New Clause 17 - Premium Bonds

Finance Bill – in a Public Bill Committee at 10:30 am on 24th June 2004.

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'Regulations under section 11 of the National Debt Act 1972 (c.65) (power of Treasury to make regulations as to raising of money under auspices of Director of Savings) may repeal any provision contained in section 54 of, or Schedule 18 to, the Finance Act 1968 (c.44) (terms of issue of premium savings bonds).'.—[Ruth Kelly.]

Brought up, and read the First time.

Motion made, and Question proposed, That the clause be now read a Second time.

Photo of Andrew Tyrie Andrew Tyrie Shadow Paymaster General

This is a very interesting but minor clause, which should detain us for about six minutes. As I understand it, it only provides the Treasury with the power to vary the terms under which the product is offered to the customer. It does not, as I was initially concerned when I first read it, enable it fundamentally to alter the shape of a premium bond and the type and range of products that may be made available. I should

like the Minister to confirm that important point. As she will probably know, some people consider even premium bonds to be an unacceptable form of gambling. Indeed, Harold Wilson described them as such.

Now, of course, measures to deregulate gambling have been advanced—we do not know whether the gambling Bill will be introduced. It crossed my mind when I saw this clause that it could be part of a wider set of proposals to enable the Government to engage more directly in the gambling sector. As it happens, I would not in principle be against a widening of the structure of premium bonds, but if that were to be undertaken it would merit serious debate.

As it stands, we accept the measure, although I should like the Minister to confirm the point that I have just made about the limit of its scope. I note the increased importance of premium bonds in Government funding; no doubt that is why the clause has been introduced. The Government will need to raise a good deal more money, as the Red Book has shown—perhaps more even than they have set out; if I had to bet, I would do so on that side of the line. The importance of premium bonds has doubled over the past 12 months as a source of funding for the Debt Management Office; I think that I am correct in saying that it has increased from about £4 million to about £8 million. They now account for about 20 per cent. of total national savings activity, or about 7 or 8 per cent. of total funding. What was almost an irrelevant issue not too many years ago, for a Government who were not borrowing much money, is now quite an important one, so any alteration in the terms is presumably targeted at trying to obtain more custom. Certainly, the Government will need to get more custom in.

I should be grateful if the Minister could confirm that I have correctly understood the clause, as the explanatory notes were not terribly clear. I did not have a chance, although I tried, to read the original legislation—the National Debt Act 1972 and the Finance Act 1968—to make absolutely sure that the clause will do what I think it is going to do. There is an inherent tension between any form of gambling instrument that is outside Government activity on the one hand, and premium bonds on the other. It was widely held that the creation of a national lottery would be very damaging to premium bonds. As it happens, the statistics are ambiguous on that. Although the rate of increase for premium bond take-up slowed, it certainly did not fall when the lottery was introduced.

I should be grateful if the Minister could dwell on what her longer-term proposals for premium bonds are, as well as confirming my earlier point.

Photo of Steve Pound Steve Pound Labour, Ealing North

I support what the hon. Gentleman says, as there are concerns across the House on this issue. He quoted the late Sir Harold Wilson, and the late Baroness Thatcher was equally concerned about the issue—[Hon. Members: ''She is not late.'']—Sorry, the former Member of this House who is now Baroness Thatcher, with whom I

entirely agreed on this subject. I agreed with her on only one other occasion, and that was with her opinion of the Conservative Cabinet at a particular time.

The hon. Member for Chichester mentioned the lottery, and I am concerned that avaricious eyes are being cast at premium bonds, which are a successful mechanism and are widely supported, going with the grain of the nation—there are none of the problems of aggressive selling or the difficulties associated with the lottery. Like many people, I am concerned that the integrity of premium bonds should remain unchallenged. I look with confidence to the Minister for assurance; perhaps she could underscore the fact this is a cross-party concern.

I apologise for killing the former Prime Minister.

Photo of Ruth Kelly Ruth Kelly Financial Secretary, HM Treasury

It might be helpful to start by briefly exploring the remit of National Savings and Investments, which is to raise cost-effective financing for the Government. It does so by selling a range of products to savers and investors. In the last financial year, National Savings and Investments contributed £3.4 billion to net financing. The most popular National Savings and Investments product is the premium bond—23 million customers have bought premium bonds, investing £24 billion. It is the main contributor to NSI's net financing target.

I hope that I can reassure both my hon. Friend the Member for Ealing, North (Mr. Pound) and the hon. Member for Chichester that the premium bond product remains as provided for by section 11 of the National Debt Act 1972. Premium bonds were created by the Finance Act 1956, which is not affected by the clause that we are debating. I hope that that puts some of their concerns to rest.

National Savings and Investments has embarked on a wide-ranging modernisation programme, and one of its objectives is to re-examine and update premium bonds. The new clause will give it the flexibility that it needs and enable it to carry out the results of its review. I know that my hon. Friend is interested in the factors that it may consider in that review, and I assure him that they are intended to meet customer need better rather than to change fundamentally the nature of premium bonds.

As with all its products, National Savings and Investments wants to review premium bonds in the light of customer feedback. Changes in the retail financial services market have an impact on premium bonds as they do on other products, and it wants to ensure that the product continues to meet customer need. For example, it may want to reconsider the need to give three months' notice of a change in the prize fund rate, which is clearly out of step with today's financial services market, in which customers expect their financial provider to react immediately to changes in base rates.

Another issue for consideration is that National Savings and Investments has a solely paper-based application system. It may wish to consider giving customers greater choice in how they invest—over the telephone, for example. It may consider whether it needs to publish winning numbers in the London Gazette—there are about a million winning numbers

each month. It may consider using its website to inform people if they have won a prize. Those seem to be sensible factors to be considered in a review. I hope that I have reassured my hon. Friend and other hon. Members that the proposals are relatively straightforward and will not undermine premium bonds.

Question put and agreed to.

Clause read a Second time, and added to the Bill.