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Post Office Giro

Volume 888: debated on Wednesday 12 March 1975

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With permission, Mr. Speaker, I should like to make a statement about the Post Office Giro.

When my right hon. Friend the Paymaster-General announced on 31st July last that the trustee savings banks were to be empowered to develop comprehensive personal banking services along the lines recommended by the Page Committee, he also referred to the importance which the Government attach to the growth of the National Giro and said that we were ready in principle to see a comparable extension in Giro's banking facilities.

I can now inform the House that, after considering proposals put forward by the Post Office at my invitation, the Government have agreed to a number of measures which are designed to set Giro on a surer foundation by enabling it to provide a more complete banking service for its personal and corporate customers, by seeing that there is fair competition for Government business, and by restructuring its capital to accord with its needs.

Giro will therefore be authorised to offer facilities for personal loans and overdrafts, overdrafts for business customers, local authorities and nationalised industries, and certain other related services. These new facilities will be introduced on a phased basis. Their precise timing and scope will be decided by the Post Office in consultation with the Government and will be subject to the normal controls exercised by the monetary authorities.

The Government are also taking steps to ensure that there is fair treatment for Goverment money transfer business as between Giro and the services offered by the Paymaster-General's Office and the banks. Departments should use the service which meets their needs most efficiently and economically, but in making their choice they must take account of all available facilities and their associated costs and assess competing bids on a footing of full equality.

The Government have further agreed to provide Giro with a capital structure better suited to its present and future needs and earning capacity. They will accordingly seek powers to effect a capital reconstruction involving a partial write-off of the debt incurred by the Post Office to finance past Giro deficits and the conversion of part of the remaining Giro debt into public dividend capital, a form of equity that will give the service greater flexibility and align its capital more closely with that of its competitors in the private sector. The Government will require an adequate return on this investment and will at the appropriate time agree with the Post Office a new financial objective for Giro. It is intended that the necessary legislation will be brought forward early in the next Session, preceded by a White Paper setting out the agreed plans for Giro's future in more detail.

Ten years ago the right hon. Member told the House that his calculations for Giro indicated an 8 per cent. return in the long run with as few as 1¼ million accounts and an average balance of £100 to £150. He went on to describe these figures as very cautious. I am sure that the whole House will understand that this afternoon he has at least maintained intact his reputation for crass financial misjudgment. In today's statement we have had no forecasts, no quantifications of capital write-off and an unlimited extension of services for which no known demand exists. All that we do know is that last year—

Order. It is not in accordance with the custom of the House that a statement should be followed by a counter-statement. The hon. Gentleman must ask questions.

Is the right hon. Gentleman aware that all we do know is that the losses on Giro in the current year total £4 million and that the estimated loss next year is a further £4 million? Is this really the time to inject further competition into the openings which have recently been made available to the trustee savings banks and other joint stock banks which already have great pressure on them? Can the Secretary of State tell us, first, what is the amount of the capital write-off? Secondly, will the adequate return to which the statement refers be expected to be comparable with that earned by the joint stock banks? Third, where does he see evidence within the activities of the Post Office that sufficient expertise exists to monitor overdrafts and personal loans to people and companies?

I shall try to answer some of the points raised by the hon. Gentleman. He will have noticed that I said that a White Paper will be published. Perhaps he could await that before he rushes to his conclusions. During the period from 1968 the Giro has lost £28 million on which £6 million in interest payments is required. In my judgment this is mainly due to the attempt by the Conservative Party to kill it off, which did enormous damage to it. If the interest payments are lifted by a reconstruction, the Post Office believes that viability will be possible relatively soon.

We believe that there is a case for Giro. It was introduced much later than it should have been because of the opposition of the Government pre-1964, although it was strongly urged by the then Postmaster-General as I understand it. It has been in operation successfully for many years in European countries. If it had not been for the strong advocacy of Giro by the Post Office unions and Mr. Paul Thompson and others the Giro might never have come to this country. In our judgment, to provide a service through 21,000 post offices six days a week is a valuable public function which we wish to maintain and develop.

Is my right hon. Friend aware that his statement will be welcome to those of us who have been faithful supporters of Giro? Will he discount the Jeremiahs on the Tory benches who since the beginning of Giro have done irreparable harm to it? May I ask, on behalf of my constituents and the people of Merseyside who need Giro in many ways, whether my right hon. Friend can tell us whether this good news will bring any further employment to the region?

I cannot answer the latter point without notice. It will be open to the Giro to proceed immediately with the developments I have described, but the legislative provisions will be for the capital reconstruction. To that extent the Giro will be able to move into this new phase of development. I strongly support what my hon. Friend says about the role of Giro both for customers and for that part of the country in which its headquarters are situated.

Without intending to prejudice this extension of the Giro service, may I ask the right hon. Gentleman about the procedure he has announced? Why have the Government agreed already to the Post Office undertaking a fundamental extension of authorised services before they have come to the House with the proposed legislative provision for altering the capital structure?

The hon. Gentleman will know enough about the Government to know that a departmental Minister making such a statement would not do so without advice about the legal and statutory position. I am advised that, subject to the approval of the Treasury—which controls everything— the Post Office may designate facilities—I am talking now about loans and overdrafts— as appropriate assets for the purpose of Schedule 2 of the Post Office Act 1969 for which there is statutory backing. It will be for the House to consider in due course and reach a judgment as to the legislation that will be needed to provide for the capital reconstruction.

May I declare my interest as an unpaid director of the London and South-Eastern Trustee Savings Bank and ask the Secretary of State whether he will bear in mind that it might he somewhat unfair to the nonprofit-making trustee savings banks if he were to give these powers to G;ro before the trustee savings banks were enabled to carry out these functions?

I am advised that the legislation for the Giro and tin trustee savings banks would be produced at the same time. I assure the hon. Gentleman that in harnessing the Giro expansion to the trustee savings banks expansion it was intended that there should be no undue advantage given against the trustee savings banks, although that is a matter directly for the Treasury.

Can my right hon. Friend say how the losses of Giro have decreased and its business has grown over the past two years? Can he say whether the changes he is proposing will completely remove the unfair disadvantage under which Giro has laboured since its inception?

My hon. Friend will obviously want to await the White Paper for fuller details. It is true that the losses have been diminishing, as one would expect with a developing service. It is also true that the Giro has been at a grave disadvantage vis-à-vis the commercial banks and the Paymaster-General's Department in the handling of Government business. I would certainly aim to see that the proposals for fair treatment, or what is sometimes rather curiously called fair competition, between the Giro and the Paymaster-General are not to the disadvantage of Giro.

Is the right hon. Gentleman saying that he cannot now give the House the factual financial information which it should have if it is to make a proper judgment of the quality of his statement? For example, can he confirm that it is still the Government's intention that Giro should break even by 1977? What prospects does he see of this being achieved as a result of the proposals he has brought to the House?

The right hon. Gentleman will appreciate that I cannot answer all the questions put to me after making a statement. I will furnish the right hon. Gentleman with all the information available to me, subject to the fact that he would need to await the White Paper because the capital reconstruction we have in mind affects the date on which the Giro would be able to meet the new financial objectives set for it. The first financial objective, set when the right hon. Gentleman was at the Post Office, has been met on time. The Giro is now moving towards meeting the second five-year target.