hope of winning the largest prize that is offered. It is no argument for the Government to say it is a low-quality form of saving.
The minimum investment of £1 when premium bonds were first introduced was changed to a minimum of £10 in 1985, which was roughly in line with inflation—though perhaps slightly in excess of it. At the present level of inflation, the minimum investment figure would need to be £12, so the Government's figure of £100 is excessive and would exclude on current figures about 80 per cent. of investors. Twenty-one per cent. of premium bond investors are old-age pensioners, and 19 per cent. of them purchase less than £100 worth of bonds.
There can be no doubt that the Government's proposal will exclude a large number of people who want to make a small investment in the hope of winning one of the bigger prizes. The Government argue that the cost of each premium bond transaction is £2 and therefore it is not worth selling bonds to a value of less than £100. Figures provided in a written answer of 8 June reveal an overall increase in the amount invested since 1985 by those purchasing premium bonds in blocks of £10, £20, £30, £40 and £50. The aggregate of purchases individually having a value of between £10 and £50 in 1985 was £26·6 million, but had increased to £34 million.
In 1985, purchases of £10 worth of premium bonds accounted for 5 per cent. of the total value of sales in 1985, falling to 3·2 per cent. by 1989. However, the value of £20 purchases doubled from 0·6 per cent. to 1·2 per cent. Purchases of £30 worth of bonds increased marginally, from 0·7 per cent. to 0·8 per cent., while sales of £40 units fell marginally from 0·7 per cent. to 0·6 per cent. Sales of £50 units of premium bonds also fell, from 5·7 per cent. to 5·2 per cent. However, across all those denominations there was an overall percentage increase. If the Government want to set the lower limit at a figure higher than £10, an appropriate sum would be £20, which is the point at which there has been a doubling of sales over the past five years. A £100 cut-off point can be viewed only in the context of a desire by the Government to cut costs.
An article in The Sunday Times of 26 June suggested that the Government are introducing the £100 cut-off point as they no longer need to borrow money through premium bond sales because they are receiving so much into the Exchequer from privatisation and other measures. But if we are to believe the Department for National Savings' annual report for 1987, people willing to invest sums averaging more than £1,000 in the hope of having a good run of tax-free prizes were targeted in a drive to increase investment, which included direct mail.
The evidence is that the Government are encouraging people with £1,000 or more to invest in premium bonds because the Government make a large profit from such investors, but that they do not want to be bothered with the ordinary investor, such as the pensioner who likes a little flutter. Such investors are not to be allowed freedom of choice, which is so vaunted an element in the Government's prospectus for the 1980s.
The Department for National Savings received a large number of complaints about the higher level of minimum purchase. I wonder whether the Minister is aware of the scale of that protest. All the evidence is that people of small means are happy to forgo any interest on their investment in the hope of making a tax-free capital gain from premium bonds. It is not too late for the Minister to think again and to make millions of people much more contented. When one considers the current state of the opinion polls, that aspect is not one which the Minister can ignore. I should not want to do anything that would help him politically, but there is widespread concern that millions of investors will be arbitrarily excluded by the £100 cut-off point, which has no economic or fiscal justification other than the Government's dislike of having to meet the cost of £2 per transaction unless an individual purchases at least £100 worth of premium bonds. I ask the Minister to consider small investors and to accept the new clause.
It is a fascinating commentary on the priorities of the Labour party that of all the areas of tax reform that might be thought important, when it comes to starting the Report stage of the Finance Bill, with the opportunity to instigate a major debate on tax reform, the Opposition's choice of subject is premium bonds. It is also a perverse comment on the House. Although the premium bond scheme is important, there are many more important areas of tax reform that the House ought to be debating.
I remind the hon. Gentleman that my right hon. and hon. Friends also tabled new clauses 1, 2 and 6, but they were ruled out of order. They dealt with very important matters concerning privatisation and the amounts that the taxpayer received as a result of sales of public assets. I would dearly have loved to participate in a debate on those new clauses, but they were not selected. Perhaps that is one of the problems about our rules of procedure.
The fact that those new clauses were not selected has nothing to do with me. They would have affected only a handful of companies. Surely most people are more keen to hear the Labour party's views about the aspects of tax reform that affect most taxpayers. For example, what does the Labour party think about the reform of income tax? We are not considering that. We are discussing the details of the premium bond scheme.
The hon. Member for Islington, South and Finsbury (Mr. Smith) advanced three arguments against the changes that the Government recently announced and which took effect from 1 July. First, he pointed out that the savings ratio had fallen substantially over the past few months. That has happened not so much because savings have diminished as because borrowings have increased. Of course, the savings ratio is a net figure.
The hon. Gentleman said that the only measure that the Government had advanced to encourage savings was an increase in the tax relief for personal equity plans. By far the most effective way of securing an improvement in the savings ratio is an increase in interest rates. We have had a substantial increase in interest rates, which has cut borrowing and encouraged savings. The idea that improved tax relief for PEPs has anything to do with encouraging saving is misconceived. The PEP scheme is about encouraging people to invest in equities. The chances are that there will not be great additional savings because of the tax relief for PEPs, but that because of the relief people will reorganise their investments to take advantage of it.
National savings, of which premium bonds form a small part, are part of the Government strategy to encourage an improvement in the savings ratio. It must be obvious that when the Government are running a large surplus they have rather less need than in previous years to have an attractive national savings package. For that reason, I certainly would not want an improvement in the interest paid on premium bonds. If people are content with the present interest rate, so be it. I agree with the hon. Member for Bridgend (Mr. Griffiths): I do not think that premium bonds are attractive and I, too, would not want to participate in that scheme.
Are premium bonds an investment? The hon. Member for Islington, South and Finsbury described them more than once as an investment. I can see that they are savings from the Government's point of view, because they contribute to national savings. Putting one's money into a premium bond is not my idea of an investment. The game was given away when the hon. Member for Islington, South and Finsbury described buying premium bonds as "having a flutter" and the hon. Member for Bridgend talked about a "type of flutter". That is how people see it.
One not only loses one's stake but gambles on whether one will get a return. If one has only one or two bonds, the chances of getting any return—[Interruption.] It is not an investment. If an investment adviser advised a person to put his money into premium bonds, he might well be guilty of failing to give best advice, as provided for in the Financial Services Act 1986. I am doubtful whether premium bonds are an investment at all, according to the standards by which I judge investments. The chances of getting a return are remote for the person who puts only a few pounds into premium bonds. All that happens is that he sees his pounds devalued by inflation over the years.
Secondly, the hon. Member for Islington, South and Finsbury said that he was worried about the effect of the changes on the small saver, and I understand that. I am not sure that we necessarily want to encourage people to undertake this form of saving. It is a bad investment. I doubt even whether it is a good gamble. It is the best gamble for the person who can afford to put in £10,000. Then one's chances of getting a monthly prize are 11 to 10 —there is nearly an even chance of getting a monthly prize. Over the year, on average, one will receive 10 or 11 prizes, the value of which will vary. Premium bonds are not a good bet for anyone, but they are a better bet for a large holder. For a small holder, they are not a good bet. Perhaps it would be better if we did not encourage people with small sums, which perhaps they cannot spare, to buy premium bonds.
Thirdly, the hon. Member for Islington, South and Finsbury made a point about the administration of national savings. The Government are right to be worried about those costs. I suggest that the Public Accounts Committee, of which the right hon. Member for Ashton-under-Lyne (Mr. Sheldon) is Chairman, might consider those administrative costs. The hon. Member for Islington, South and Finsbury said that some changes have been made recently. I suspect that they occurred because the cost of administering some small accounts did not justify their continuance. The Treasury is right to be concerned about the high administrative cost of small holdings.
We have heard that 1,300 staff are employed to administer the premium bond scheme, and that does not seem unreasonable, given that there are 20 million holders. We have been told that the costs of administration were 1.1 per cent. of the value of the bonds, which probably compares favourably with unit trusts in the private sector. The Public Accounts Committee could usefully consider that issue.
Whether £100 is the right level is a matter for judgment. Usually, in privatisation issues, the qualification level has been rather higher. However, it is true that when the premium bond scheme was introduced in 1957 one needed to buy only one £1 bond. Inflation may well have multiplied that by a factor of 10, but certainly not by a factor of 100.
Labour Members have not advanced sufficient arguments to warrant supporting the new clause. I intend to oppose it.
The hon. Member for Beaconsfield (Mr. Smith) said some very strange things. He said that the purpose of the Chancellor's improvements to the PEP scheme was not to attract more small savers and to broaden the number of savers. The Chancellor has said that it was indeed intended to extend saving. He has trumpeted the PEP scheme as an illustration of his desire to extend saving and to make it attractive to more people. It is against that background that we must judge this action by the Government as likely to have precisely the opposite effect and to discourage small savers. I am surprised at the hon. Gentleman for casting doubt on some of the Chancellor's motives behind his PEP proposals.
Then the hon. Member for Beaconsfield suggested that, because premium bonds are a poor investment, the only sensible thing to do is to put more, rather than less, money in: whereas the logic of the argument is that, if they are a poor investment, people should not be encouraged to put a great deal of money in them. If the Economic Secretary were to say to me, "I am thinking of putting £5 on a bet that England will win one test before this series is over," I might say to him, "As a mixture of patriotism and a long shot, perhaps you can consider it." If the hon. Gentleman were to say to me, "I will put £100 on the possibility that England will win one test before the series is over," I would tell him that that would be very foolish. The unwiseness of such a speculation would lead me to counsel a small investment only. Those who rightly argue that premium bonds are a pretty poor bet should be the last to suggest that the minimum investment required be increased.
If it is the essence of the Government's argument that premium bonds are not quality savings, there are a number of steps that they could take. They could, for example, allow people to invest much smaller sums and not tempt them to invest large sums. That is the purpose of the new clause, as it was the basis of our arguments in Committee. If it is a bad bet, with an underlying rate of interest of only just over 6 per cent., none of which may accrue to the investor because he might not win a prize, people should not be encouraged to make a high minimum investment.
The Government could take other steps. They could improve the underlying rate of interest, but there is no sign of their doing so because they realise that they are on to a good thing. They are charming a great deal of money out of a great number of people for a very low rate of interest, which most of the investors never even receive. That is a comfortable arrangement for the Government. Indeed, substantial parts of the private sector might wish that they could follow suit.
If the Government believe that investment in premium bonds is poor quality saving that should not be encouraged, they have another option: they could abandon it altogether. Because of the Government's high rate of return, they will not do that, but they could at least stop advertising it and stop sending out direct mail encouraging people to invest in it. The Government are indulging in rather curious double standards. They cannot both condemn the product and try hard to sell it. Indeed, they are trying to sell it more selectively. They cannot be bothered with a £5 minimum investment in premium bonds, but they want to open the door to the few people prepared to invest £10,000. That would allow the Government to offer the service for very little expenditure. They would have a comfortable return for a minimum of effort.
It is unfortunate that the Government's attitude to a £100 minimum investment in premium bonds is characteristic of their attitude to national savings in general. The £5 minimum deposit in a national savings account was a serious blow to those trying to encourage the habit of saving among young people. Many people simply cannot find £5 at one time. They want the opportunity to save regularly through small sums. The Government's attitude is spreading to all aspects of national savings. If they get away with this proposal, they will probably raise the minimum national savings deposit again and again and shut off many avenues for the smaller savers.
I certainly would not advise them to invest in premium bonds. However, as experience has shown that half the population wants to invest in premium bonds, it is not right to make the only way that they can do so be by investing large sums. They may not have very much money and they should be allowed to invest small sums. Indeed, gambling is least harmful when it is neither compulsive nor involves large proportions of an individual's income or disposable resources. The Government are moving in the opposite direction by making one of the forms of investment that comes closest to gambling available only to those prepared to invest large sums of money. They are closing the door against the small saver, and that is particularly unwise with premium bonds.
The hon. Member for Beaconsfield pointed out that the Government do not need to be worried about national savings because their requirements for funds are now significantly lower. The Government have the opposite to a funding problem; they have a budget surplus, so they do not need a great deal of national savings. The hon. Gentleman missed the point about savings. One of the arguments for saving at a time of high inflation, especially with the problems in the British economy during the past 12 months, is that savings divert from consumption. One of the pressures in the economy during the past year has been the consumption of imported goods in the domestic market. It is therefore sensible for the Government to encourage saving.
We want to press the Government on the whole issue of encouraging small savings. If large numbers of people who are not saving could be encouraged to do so, it would have a beneficial effect in the current economic circumstances. The arguments for national savings are not simply those of Government funding; they relate also to the general health of the economy. That applies not only to national savings but to all forms of private sector saving. It is currently in the public interest to encourage saving, even though the Government's need of funding is much less than it was when national savings were first introduced and some of the other savings devices were invented.
Premium bonds are not a good method of saving and I would not recommend them. The Government run the scheme and want to encourage people to participate in it, but only if they put up a large stake. It is little different from replacing a small stake slot machine in a public place with one in which the minimum stake is a very much larger coin—a £1 coin instead of a 20p coin. The likelihood is that that will encourage people to be less prudent when putting money into premium bonds. It is part of the Government's attitude towards small savers that must be changed for the good of the general health of the economy and the encouragement of more widespread saving.
I wish to begin by declaring a lack of interest. Having been a premium bond holder for many years, I have yet to win anything and, indeed, can no longer remember where I have put my bonds. That might tell the House something about my character that I prefer not to mention.
Premium bonds were introduced at a time when the Government of the day were searching for any idea that might knock up some savings and help with the national debt. Subsequently, many more sophisticated methods of savings have been developed, not only by the Government but by the private sector. There has been an incredible change in the way that building societies attract private savings. They use many techniques, such as saving on a regular basis correlated with save-as-you-earn option and share purchase schemes. Those techniques have enabled the small investor to put money aside regularly. They provide a much more interesting and, hopefully, fruitful form of investment than premium bonds have ever offered. The original objective of premium bonds, which was to enable the small investor to save simply, is no longer relevant because there are many other schemes through which the small investor can accumulate his savings.
The rate of return on premium bonds is difficult to calculate, so it is increasingly unlikely that they would be recommended by any prudent financial adviser—as my hon. Friend the Member for Beaconsfield (Mr. Smith) pointed out. As the savings market becomes more sophisticated, more and more small savers will be encouraged to put their money into schemes other than premium bonds and there will be a relative decline in interest. Indeed, the Government have introduced new techniques to encourage investment, such as through the employee share ownership schemes which feature largely in the Budget and which involve many workers putting aside sums of money to purchase shares in the companies for which they work.
Those who may not fall within the classic category of small investors are, nevertheless, keen to put aside relatively small sums, and for them the personal equity plans are both interesting and attractive. They answer the needs of small investors and there are major tax incentives for them to adopt those schemes.
Premium bonds are an outdated investment. It would be prudent for the Government to insist on a minimum purchase level because the scheme's administrative costs are high. It is counter-productive if the Government are losing £2 for every £10 subscribed in small units. It does not make sense for the Government to be that profligate on administrative costs. In addition, as I said earlier, if people wish to have the fun of a gamble, building societies and banks enable small savers to accumulate sufficient money o purchase a batch of bonds.
For all these reasons, the Government are right to consider having a minimum purchase level for premium bonds and the Opposition's new clause asking for more inquiries into the performance and administrative costs of premium bonds is unnecessary. It is accepted by hon. Members on both sides of the House that more people in Britain should save rather than consume and I hope that the Government will introduce more measures to encourage that trend. Future Finance Bills should contain even more incentives for people to put money into PEPs. There should be even more opportunities to reduce the administrative costs of PEPs.
Such schemes, along with employee share ownership, are sensible and desirable objectives for the Government. They should not continue to market premium bonds in small units, as they were originally marketed, which are no longer as attractive as they once were. I strongly support the Government's attempt to reform the area and I shall not support the new clause.
The contributions of the hon. Members for Beaconsfield (Mr. Smith) and for Esher (Mr. Taylor) are ample illustration of how out of touch Conservative Members are with the feelings of ordinary British people.
Let me at the outset declare an interest. I possess premium bonds—£17 worth of them. They have accumulated over the years but I have not won a sausage. I have never come anywhere near a prize. My mother-in-law has an even smaller holding and she has won two or three times, which shows that a big holding is not necessary in order to make a return.
We should lay the fallacy that premium bonds are a good investment for somebody who is well-to-do and a bad investment for somebody who is poor. As an investment they do not hold water. As a gamble, they do. The return on the money put in is in direct proportion to the number of units bought. The chance of a unit winning is the same whether one has 10,000 or 10. A person who increases his holding from 10 to 10,000 increases the risk 1,000-fold. A holder of a larger number of bonds is more likely to win a prize than the holder of a few, but only in proportion to the number held. Not only that, but inflation cuts into one's money. That is particularly true under this Government when the value of a £10,000 holding for a person who is not lucky enough to win a prize, which could well be the case, will drop by £800 this year, thanks to the Government's excellent economic policies.
The Economic Secretary wrote to me on the subject in June after I made representations to him on behalf of several constituents—not necessarily my supporters—who contacted me about the problem. His comments illustrate the Government's reaction to the scheme. He says:
Like all government departments, National Savings has to operate within a cash limit. So they regularly review their administrative costs to see if sensible economies can be made to make the business more efficient and less expensive to run. National Savings priorities are also affected by the fact that the government is no longer a borrower but is currently repaying debt. Consequently the main need for savings is to refinance borrowings which are due for repayment and to
improve the 'quality' of debt. High quality savings are those which people will retain for some time and cannot withdraw to spend at short notice without any financial penalty.
That illustrates some of the Minister's justifications for changing the scheme.
The Minister went on to say:
Each Premium Bond purchase costs National Savings nearly £2 (a significant portion of which is the fee payable to Girobank.)
The Public Accounts Committee could well look into that to see whether the Government are getting a good deal. The Minister goes on:
So small transactions are very unattractive when National Savings are economising on their running costs.
He goes on to raise the red herring of the average purchase price being over £150, but I grant that he does say that lower levels of purchases account for a far higher percentage of the total number of transactions which, as has been said, is well over 80 per cent. of the savings.
The Minister attempts to justify the increase in the minimum amount by acknowledging that there are those who may find saving up £100 beyond their reach, but he says that he wonders
whether people with only a small sum at their disposal would necessarily find Premium Bonds, which do not offer regular interest but only the chance of prizes, the best place to put their money.
That is the whole point. The person who buys premium bonds is not putting his money away in the expectation of seeing it grow; he is putting it away as a gamble with the hope that he will win a prize as a result. It is a form of gambling, fair enough, which has been legalised or institutionalised by successive Governments over the years. There is no question of the Government stopping it, so far as we know. They claim to be in favour of it in the same way as everyone else, so why debar 85 per cent. of those who purchase small quantities of premium bonds from doing so, turning the scheme into a rich man's club?
It is clear from the Minister's letter to me that he has no concern for the many small investors or gamblers who will be debarred from participation in what is, from the Government's point of view, an ideal savings scheme. After all, it is a long-term method of saving. Despite the fact that people can take their money out when they like, they do not. Like me, they have had premium bonds for as long as 20 years and have left them to gather dust in some corner of a drawer. That is what people do. They do not buy them and trade them in two of three weeks later.
From that point of view, premium bonds are a high quality form of saving. They carry an absurdly low interest rate, particularly under the Government's present inflationary policies which push their real rate of return down to an all-time low. Overall, the scheme is cheap to administer because the costs are one off at the time of purchase. There are no continuing costs of administering accounts as in other forms of saving. It would be much fairer if, when the Minister replies, he were to compare the total cost of administering the scheme with other forms of savings, rather than singling out one detail for comparison.
The Government should tell us what their ultimate intention is. Do they intend to keep the premium bond scheme going or not? Have they looked into alternative methods of purchase in order to reduce the initial cost? Have they compared the overall costs with other forms of national saving? Have they looked at other methods of discouraging early redemption or even charging a fee for the purchase of bonds, which people might well find an acceptable alternative to debarring them from purchasing them altogether? I suspect that the Government have not.
This is a small matter to those such as the hon. Member for Beaconsfield who have their airy-fairy heads in the clouds. They have no concern for the views of ordinary people and that is why the Government's popularity is sinking faster and faster, week by week. They have a callous disregard for what people think, and ultimately they will pay the penalty for it.
Like the hon. Member for Kirkcaldy (Dr. Moonie), I would cross the road to buy a premium bond. He and I are in the same league. I declare an interest because in about 1981 I bought myself about £10 worth of premium bonds. I have to disagree with my hon Friend the Member for Beaconsfield (Mr. Smith), because that was the best investment that I ever made. I have not won any prizes, but the pleasure that I have had from notionally spending my £250,000 is out of all proportion to the mere £10 that they cost me. I have calculated that, with my £10 worth of premium bonds, I can expect to win a prize within the next 116 years. If the Conservative party remains in government, health care will improve so much that by then I shall be a hale and hearty 152-year-old. I shall not regret that investment.
I bought £10 worth of bonds because that was the minimum investment at that time. If I were making the same decision today I should buy £100 worth. I would increase rather than reduce my saving. The hon. Member for Islington, South and Finsbury (Mr. Smith) mistook my intervention in his speech on that point, although I am sure that he did not do so deliberately. Some people will be unable to afford £100, although luckily, under this Government, they will be fewer than otherwise. Such people should consider whether they should invest in premium bonds in the first place. Perhaps they should consider more sensible investments which would bring them more money, if less imaginative pleasure.
The hon. Member for Berwick-upon-Tweed (Mr. Beith) made an extraordinary speech. He said that people with small savings should be advised not to buy premium bonds but that we should encourage them to buy bonds by making it as easy as possible. It is characteristic of his party, although not usually of him, to advise people both to do and not to do something in the same breath.
I am not sure that I understand that. The hon. Gentleman advises those with the least money to buy premium bonds. My advice to them is that if they are to make the savings that they should try to make, they should make a more sensible investment.
The hon. Gentleman should not ignore the costs of administering tiny holdings such as mine. It is uneconomic to administer my £10 investment. For the Government, mine is a bad investment. While the increase in the minimum investment to £100 is not overdue, it is justifiable and we should support the Government.
There has been a remarkable consensus in the House that premium bonds constitute a poor investment instrument. If our constituents read Hansard and take our investment advice seriously—which they should not, because we are not registered or competent investment advisers—and if they have any regard for the financial acumen of either major party, they will buy even fewer premium bonds.
At a time when interest rates are rising, the opportunity cost of holding premium bonds, as opposed to other instruments, increases, so logically still fewer people should hold still fewer premium bonds. As a result, it is fair to assume that premium bonds will account for an even lower proportion of total savings than at present. I share the surprise of my hon. Friends that the Opposition feel that it is worth putting so much emphasis on this tertiary issue, whether we are considering fiscal policy or aggregate savings and what can be done to increase them.
Several of my hon. Friends have made the interesting point that, like any other savings instrument, premium bonds have a fixed transaction cost. That cost is the same whether £100, £1,000 £100,000 or any other sum is invested. As it is a fixed cost, for relatively small sums it is a high proportion of the total amount being saved and for larger sums it is a smaller proportion of the total amount and may be insignificant.
Against that background, it is curious that the Opposition oppose the Government's new regulations which establish a minimum amount of £100 for any one investment in premium bonds. If the Government do not make such a regulation, the transaction cost on relatively small sums will be too high a percentage. For example, a transaction cost of £2 on an investment of £10 represents 20 per cent. of the investment. Even if the Government paid no premiums in the form of prizes, 20 per cent. of the sum that they received would go on the cost of registering the purchase of the bonds.
The essential point is that a fixed transaction cost can be a high proportion of the sum invested when the investment is small. The Government, that is to say the taxpayers, lose out because the cost of raising the money or attracting that proportion of national savings is high. The money does not go to the saver but is simply wasted on transaction costs.
It is extraordinary for a party that aspires to manage this country—heaven help us—to advocate a policy under which the Government and the taxpayers lose money in the course of promoting a particular savings scheme and the saver does not receive that money or enjoy a return on it. There is a high cost to the Government and a low return, and, therefore, a low inducement to save. That is not a rational policy for husbanding the nation's resources. I hope that the Opposition will have second thoughts about that policy and consider whether it is a sensible approach.
What can be done about premium bonds? Can any change usefully be made? Several hon. Members on both sides have suggested a possible answer to that question. Premium bonds are a curious hybrid instrument. They are neither a gambling instrument nor a savings instrument. They are not an effective savings instrument.
I have listened carefully to the hon. Gentleman. He has just made the extraordinary statement that premium bonds are neither a gambling nor a savings instrument. Surely they are both.
If the hon. Gentleman had listened he would have heard me say that they are neither an effective gambling instrument nor an effective savings instrument. I hope that the hon. Gentleman will not deny that I used the word effective in both contexts. They are an attempt at a savings and a gambling instrument, but they are not effective as either. They are not effective as a savings instrument because the return is not sufficiently high and, as I have already said, at a time of high interest rates the return is particularly unattractive. They will not attract more savings, and—as I have already pointed out—relatively low levels of individual unit investment will not make them very attractive to the Government either, because the transaction cost involved in their issue will be disproportionately high.
Premium bonds are not very effective on either the demand side or the supply side: they neither induce households to save nor attract funds into national savings in a way that is cost effective for the Government. Nor are they effective as a gambling instrument, because they are competing against all the other forms of gambling available to the consumer and are structured in such a way that investors do not lose their stake, which means that the potential reward is much lower. Those who gamble on roulette or the horses tend to think in terms of the sum that they will receive if they win. By definition, premium bonds can never compete.
I admit that I have made a very quick and rough calculation, but it would appear from the figures provided in the answer to which I referred earlier that the amount invested in premium bonds worth between £10 and £50 has increased slightly ahead of inflation over the past few years. That suggests that, at a time when savings have been going down, premium bonds have been a relatively successful way for the Government to raise money.
The hon. Gentleman should remember that interest rates, both real and nominal, have risen significantly during the past year, for reasons of which we are all aware and of which many of us entirely approve. I do not think that indices running over a number of years are necessarily relevant to a policy decision that must be made now.
I have tried to demonstrate—and I have not been contradicted on this point, although I have allowed a number of Opposition interventions—that premium bonds probably will not set the markets alight, in either the savings or the gambling sector. They are neither competitive nor a cost-effective way for the Government to raise money from small savers, even if small savers are likely to be induced to invest large sums in aggregate across the country.
What, then, should we do about premium bonds? I have no objection to their remaining, although I believe that, for the reasons that I have given—
I accept that, Mr. Deputy Speaker, but the point raised in the new clause about the minimum amount that is to be available for purchase at any one time itself raises the question whether premium bonds constitute an effective contribution to national savings. In the light of arguments produced this afternoon, I feel that it would be a good idea for both Government and Opposition to give some thought to whether an instrument could be devised that satisfied the gambling instincts of the British public —perhaps a kind of national lottery, in which the investor may lose his stake, but the return—
Order. I do not think that the hon. Gentleman heard me the first time. I repeat that we are discussing a narrow modification to the premium bond scheme, not gambling, lotteries or the premium bond scheme in general.
I hope that I have said enough to demonstrate that if the Opposition have any suggestions to make about the Government's new premium bond regulations—which, surely, can be assumed from their tabling the new clause—they should be thinking along rather different lines. That, surely, is a legitimate observation. The course on which they are embarked is not sensible; nor is it targeted towards either increasing savings or ensuring that a greater proportion of the potential consumer demand for gambling facilities is mobilised to the benefit of national savings and the Government's fiscal surplus. It is also not a very effective way of increasing the return to the small saver.
In my view, the new clause addresses none of those important and legitimate concerns. I should like to think that, before the end of the debate, the Opposition will give some thought to them, and consider making a more valuable contribution.
I have been tempted to speak by some of the remarks that I have just heard. We have been presented with what is probably the financier's approach to money—and monetary—matters. I have written to the Minister many times, enclosing letters that I have received which beg me not to allow the Government to change the present arrangements for premium bonds. Our new clause is concerned with the ordinary person's approach to how he should deal with money, how he should save and how he should encourage his children to save, which is probably more important.
I first came across premium bonds when I won £50 in a draw at work. If I had not bought £50 of premium bonds, I would have gone up the road and spent the money. It was very handy to be able to purchase premium bonds there and then, on a whim. I still have them. They were a very poor investment, without a shadow of a doubt: other forms of investment could have made a good deal more. Nevertheless, I had the choice and was entitled and able to deal with it. The increase in the minimum investment from £50 to £100 takes that choice away from many people.
Inflation is one of the reasons why it was a poor investment. The point is, however, that at the time it was a good one. Spending my potential winnings gave me a good deal of pleasure, because each month I was sure that it was my turn. That is why one-armed bandits make so much money; everyone lives in hope.
My son had considerable savings from his grandfather, who had two schemes. One was to buy a premium bond, and the other was to keep a savings book. Not only did he show my son two ways of saving money, but he encouraged him to save.
People who gamble do not buy premium bonds. However, the bonds allow grandfathers, such as my son's grandfather, to encourage their grandchildren to save in the manner that they think is best. That is important. The people who wrote to me said that they had very little money to pass on to their sons or grandsons but that they could teach them about the value of money in some shape or form.
No, because I know what the hon. Gentleman will say.
I agree that if we want value for money, we should encourage people to invest their money in other ways. However, that is what people have chosen to do. If I told my constituents how to spend their money they would tell me where to get off—and quite rightly so. Those who have written to me want to be able to purchase premium bonds in £10 units. Why should we take that right away from them? Why should we take away from people who genuinely want to purchase premium bonds in £10 units the opportunity to do so for their sons or grandsons, or even for themselves? The Treasury is using a hammer to crack a nut by taking away from people the opportunity to buy £10 premium bonds. The Government should think again.
No. To give the hon. Gentleman his due, financially his arguments are right but morally he is wrong. The Government are saying to ordinary people, "We shall tell you where to put your money." I would not have the arrogance or the cheek to tell people what they should do with their money.
On a point of order, Mr. Deputy Speaker. I have not been a Member of Parliament all that long, but am I not right in thinking that a convention of the House is that when one hon. Member refers persistently and critically to another hon. Member he should allow the hon. Member to whom he has referred to reply?
If I sat down whenever I criticised or was sarcastic about Conservative Members, I should not be on my feet for very long.
The hon. Member for Stamford and Spalding (Mr. Davies) is right as regards finance but morally he is wrong as regards the attitude that is being taken towards the £10 premium bond. We want to give little people the chance to do exactly what they want. However, the Government are steamrollering them into the ground. All that they want to do is to buy £10 premium bonds.
Have you ever had the feeling, Mr. Deputy Speaker, of being harassed? I feel that I am being harassed and steamrollered. About 25,000 people sent me here to represent them and to act as the voice of ordinary people. I shall continue to do that. Small savers in my constituency have asked me to put their point of view, and I intend to do so. The Government ought to have more on their mind than worries about the £10 premium bond.
This has been a fascinating debate, not least because, as my hon. Friend the Member for Beaconsfield (Mr. Smith) pointed out, it has told us about the Opposition's priorities and the general satisfaction that they manifestly felt for the bulk of the contents of the Finance Bill. That is why they have given priority to the precise means by which we make announcements about changes to the value of premium bonds.
The hon. Member for Islington, South and Finsbury (Mr. Smith) began his speech in a statesmanlike fashion by spelling out the history of premium bonds. I shall not, therefore, have to repeat it now, although it may be necessary later to recapitulate their history. The present position has scarcely been mentioned by the Opposition Front Bench spokesman—that the Government are repaying debt rather than borrowing, net, from the public. In such circumstances, it is appropriate for the Government to reconsider their public finance priorities.
Our national savings priorities should be to improve the quality of the borrowing and the way in which we finance debt. That means relying increasingly, where we can, on committed long-term savings rather than on extremely liquid instruments that can instantly be withdrawn, or withdrawn at little cost or loss to the saver, and that therefore are more likely to increase the liquidity of the economy and the level of consumer spending in the economy.
If the Economic Secretary is worried about the instant withdrawal of premium bond holdings during the last 20 years, is he able to say whether the pattern has fluctuated during that period?
I cannot do that. However, £300 million was put into premium bonds last year and £134 million was withdrawn. As well as coming in, money goes out. Every premium bond holder has a legal right instantly to withdraw his money. That is what determines the quality of the saving. One can never be sure that the money will not be withdrawn in certain circumstances in large amounts by large numbers of people.
I regret that 1 am unable to give that information to the hon. Gentleman. If I find any interesting information during the debate, I shall pass it on to him.
It cannot be disputed that instant access can be had to this money. That has always been a feature of premium bonds and the advertisements refer to it. That must be one of the attractions of premium bonds. A considerable number of people have had small quantities of premium bonds given to them, or have bought small quantities, and have then lost the certificates. We cannot base Government finances on the hope that people will lose their certificates.
My hon. Friend says that money is put into and goes out of premium bonds at short intervals. Is he able to tell me the average length of holding of a premium bond? I presume that he is basing much of his argument on the volatility of this form of saving to justify his case.
I am sorry that if during the brief period that I have been speaking I have already managed to mislead my hon. Friend. 1 have not said that it is highly volatile. I have said that it is highly liquid, in that everyone has the right to withdraw his money, a right that is not enjoyed with certain other assets. In the management of the Government's debt we are particularly concentrating on encouraging an increasing amount of money to be permanently, or at least for the longer term, committed to savings rather than to easy and ready access. We are not basing it on a particular analysis of the statistical habits of savers. Experience shows that, although money can apparently be stuck in particular forms of saving for quite a long time, there can be considerable outflows in general extension rate money. Our first priority is to improve the quality of the Government's debt. The second must be to reduce the costs. As a number of hon. Members, including my hon. Friend the Member for Stamford and Spalding (Mr. Davies), have pointed out, it costs about £2 per transaction, regardless of the amount of money that is put into premium bonds. Consequently, that must be taken into account when considering the minimum amount that people should be permitted to invest or save in that form.
I have said in the past that only some 12 per cent. of the money raised is in amounts of £ 100 or less. The Opposition have made great play of that and have suggested that I was trying to cover up the fact that about 80 per cent. of the number of deposits is in sums of less than £100. But that is precisely the point. The cost is roughly the same whatever the amount, so 80 per cent. of the cost raises only 12 per cent. of the money. That should not pass without notice by the Department for National Savings and we have duly taken it into account in reaching the decision to raise the minimum amount that anyone can invest in National Savings.
The hon. Member for Islington, South and Finsbury asked whether administrative costs overall were very low. He gave the figure of some 1.1 per cent. of the gross amount invested in premium bonds as the costs every year. That figure is roughly correct, but it is 1.1 per cent. of the total stock invested, not of the amount going in each year. He mentioned the 1,300 staff employed by the Department for National Savings, but quite a lot of additional staff accounting for quite a lot of the costs are employed by Girobank, providing the transaction facilities which represent a high proportion of the total estimated cost of some £2 per investment. The hon. Gentleman also suggested that the 1·1 per cent. was low compared with unit trusts and other investment media. It strikes me as a not abnormal figure for managing investments. I have seen higher and lower in the private sector. It is only right that the Department for National Savings should be seeking constantly to minimise its costs consistent with providing a decent and fair service.
The hon. Member for Kirkcaldy (Dr. Moonie) asked me to give a comparison of the administrative costs of national savings products. I happily do so. The costs for ordinary accounts are on the high side—about 3 per cent. of the amount invested every year. On the other hand, the costs for savings certificates are at the low end of the scale —only about 0·5 per cent.—and likewise for income bonds. The figure for premium bonds is 1·1 per cent. and for investment accounts it is roughly 2 per cent. So premium bonds are roughly in the middle of the spectrum of the Department for National Savings' costs.
There are plenty of opportunities available to small savers to save their money instead of premium bonds if they do not wish to accumulate £100 before putting money into premium bonds. Those opportunities are provided by the Department for National Savings and in the private sector. There are opportunities for a higher yield, less risk and a better quality in other Department for National Savings products. To mention just one within the Department for National Savings' range of products, amounts as small as £5 can be deposited in investment accounts where the gross rate of interest is 10·75 per cent. There are similar opportunities in building societies, Girobank and so on.
Why do the Opposition believe that there should be made available to small savers in particular a form of savings which is risky, which they have described as gambling or a flutter, when Parliament, in its wisdom, has always seen fit to forbid the private sector to provide any comparable product?
We have thought it wrong that any private hank, building society or other institution should make available to the general public—large or small investor—any opportunity to invest their money and flutter in the interest that money yields. Are the Opposition demanding that that parliamentary restriction, that prohibition on gambling in interest and offering forms of saving and investment where the investor gambles on whether he will receive any interest, should be available in the private sector? Are they asking us to liberalise the private sector to increase those opportunities? I give way to the hon. Member for Islington, South and Finsbury, if he wishes to reply, before giving way to his more daring colleague.
I shall not comment on Barlow Clowes, but we go to great lengths to ensure the safety of individuals' investments in the private sector. Hon. Members on both sides of the House would wish that to continue. We do not want unnecessary and unwarranted risks to be run by large or small investors, but I still await an answer to my straight question. If it is such a good thing, why do the Opposition still support the parliamentary prohibition on anyone in the private sector offering that facility to replace the element of it which is being withdrawn by the public sector? I have received no reply, so I must note the inconsistency in the Opposition's argument.
My hon. Friend has set out a sensible case in the most compelling fashion. Does he agree that it is surprising to hear the Opposition advancing specifically the view that financial rationality is fine and desirable when applied to the investments and portfolios of large investors, but somehow does not apply to the small guy? It is particularly shocking to hear that line of argument advanced by what used to be regarded as the party of the people.
My hon. Friend is absolutely right, although I am not quite sure that any of us thought of the Opposition as the party of the people. They have demonstrated a lack of concern in putting forward that argument today about the security, safety, riskiness and yield of small savings by the least well-off savers with the least amount of money available to put at risk.
The prospect of not getting any return on one's money—that is insecure, and it is the very nature of the asset.
That brings me to risk. In Committee I enunciated with no great clarity the law of large numbers, as I termed it and thought that it was generally known, to the effect that if one invests a lot of money in a risky product such as premium bonds the likely yield has less deviation from the average than if one invests only a small amount. That was disputed by several Opposition Members. My hon. Friend the Member for Beaconsfield stated the position extremely clearly, both in the beginning of his speech, when he put it pithily, and in the numerical examples that he gave of how a large investor will receive a regular series of returns whereas a small investor may receive nothing or a large amount.
The Minister is still missing the point on premium bonds. The majority of people I know who have premium bonds bought for them or who buy them themselves only keep them for a short period. Even if they have not won and accepting that they have lost interest, they receive a lump sum which they can invest somewhere else. That is the magic of it. That is what people were encouraged to do.
I will not dispute for an instant what the hon. Gentleman says, although he has blown a torpedo through the point that his hon. Friends were making because they said that the money was never withdrawn or was held for a long period. He is saying that in his and his constituents' experiences the money is withdrawn after a short period.
The Minister cannot tell us whether bonds are held for a long period or not because he does not have that information. However, let us go back to the mythical law of large numbers. I stated clearly that no statistician would disagree that the more bonds held, the greater the chance of winning. However, the amount added for each additional bond is the same. There is no magical way in which the probability increases geometrically with a larger holding.
The hon. Gentleman referred to the mythical law of large numbers and I saw his hon. Friend the Member for Wrexham (Dr. Marek), who is a distinguished mathematician and probably more so than any other hon. Member in the Chamber and certainly more so than myself, flinch at that reference. The law of large numbers is not a political law in dispute in the House, but part of the way creation has been made. If one has £10,000, the average return each year will differ from the 6+ per cent. average across all premium bonds. The deviation from that average will be smaller than for the little chap who has only £10 or £100. That is the point I was making. If one has only £10, it is all or nothing. For many years there is no return at all, but after 116 years my hon. Friend the Member for Wanstead and Woodford (Mr. Arbuthnot) is confident of getting a return. That is what I call a high degree of risk. My hon. Friend may die before then, although I have equal confidence with him in the ability of the National Health Service to keep him alive for that time. My hon. Friend the Member for Beaconsfield made it clear that if one has £10,000 one can expect a prize most months, so the return most years will average roughly 6 per cent. One would not have to wait 150 years before seeing that average achieved.
That is the reason why we do not think that it is a form of investment for the very small investor, investing small amounts which may represent quite a high proportion of savings, that we should go out of our way to encourage and facilitate even to the extent of implicitly subsidising small investors. Those investors are imposing the greatest costs on the system. We do not, therefore, find the Opposition's argument convincing.
The hon. Member for Berwick-upon-Tweed (Mr. Beith) asked why, if premium bonds were such a bad investment, we encouraged people to do more rather than less of such saving. At first sight, he has posed a convincing little paradox. However, there are two points to take into account. First, the return to different investors depends on their tax position. The person who pays no tax will receive only 6½ per cent. on average over the investment, which is the pool that is put aside. Obviously, such an investor could receive more if he invested in a gross product—such as investment bonds which, as I mentioned, provide 10¾ per cent. and on which he would pay no tax. A basic rate taxpayer would get that amount less 25 per cent., which is still more than premium bonds provide. For high rate taxpayers, after paying 40 per cent., 6½ per cent. is not too bad a return. For the high yield taxpayers, it is more attractive—that is why we put an upper limit of ·10,000 on the amount put in. We should not make unlimited tax-free investment opportunities available to the higher rate taxpayer. For the basic and higher rate taxpayers, premium bonds are more attractive than for non-taxpayers and, typically, non-taxpayers are able to put in only very small amounts.
Secondly, the risk in large numbers is less, as I have already said. Anyone putting in a reasonably large amount receives a more guaranteed average amount back over a period of years than a person who puts in a little. The large investor, of course, is better able to look after himself and less a matter of concern for Government than the small, least sophisticated investors. That is why we are happy to let the bigger investors, who make a reasonable return at reduced risk and at lowest cost to the Government, put in money, rather than encouraging small investors, who are making an inadequate return in respect of their tax position. running a higher risk and imposing the greatest cost on Government. That is a consistent view.
One issue raised in the course of general discussion in the country as a whole is whether we are impeding syndicates from operating and preventing groups of people getting together, as it appears that they have done in various parts of the country, to put in £1 or £10 per week, pooling the risk and sharing the prizes. The Department for National Savings has never given any recognition to unofficial syndicates and makes it clear to any who inquire about running a syndicate that it recognises only the registered holder of the bonds—the individual in whose name they are bought—as sole owner. Nevertheless, the department is well aware that many such syndicates exist and it has never prevented individuals from buying premium bonds on a syndicate's behalf. If members of syndicates are keen to continue to buy premium bonds, I can only suggest that they save up to £100 for each purchase, but for many syndicates that would mean making less frequent purchases, although they could continue to operate.
The Opposition also made an important point about encouraging savings. They said that surely it was important to encourage saving and that surely we wanted to see more personal saving in the economy as a whole. We do indeed, but we are in the happy position where it is not the Government who need to borrow those savings. We want to see savings available to finance the investment boom that industry is currently enjoying. That is why in the Budget my right hon. Friend the Chancellor of the Exchequer concentrated his fiscal incentives on improving the private equity plans to encourage savers to put savings directly into investments in British industry. That is where such savings are needed, as my hon. Friend the Member for Esher (Mr. Taylor) pointed out. We need savings, yes —but Government borrowing, no.
If the Government were to boost the amount put into premium bonds, given their requirement to run up a public sector debt repayment of some £14 billion this year, the more they draw in from there, the more they would have to repay of other forms of saving. It would be absurd for us to encourage a lower quality of saving only to find ourselves forced to repay higher quality forms of saving. That cannot be right and would not be sensible. I cannot think that the Opposition have thought the matter through.
The Opposition's attitude to premium bonds has changed dramatically. When the scheme was first introduced, back in 1956, the then Leader of the Labour party, who is now Lord Wilson of Huyton, talked of Britain's strength, freedom and solvency depending on the proceeds of a squalid raffle. James Simmons said that the Labour party had been built up by appeals to the ideals and high aspirations of our people, and that premium bonds were the very opposite of the Socialist principle of putting service before self. Premium bonds were described as a cheapjack idea, and the Chancellor was urged by Dr. Horace King to reconsider.
I apologise to the House for my two errors. However, Lord Wilson of Rievaulx was wrong far more frequently than I have ever been, and his views as expressed then were in conflict with the views of the Opposition today. I can only suggest that the hon. Member for Islington, South and Finsbury (Mr. Smith) explains this great volte face and tells us why what was described as "a squalid raffle" is now so important that it should be made available to those who are the least well-off, the least sophisticated, have the least tax advantage in taking part and who cost most to the Exchequer if they invest their funds in this way. I cannot believe that there is a satisfactory answer to these questions and I therefore ask the House to reject the new clause.
Nothing could demonstrate more clearly Conservative Members' sense of priorities and the sort of world in which they live than the remarks of the hon. Member for Beaconsfield (Mr. Smith), who said that this was a small and trivial matter, and of the hon. Member for Stamford and Spalding (Mr. Davies), who said that this was a tertiary issue. We are talking about a matter that is of interest to the 24 million holders of premium bonds. This matter is far more important to most of them than the entire contents of the rest of the Finance Bill put together. If the hon. Member for Stamford and Spalding wants to find tertiary issues, he need only open the Bill at virtually any page. He will find tertiary issues aplenty in clause after clause of a Bill that is largely composed of such issues. Premium bonds are not a tertiary issue for the many hundreds of thousands of people who are extremely concerned about their future ability to buy premium bonds in quantities that they can afford.
That is the issue at stake in the new clause and Opposition Members make no apologies for introducing it because it deals with a matter of great concern to many ordinary people who have never been, who never will be and who never aspire to be directors of Morgan Grenfell but who are concerned about their ability to do what they want with their money. Those are the people for whom we speak and it is on their behalf that we have tabled the new clause.
We are talking about individuals' ability to choose what to do with their savings. That is the issue at stake, and I shall amplify that in a moment.
I want to deal with the points of substance that the Economic Secretary raised. I strongly disagree with him about syndicates. Many people get together in informal clubs—usually at the workplace—to contribute a small amount each week towards the joint purchase of premium bonds which are then allocated to the individuals in the club or syndicate. That is a common form of saving and it is very popular. The change that the Government are making acts powerfully against those people's interests, because at a contribution of, say, £1 a week it will now take a long time for each member of such as syndicate to be entitled to receive a premium bond for his weekly contribution. What is possible now on a relatively short timescale will become much more difficult and take much longer in future.
The principal argument that the Economic Secretary advanced was that he wanted to increase the quality of the Government's debt. He said that the important thing was for the Government to rely for their finances on long-term savings and on money that could not be withdrawn instantly. Yet when we challenged the Economic Secretary about the pattern of withdrawals and accruals to the premium bond account over a period he was unable to give us an answer about the long-term flow and long-term stability of premium bond funds. That is the key. Of course, potentially, premium bonds can be withdrawn instantly. Potentially, every single premium bond held could be withdrawn tomorrow if the holders of premium bonds so wished. But that has never happened and it is very unlikely to happen. It is by the overall pattern over a period that we must judge the stability of the financing available to the Government through this form of savings.
The Economic Secretary also said that there were plenty of other opportunities available to small savers and that by removing the possibility of purchasing premium bonds in relatively small amounts the Government were not removing the possibility of other forms of saving, which the Economic Secretary said, somewhat implausibly, provided a higher yield with less risk. Of course, other forms of small saving present less of a risk, but the potential yield from a premium bond investment—especially the yield from a small premium bond investment —is very great. That is precisely why many people want to purchase premium bonds even if it is only on a small scale.
My hon. Friend the Member for Kirkcaldy (Dr. Moonie) spoke about his mother-in-law, who he said had won two or three times on a holding of less than £17. My hon. Friend described precisely the sort of opportunity of which those who purchase premium bonds seek to avail themselves. People do not purchase premium bonds because they know that they will get a regular return. They do so because they believe that they might, at some stage in the future, turn lucky and win big. That is why people want to save by means of premium bond purchases. The opportunity—the potential—that premium bonds offer them is completely different from that offered by other more regular and more guaranteed forms of saving.
By introducing the change, the Government are removing that opportunity from small savers. The Government are fond of lecturing us about choice and the need for customers to be able to decide for themselves what to do with their money. Here is an opportunity for the Government to allow people who do not have £100 to invest in premium bonds but who want to purchase some none the less because of the opportunity that it gives them to do so. Here is the Government's chance to restore the position that they changed on 1 July and make available to small savers the chance to buy premium bonds in the way that they wish. The Government have removed that opportunity from them. We wish to restore it to them.
|Division No. 292]||[6.39 pm|
|Abbott, Ms Diane||Grant, Bernie (Tottenham)|
|Adams, Allen (Paisley N)||Griffiths, Nigel (Edinburgh S)|
|Alton, David||Griffiths, Win (Bridgend)|
|Anderson, Donald||Grocott, Bruce|
|Archer, Rt Hon Peter||Hardy, Peter|
|Armstrong, Hilary||Harman, Ms Harriet|
|Ashdown, Rt Hon Paddy||Haynes, Frank|
|Ashton, Joe||Heffer, Eric S.|
|Banks, Tony (Newham NW)||Hinchliffe, David|
|Barnes, Harry (Derbyshire NE)||Hoey, Ms Kate (Vauxhall)|
|Barnes, Mrs Rosie (Greenwich)||Home Robertson, John|
|Barron, Kevin||Hood, Jimmy|
|Battle, John||Howarth, George (Knowsley N)|
|Beckett, Margaret||Howell, Rt Hon D. (S'heath)|
|Beith, A. J.||Howells, Geraint|
|Benn, Rt Hon Tony||Hoyle, Doug|
|Bennett, A. F. (D'nfn &R'dish)||Hughes, John (Coventry NE)|
|Bermingham, Gerald||Hughes, Robert (Aberdeen N)|
|Bidwell, Sydney||Hughes, Roy (Newport E)|
|Blair, Tony||Illsley, Eric|
|Blunkett, David||Ingram, Adam|
|Boyes, Roland||Janner, Greville|
|Bray, Dr Jeremy||Jones, Barry (Alyn &Deeside)|
|Brown, Gordon (D'mline E)||Jones, leuan (Ynys Môn)|
|Brown, Nicholas (Newcastle E)||Jones, Martyn (Clwyd S W)|
|Brown, Ron (Edinburgh Leith)||Kaufman, Rt Hon Gerald|
|Buckley, George J.||Kinnock, Rt Hon Neil|
|Caborn, Richard||Kirkwood, Archy|
|Callaghan, Jim||Lambie, David|
|Campbell, Menzies (Fife NE)||Lamond, James|
|Campbell, Ron (Blyth Valley)||Leadbitter, Ted|
|Campbell-Savours, D. N.||Lestor, Joan (Eccles)|
|Canavan, Dennis||Livsey, Richard|
|Cartwright, John||Lloyd, Tony (Stretford)|
|Clark, Dr David (S Shields)||Lofthouse, Geoffrey|
|Clarke, Tom (Monklands W)||McAllion, John|
|Clay, Bob||McAvoy, Thomas|
|Clelland, David||McCartney, Ian|
|Clwyd, Mrs Ann||McFall, John|
|Coleman, Donald||McKay, Allen (Barnsley West)|
|Cook, Robin (Livingston)||McKelvey, William|
|Cousins, Jim||McLeish, Henry|
|Cox, Tom||McNamara, Kevin|
|Cryer, Bob||Madden, Max|
|Cummings, John||Mahon, Mrs Alice|
|Cunningham, Dr John||Marek, Dr John|
|Dalyell, Tam||Marshall, David (Shettleston)|
|Darling, Alistair||Marshall, Jim (Leicester S)|
|Davies, Rt Hon Denzil (Llanelli)||Martin, Michael J. (Springburn)|
|Davies, Ron (Caerphilly)||Martlew, Eric|
|Davis, Terry (B'ham Hodge H'I)||Maxton, John|
|Dewar, Donald||Meacher, Michael|
|Dixon, Don||Meale, Alan|
|Dobson, Frank||Michael, Alun|
|Doran, Frank||Michie, Bill (Sheffield Heeley)|
|Dunwoody, Hon Mrs Gwyneth||Michie, Mrs Ray (Arg'l &Bute)|
|Eadie, Alexander||Moonie, Dr Lewis|
|Eastham, Ken||Morgan, Rhodri|
|Ewing, Harry (Falkirk E)||Morley, Elliott|
|Ewing, Mrs Margaret (Moray)||Morris, Rt Hon A. (W'shawe)|
|Fatchett, Derek||Morris, Rt Hon J. (Aberavon)|
|Fearn, Ronald||Mowlam, Marjorie|
|Field, Frank (Birkenhead)||Mullin, Chris|
|Flannery, Martin||Murphy, Paul|
|Flynn, Paul||Oakes, Rt Hon Gordon|
|Foot, Rt Hon Michael||O'Brien, William|
|Foster, Derek||O'Neill, Martin|
|Foulkes, George||Orme, Rt Hon Stanley|
|Fyfe, Maria||Owen, Rt Hon Dr David|
|Galbraith, Sam||Patchett, Terry|
|Garrett, John (Norwich South)||Pendry, Tom|
|Godman, Dr Norman A.||Pike, Peter L.|
|Golding, Mrs Llin||Powell, Ray (Ogmore)|
|Gordon, Mildred||Prescott, John|
|Gould, Bryan||Primarolo, Dawn|
|Graham, Thomas||Quin, Ms Joyce|
|Radice, Giles||Spearing, Nigel|
|Randall, Stuart||Steinberg, Gerry|
|Redmond, Martin||Stott, Roger|
|Rees, Rt Hon Merlyn||Straw, Jack|
|Reid, Dr John||Taylor, Mrs Ann (Dewsbury)|
|Richardson, Jo||Thompson, Jack (Wansbeck)|
|Roberts, Allan (Bootle)||Turner, Dennis|
|Robertson, George||Vaz, Keith|
|Robinson, Geoffrey||Wall, Pat|
|Rogers, Allan||Wallace, James|
|Rooker, Jeff||Wareing, Robert N.|
|Ross, Ernie (Dundee W)||Watson, Mike (Glasgow, C)|
|Rowlands, Ted||Williams, Alan W. (Carm'then)|
|Ruddock, Joan||Wilson, Brian|
|Sedgemore, Brian||Winnick, David|
|Sheldon, Rt Hon Robert||Wise, Mrs Audrey|
|Shore, Rt Hon Peter||Worthington, Tony|
|Short, Clare||Wray, Jimmy|
|Skinner, Dennis||Young, David (Bolton SE)|
|Smith, Andrew (Oxford E)|
|Smith, C. (Isl'ton & F'bury)||Tellers for the Ayes:|
|Smith, Rt Hon J. (Monk'ds E)||Mr. Frank Cook and|
|Smith, J. P. (Vale of Glam)||Mr. Jimmy Dunachie.|
|Adley, Robert||Clark, Sir W. (Croydon S)|
|Aitken, Jonathan||Clarke, Rt Hon K. (Rushcliffe)|
|Alexander, Richard||Colvin, Michael|
|Alison, Rt Hon Michael||Conway, Derek|
|Allason, Rupert||Coombs, Anthony (Wyre F'rest)|
|Amess, David||Coombs, Simon (Swindon)|
|Amos, Alan||Couchman, James|
|Arbuthnot, James||Cran, James|
|Arnold, Jacques (Gravesham)||Critchley, Julian|
|Ashby, David||Currie, Mrs Edwina|
|Aspinwall, Jack||Curry, David|
|Atkins, Robert||Davies, Q. (Stamf'd & Spald'g)|
|Atkinson, David||Davis, David (Boothferry)|
|Baker, Nicholas (Dorset N)||Day, Stephen|
|Batiste, Spencer||Devlin, Tim|
|Beaumont-Dark, Anthony||Dicks, Terry|
|Bellingham, Henry||Dorrell, Stephen|
|Bevan, David Gilroy||Douglas-Hamilton, Lord James|
|Biffen, Rt Hon John||Dover, Den|
|Blaker, Rt Hon Sir Peter||Dunn, Bob|
|Body, Sir Richard||Durant, Tony|
|Boscawen, Hon Robert||Evans, David (Welwyn Hatf'd)|
|Boswell, Tim||Evennett, David|
|Bottomley, Peter||Fairbairn, Sir Nicholas|
|Bottomley, Mrs Virginia||Fallon, Michael|
|Bowden, A (Brighton K'pto'n)||Favell, Tony|
|Bowden, Gerald (Dulwich)||Fenner, Dame Peggy|
|Bowis, John||Field, Barry (Isle of Wight)|
|Boyson, Rt Hon Dr Sir Rhodes||Fishburn, John Dudley|
|Braine, Rt Hon Sir Bernard||Fookes, Dame Janet|
|Brandon-Bravo, Martin||Forman, Nigel|
|Brazier, Julian||Forsyth, Michael (Stirling)|
|Bright, Graham||Forth, Eric|
|Brown, Michael (Brigg & Cl't's)||Fowler, Rt Hon Norman|
|Browne, John (Winchester)||Fox, Sir Marcus|
|Bruce, Ian (Dorset South)||Franks, Cecil|
|Buck, Sir Antony||Freeman, Roger|
|Budgen, Nicholas||French, Douglas|
|Burns, Simon||Fry, Peter|
|Burt, Alistair||Gale, Roger|
|Butcher, John||Gardiner, George|
|Butler, Chris||Garel-Jones, Tristan|
|Carlisle, John, (Luton N)||Gill, Christopher|
|Carlisle, Kenneth (Lincoln)||Glyn, Dr Alan|
|Carrington, Matthew||Goodhart, Sir Philip|
|Carttiss, Michael||Goodlad, Alastair|
|Cash, William||Gow, Ian|
|Chalker, Rt Hon Mrs Lynda||Grant, Sir Anthony (CambsSW)|
|Channon, Rt Hon Paul||Greenway, Harry (Ealing N)|
|Chapman, Sydney||Greenway, John (Ryedale)|
|Chope, Christopher||Gregory, Conal|
|Churchill, Mr||Griffiths, Sir Eldon (Bury St E')|
|Clark, Hon Alan (Plym'th S'n)||Griffiths, Peter (Portsmouth N)|
|Clark, Dr Michael (Rochford)||Gummer, Rt Hon John Selwyn|
|Hague, William||Monro, Sir Hector|
|Hamilton, Hon Archie (Epsom)||Moore, Rt Hon John|
|Hamilton, Neil (Tatton)||Morris, M (N'hampton S)|
|Hannam, John||Morrison, Sir Charles|
|Hargreaves, A. (B'ham H'll Gr')||Morrison, Rt Hon P (Chester)|
|Hargreaves, Ken (Hyndburn)||Moynihan, Hon Colin|
|Harris, David||Mudd, David|
|Haselhurst, Alan||Neale, Gerrard|
|Hawkins, Christopher||Neubert, Michael|
|Hayes, Jerry||Nicholls, Patrick|
|Hayward, Robert||Nicholson, David (Taunton)|
|Heathcoat-Amory, David||Nicholson, Emma (Devon West)|
|Heddle, John||Norris, Steve|
|Hicks, Robert (Cornwall SE)||Onslow, Rt Hon Cranley|
|Hill, James||Oppenheim, Phillip|
|Hind, Kenneth||Page, Richard|
|Hogg, Hon Douglas (Gr'th'm)||Paice, James|
|Hordern, Sir Peter||Patnick, Irvine|
|Howard, Michael||Patten, John (Oxford W)|
|Howarth, G. (Cannock & B'wd)||Pattie, Rt Hon Sir Geoffrey|
|Howell, Rt Hon David (G'dford)||Pawsey, James|
|Hughes, Robert G. (Harrow W)||Peacock, Mrs Elizabeth|
|Hunt, David (Wirral W)||Porter, Barry (Wirral S)|
|Hunt, Sir John (Ravensbourne)||Porter, David (Waveney)|
|Irvine, Michael||Powell, William (Corby)|
|Irving, Charles||Price, Sir David|
|Jack, Michael||Raffan, Keith|
|Jackson, Robert||Raison, Rt Hon Timothy|
|Janman, Tim||Redwood, John|
|Jessel, Toby||Riddick, Graham|
|Johnson Smith, Sir Geoffrey||Rost, Peter|
|Jones, Gwilym (Cardiff N)||Sackville, Hon Tom|
|Jones, Robert B (Herts W)||Shaw, David (Dover)|
|Jopling, Rt Hon Michael||Shaw, Sir Giles (Pudsey)|
|Kellett-Bowman, Dame Elaine||Shelton, Sir William|
|Key, Robert||Shephard, Mrs G. (Norfolk SW)|
|Kilfedder, James||Shepherd. Colin (Hereford)|
|King, Roger (B'ham N'thfield)||Skeet, Sir Trevor|
|Knapman, Roger||Smith, Sir Dudley (Warwick)|
|Knight, Greg (Derby North)||Smith, Tim (Beaconsfield)|
|Knowles, Michael||Speller, Tony|
|Knox, David||Stanley, Rt Hon Sir John|
|Lamont, Rt Hon Norman||Stevens, Lewis|
|Lang, Ian||Stewart, Andy (Sherwood)|
|Latham, Michael||Stradling Thomas, Sir John|
|Lawrence, Ivan||Sumberg, David|
|Lawson, Rt Hon Nigel||Taylor, Ian (Esher)|
|Lee, John (Pendle)||Taylor, John M (Solihull)|
|Leigh, Edward (Gainsbor'gh)||Taylor, Teddy (S'end E)|
|Lester, Jim (Broxtowe)||Thompson, D. (Calder Valley)|
|Lightbown, David||Thompson, Patrick (Norwich N)|
|Lilley, Peter||Thome, Neil|
|Lloyd, Sir Ian (Havant)||Thornton, Malcolm|
|Lloyd, Peter (Fareham)||Townend, John (Bridlington)|
|Lord, Michael||Townsend, Cyril D. (B'heath)|
|Luce, Rt Hon Richard||Tracey, Richard|
|Macfarlane, Sir Neil||Tredinnick, David|
|MacKay, Andrew (E Berkshire)||Trippier, David|
|McLoughlin, Patrick||Trotter, Neville|
|McNair-Wilson, Sir Michael||Twinn, Dr Ian|
|McNair-Wilson, Sir Patrick||Vaughan, Sir Gerard|
|Madel, David||Waddington, Rt Hon David|
|Malins, Humfrey||Wakeham, Rt Hon John|
|Mans, Keith||Walden, George|
|Maples, John||Walker, Bill (T'side North)|
|Marland, Paul||Waller, Gary|
|Marlow, Tony||Wardle, Charles (Bexhill)|
|Marshall, John (Hendon S)||Warren, Kenneth|
|Marshall, Michael (Arundel)||Watts, John|
|Martin, David (Portsmouth S)||Wells, Bowen|
|Mates, Michael||Wheeler, John|
|Maude, Hon Francis||Whitney, Ray|
|Maxwell-Hyslop, Robin||Widdecombe, Ann|
|Mayhew, Rt Hon Sir Patrick||Wiggin, Jerry|
|Miller, Sir Hal||Wilshire, David|
|Mills, Iain||Wolfson, Mark|
|Mitchell, Andrew (Gedling)||Wood, Timothy|
|Mitchell, Sir David||Woodcock, Dr. Mike|
|Yeo, Tim||Tellers for the Noes:|
|Young, Sir George (Acton)||Mr. David Maclean and|
|Mr. Alan Howarth.|
On a point of order, Mr. Speaker. I turn to you as custodian of the rules of this House. Until this evening I had been under the impression that any hon. Member passing through the Division lobbies had to do so bareheaded. However, this evening an hon. Member passing through the Noes Lobby was wearing headgear. I was able to ascertain the identity of that hon. Member and can vouch for the fact that that hon. Member had every right to be in that Lobby. Indeed, had the hon. Lady been in any other Lobby, that would have been an even greater surprise to me. I ask you, Mr. Speaker, in your position as custodian of the rules, to admonish the Government Whips and to ask them to educate their Members about the proper behaviour of this place.
I am unaware of any rule that says that an hon. Member should not vote with a hat on. In any event, the fact that an hon. Member casts a vote with or without a hat does not invalidate it.