New Clause 17 - Premium Bonds

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

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Photo of Ruth Kelly Ruth Kelly Financial Secretary, HM Treasury 10:30 am, 24th June 2004

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.