A History of Banks for Savings in Great Britain and Ireland

by William Lewins

The first step which appears to have been taken in regard to the scheme of Mr. Chetwynd was to refer it to Mr. Scudamore, who then filled the office of Receiver and Accountant-General,—an office the holder of which is at the head of the financial operations of the Post Office. After going carefully over the plan which had been submitted to him, he came to the conclusion that it was the best of those which had as yet been framed; “that it will be productive of very great advantages to the working classes, and that it will be self-supporting.” He also characterised it as exceedingly simple, and thought, that if the execution of the plan were difficult, that difficulty would be due to the amount rather than to the nature of the business to be transacted. In conjunction with the projector, Mr. Scudamore then proposed some important modifications and additions to the plan,[167] and proceeded to enter fully into arguments and calculations to show that it would offer the largest amount of convenience to the public, and be at the same time the least expensive mode of operations so far as the State was concerned. Into these and other purely technical matters there is no need that we should further enter, beyond saying that, so recommended, the scheme was warmly approved by the Postmaster-General; and in a month from the date of Mr. Scudamore's report, it fell into the hands of Mr. Gladstone, and became, as it were, the property of the nation. How the Legislature dealt with it will fittingly bring this chapter to a close.

On the 9th of February, 1861, Mr. Gladstone took the first step towards bringing the subject forward in Parliament, by moving a resolution in the House, of which he had previously given notice:—“That it is expedient to charge upon the Consolidated Fund of the United Kingdom of Great Britain and Ireland the deficiency, if any such should arise, in the sums which may be held on account of Post Office Savings Banks, to meet the lawful demand of depositors in such banks, in the event of their being established by law.” This, which was according to the usage of the House the first necessary preliminary, provided that the burden of the measure should be thrown upon the State. Mr. Gladstone stated[168] that in submitting this resolution he did not wish to pledge members either to the principle or the details of the bill which he intended to found upon it. His sole object was to afford new facilities for the deposit of small savings to those who did not possess them, or possessed them imperfectly. He would not only like to do this, but also to improve materially the existing facilities, so as to enable many more to take advantage of them; but this was a more difficult problem,—an object often attempted, yet little accomplished. The main difficulty, the responsibility of trustees, had baffled all attempts to deal with it. How true this was, the reader who has followed us in our account of the legislation on the subject will readily believe. In this difficulty he had been led to see if they could not avail themselves of another description of machinery altogether, “recommended by its incomparable convenience,” for the purpose of carrying out the same objects for which Savings Banks were originally set on foot. He then went fully into such statistics of the number and conveniences of existing banks as those which we have already furnished, and compared that machinery with the Money Order system at the Post Office and its ramifications all over the country. Not only were the Money Order Offices open every day for a considerable number of hours, but the Postmasters were open and adequate to the transaction of increased business. Mr. Gladstone then dwelt on the want of facilities, which, he said, exercised an important influence on the amount of the savings of the poor; “the experience of this winter, 1860-61, must have demonstrated to anybody who thought upon the subject, that the resources of this class had not of late years increased in proportion to the rate of wages and the improvement in their standard of living.” A smaller portion of their gross income was, he thought, laid by at that moment than was laid by twenty years before. He was sanguine enough to expect that, if readier means were afforded than of laying by in a season of prosperity, their ability to cope with the distress of the future must be largely increased. Now, the banks which he intended to propose would afford these means; and not only so, but under the arrangements of the measure, he would answer for it that the Post Office machinery should be applied carefully and gradually—the most neglected districts to be supplied first. Mr. Gladstone then went into the object and details of the measure. His proposal was that the Post Office should receive and return deposits, with interest, in the same way as Money Orders were dealt with, charging merely a fair remunerative price for the work performed. In one respect the principle upon which the new banks would be founded would be essentially different from that of the old ones. The latter had been established with the notion that the State might very fairly offer to the labouring classes a certain premium by way of inducing them to make deposits; but while he was far from desiring to cast any censure upon the principle, he did not deem it right in the present case to hold out to depositors the expectation of obtaining any high rate of interest. He proposed to give a rate of interest 10s. less than that given by the ordinary banks, with a proviso that it might be increased to that rate, if found necessary, “and within certain limits.”

Mr. Gladstone provided an ample set-off against a less remunerative return for the money, in the security which he now proposed to give for its safe custody. The responsibility of the State, on account of Savings Bank money had always been a subject of the greatest difficulty; he argued on this occasion with perfect reasonableness, as many of his predecessors in office had argued before, that the State could only be responsible for the acts of its own officers; and as up to this time no plan had been devised by which the State could participate in all the proceedings of Savings Banks, it was impossible to carry out the principle of a perfect Government guarantee. What, however, could not be done with the old banks, might and should be done with the new. In his proposals there was something so essentially different from anything they had been accustomed to, that a Government guarantee was an easy and a possible thing. The money would be received by Government officials: it would be invested by these servants in Government securities; and it would be inexcusable to refuse a Government guarantee for the full amount. Hence the motion which he had made. The only effective form which this guarantee could take was the technical one, to pass a resolution providing that if any difficulty arose in the means of meeting the lawful demands of lawful depositors, that difficulty might be met by a charge on the Consolidated Fund. Mr. Gladstone, in concluding, hoped honourable gentlemen would not be alarmed at his resolution, as he would expressly state then that the great basis of this new arrangement was that it should be self-supporting.[169]

Mr. Francis Crossley (now Sir Francis) went over the ground of the very deficient means of investment for the surplus cash of the poor, producing statistics of a kind with which our readers are now sufficiently familiar, and stated that it was impossible to over-estimate the advantages which must accrue to certain classes in the country from the carrying out of the proposals which had been submitted to them. “A great deal of fault,” said Mr. Crossley, “had been found with the improvidence of the working people in not saving money, but let them first see what the Government had done to help them. The State provided beer-shops in every street for working men to spend their money in as fast as they earned it; but hitherto he did not think it had been sufficiently forward in giving them facilities for saving their money.” He then alluded to the fear which working men had of the ordinary banks, from their masters being connected with them, and who from that connexion would be able to see what they were able to save. “Under the Postmasters, this would, or should be, different.” The country was indebted to Mr. Gladstone for the amount of attention he had bestowed on the proposals of Mr. Sikes. Mr. Crossley concluded: He “did not think Government ought to seek to make a profit on the new business; nor did he think they ought to lose by it. The working classes of the country did not want charity, they only wanted a fair field and no favour, and it seemed that at length they were about to get it. If at any time the rate of interest could be raised without loss or inconvenience, he hoped it would be done.” Colonel Sykes said that no praise could be too high for anything of this sort, which tended to induce the working classes to lay by against a bad time. He contented himself with referring to two or three subjects connected with the mode of working the scheme. Mr. Arthur Kinnaird thought the scheme simple and practical. He “heartily congratulated the Chancellor of the Exchequer on having at last succeeded in one of the fondest hopes of his heart—that of creating a two and a half per cent. stock.” Mr. Gladstone at once demurred to this, and stated that he had no notion of establishing a national bank. The money which came into the hands of Government by means of the bill would simply be applied as under the existing Savings Bank law. Mr. Gladstone, in closing the debate, took the opportunity of referring to Mr. Sikes, “who had devoted a great amount of labour to the subject. He felt greatly indebted to him. At the same time, the bill was not intended to embody altogether Mr. Sikes's plan, though this was a matter of detail into which he would not then enter.”

Three days after this discussion the Post Office Savings Banks bill was introduced into the House of Commons pro formá by Mr. Massey, the Chancellor of the Exchequer, and Mr. F. Peel. Mr. Sotheron Estcourt on this occasion commented on the importance of the bill, and objected to a first reading without an explanation of its provisions; all that was known of it being that the Government were about to frame on its provisions banks of deposit on a gigantic scale, and thus by a merely formal proceeding were about to lay the foundation for very important consequences.

The Chancellor of the Exchequer moved the second and principal reading of the bill on the 18th of March, 1861. Mr. Estcourt, whose intimate acquaintance with such subjects made his remarks carry considerable weight, made a long speech. He first expressed his doubts whether the persons employed by the Post Office would ever be able to perform the additional and important duties which would be assigned to them. Government were undertaking a great risk. “No doubt the plan would become popular, for several reasons; the Post Office Banks would absorb not only all future deposits, but also a great part, if not all, of those which had been made in the existing banks themselves.”[170] It would be for the House to decide whether this result would be good or bad, or what could be done that the two kinds of banks need not come into collision. Mr. Estcourt threw out several hints as to how this might be done. They might, for example, limit the sum to be received at post offices, so that the new might not come into competition with the old class; or they might dovetail the new system into the old, by making the Post Office Banks auxiliary and subsidiary to the existing banks. Much had been done in the way of trying to amend the constitution of the old class of banks, without effect; and he thought that, looking to the probable result of the new arrangement, it would be far better to look the evil fairly in the face, and supersede at once the old by the new kind of banks, or at least say which of the two ought to be retained. This speaker further apprehended that the Post Office Banks would not take root in the villages, where they were most wanted, and would be almost exclusively confined to the towns where they were least needed, and where they would overthrow the existing Savings Banks by drawing away their deposits. Though Mr. Estcourt seemed to feel strongly on the different points touched upon by him, he concluded by stating that he should not oppose the second reading of the bill. Mr. W. E. Forster said, in his opinion the scheme would provide good Savings Banks where none now existed, and, a very desirable matter, safe banks where they did exist. He thought it was not possible that the one class of banks could dovetail into the other; and if it was, it was not desirable. Where Government took the responsibility, it ought to have the control. Mr. Thompson Hankey hoped that the proposed scheme, if found practicable, would entirely supersede the existing banks, and the sooner the better. Mr. Baines followed in the same strain; he would not regret if the new banks superseded the old, inasmuch as that result could only be brought about by the proved superiority of the new system. The member for Leeds said, “he had been assured by Sir Rowland Hill, and all the gentlemen whose departments at the Post Office would be charged with the carrying out of the plan, that it would work exceedingly well;” and he could state that, though it differed materially from his plan, Mr. Sikes of Huddersfield was a “hearty supporter” of the scheme which the Post Office had adopted.[171]

Mr. Gladstone could not say whether the old would suffer from the new banks; if they did, it would only be because the latter were the safest and the best. Whether or no, the object of the bill was not competition with the old banks. He wanted to supply facilities which at present did not exist, and the first duty of the Postmaster-General would be to look to the establishment of Savings Banks in those places where no banks existed, or where the accommodation was very narrow. As to their application to the Money Order Offices of the country, it would be gradual and slow, and so as not in any way to endanger the machinery of the Post Office; the Postmaster-General would select at first a moderate number to be opened, and extend them in proportion as he found occasion, the test and index of the occasion being the demand for such banks by the public. Mr. Gladstone then referred to the rate of interest which would be allowed, and said that in this respect the Post Office Banks would have somewhat less attraction; “the present banks were established on the principle of giving a bonus; the new system must be strictly self-supporting.” He would not feed them at the expense of the Post Office, or any other revenue, and in that case the rate of interest must be such as can be safely paid. With regard to the forebodings of Mr. Estcourt relating to the risks which Government would run, Mr. Gladstone stated that the system of Savings Banks had been established for forty-five years, during which time they had had every description of speculation, the severity of a commercial crisis, the pressure of a dreadful famine, and almost every trial that could befal a new system; and although the Government was always holding a great amount of money at call, there had been but a small pecuniary loss, in comparison with which loss the establishment and progress of such a system was immeasurably of greater value. After stating that he thought “the Post Office machinery admirably suited for the purposes of the new measure,” the bill passed the second reading.

The bill was introduced into Committee on the 8th of April, 1861,[172] where trifling alterations were made in several of its clauses. Mr. Slaney, who had paid great attention to subjects of this nature, hoped that the deposits would not be restrained, as under the old system, he thought no limit should be placed upon the providence of the labouring classes. Mr. Vance, an Irish member, alluded, as he did on subsequent occasions, to what he considered the centralizing tendencies of the scheme. He thought Dublin ought to be the centre of operations for Ireland as under the Money Order system. The principal opponent of the measure on this occasion was Mr. Ayrton, the member for the Tower Hamlets, who in some quarters has been credited with the advocacy of the scheme before this period. In a long speech, Mr. Ayrton took exception to most of the details of the measure as they were now proposed, and to the principles of the measure as a whole. Mr. Ayrton held that data enough had not been presented to enable members to form an opinion as to whether the scheme would pay or not. “It was all very well to talk of subjects being self-sustaining, and even economical, but under such statements our expenses had gone on continually increasing.” He adduced at length the case of the County Courts bill, and the Government Superannuation Allowances bill, which he said were introduced and passed under some such pretences. It would be the same with the Savings Banks; the Government would never be able to keep to the two and a half per cent., but would have to be guided by the rate allowed to other bankers. “The scheme of a national bank,” continued the honourable member, “however plausible it might look at the outset, would lead to the most serious consequences.” The Committee which sat on the subject, and of which he, the speaker, was a member, came to the decided and unanimous conclusion that it was desirable to separate the operation of banking for the people from the National Treasury. It was thought that these national banks would act as a powerful inducement to the working men to entrust their money to the Government rather than to their own Benefit Societies, which were regarded as too much associated with Trade Societies. In his opinion Benefit Societies and Trade Societies had been the means of regenerating the people, and were eminently conservative; and it was not expedient to discourage these societies by means of the proposed banks. Nor was this all. It was desirable that the country gentlemen should take an interest in the welfare of the working people surrounding them; and to supersede their exertions by mere stipendiaries of the State would weaken that social system on which the liberties of the people were mainly founded. Mr. Alderman Sidney, “as one conversant with figures,” ventured to say, that if the scheme were carried out, our national establishment must be greatly augmented; and if it proved successful, “the establishment that would be required would be of the same gigantic proportions as the Bank of England!” It was absurd to think that depositors would be satisfied with less interest than the national creditor. The scheme, he believed, was founded upon error; it would interfere with the self-working of existing establishments, and would entail a large expense upon the country at large. The Chancellor of the Exchequer replied, especially aiming his powerful shafts at Mr. Ayrton. He said he would not follow that gentleman through his speech, as that was a task beyond his powers. Mr. Ayrton often gave the House notable examples of his discursive powers; but he (Mr. Gladstone) never knew an occasion on which the honourable gentleman had more signally distinguished himself than on the present occasion. “When he rose into the air on eagle wing, he passed over the limits of time and space, and was not subject to any of the conditions that bound the efforts of ordinary mortals.” However, to confine himself to just that which bore on the subject before the Committee, he was strongly opposed to the principle of making the working classes pensioners on the Exchequer; he would do his best to provide against such a result. He did not know, and could not tell, what amount of business the banks would attract; he expected it would be gradual, and the development of the agency would be gradual. The extension of the system would be in precise proportion to the demand; and the expense would be throughout proportionate to the extension. The opinion of the Post Office authorities was, generally, that the work would be done much cheaper than in the ordinary banks; for sixpence or sevenpence against one shilling for each transaction. Some even thought that the work might be done cheaper than the work in the Money Order Office. Once started, any tendency to excess would, of course, be corrected; but it was impossible to argue on any assumed number of deposits. He had a sanguine hope that every statement he had made would be verified, and that the measure would entail no charge upon the public.

Again and again the question was asked and argued, whether it was meant that the new banks should be subversive or auxiliary to the old. To this question, which was asked on this occasion, Mr. Gladstone gave it as his opinion that the one class of depositors who preferred perfect security would patronize the new banks; whilst another class who wished to act under the immediate view of their local superiors, would prefer the existing banks. In reply to Mr. Briscoe, he said he would not limit the establishment of the new banks to those places where no other sort of banks existed,—though, of course, the Post Office would commence operations there first. Such an arrangement would exclude the great centres of trade and population,—our large towns—which were not sufficiently served with banks. An important discussion took place on the 10th clause of the Act relating to the investment of the fund deposited in the Post Office Banks. Sir H. Willoughby, as he so often did before, condemned the system of operating on the Stock-market with this money. Mr. Gladstone replied, that the loss which was so often dwelt upon in connexion with the old banks was nothing like loss; “the money so deposited with Government had enabled successive administrations to effect an economy in the management of the public money transcending ten times over the charge the State had been put to.” He saw no reason whatever to alter the arrangements in this particular. The amendment which Sir H. Willoughby proposed was then negatived without a division. Three days afterwards the bill passed the third reading and was sent up to the Lords.

No time was lost in bringing the bill forward in the House of Lords. It was read a first time on the 15th of April, and a second time on that day week. The conduct of the bill in the Lords was naturally committed to the Postmaster-General, Lord Stanley of Alderley. On this occasion his lordship went over[173] the ground covered by the bill—the insufficiency in number, and the inadequacy of accommodation of existing banks, and the insecurity as regards repayment until the money had actually reached the hands of the National Debt Commissioners. Lord Stanley added that Savings Banks had by no means increased in number in proportion to the population, or to the increase of the money circulating among the working classes. He adduced several facts and a quantity of statistics on this head similar to those which we have already given to the reader. From these facts it was obvious, that when a working man formed a good intention to invest his small savings, there was a great danger that he would spend his money, if there were no means of his depositing it, or if he could not do it comparatively easily. He then spoke of the losses caused by the failures of Savings Banks. Referring to Mr. Whitbread's proposals in 1807, Lord Stanley stated that this measure was very like the scheme then proposed, which actually passed through the House of Commons in that year; that Mr. Sikes had originally proposed something similar in an admirable letter to Mr. Gladstone; and that the Government, with the assistance of two able gentlemen in the Post Office department, had matured the present plan, which he proceeded very clearly to describe. Lord Stanley, in concluding, said it was somewhat remarkable that nine-tenths of the depositors in Savings Banks were domestic servants and clerks, and that only one-tenth belonged to what are usually known as the “working classes;” yet large numbers of these latter are in receipt of wages far exceeding the incomes of many who possessed Savings Bank accounts.[174] He hoped that working men, when they received their wages, would be induced, before going home, to invest a portion of them at the receiving houses they would pass; if so, the result to them and the country could not but be highly beneficial. The banks must be looked upon as an experiment. If an extension should be demanded, it could only be by reason of the greater security and greater facilities they would offer.