Interest Rates

Lord Young of Cookham Excerpts

Wednesday 23rd September 2020 Lords Chamber

Asked by

[Lord Young of Cookham]

To ask Her Majesty’s Government what assessment they have made of the announcement by National Savings and Investment about reductions in interest rates.

[Baroness Penn (Con)]

Her Majesty’s Treasury set NS&I an annual target of net financing to raise. In July, this was revised from the £6 billion set at the Budget to £35 billion to support the Government’s higher financing requirement. NS&I reviews the interest rates on its products regularly and recommended a reduction in interest rates, with the objective of meeting its financing target, while returning to a more normal market position.

[Lord Young of Cookham (Con)]

My Lords, I declare my interest as an optimistic holder of Premium Bonds. NS&I’s decision to cut interest rates drastically to near zero was a direct consequence, as my noble friend has just said, of the Government’s net financing target—a devastating decision for millions of savers who find their income decimated, or worse. NS&I is a key source of government borrowing but has a broader mission. I quote from its annual report:

“We want to inspire a stronger savings culture”.


That objective is out of the window. Earlier this year, a decision to reduce interest rates was reversed. Will the Government now enable NS&I to reverse this latest decision before it comes into effect in November?

[Baroness Penn (Con)]

My Lords, perhaps I should also declare my interest as a holder of NS&I savings products. I can understand people’s disappointment at the rate reductions. I reassure my noble friend that the prize fund rate for Premium Bonds, at 1%, even after the reductions, remains competitive relative to the savings market. I remind him that although NS&I has a remit to encourage a savings culture, it also has to balance that against providing value for money for the taxpayer and its position and effect on the broader financial services sector.