Second World War - Loans free of Interest
and Determination of Needs
Depositors' Department
The Bank's Annual Report for the Year Ended March 31st 1941 contained the following paragraph:
As all surplus deposits in the Bank are being placed with the Government for the duration of the war, depositors who may have to apply for unemployment assistance, supplementary pensions, etc, will have the benefit of the provision in the Determination of Needs Act, 1941, whereby war savings up to a limit of 375 will be disregarded in assessing the needs of an applicant.
The position described in that paragraph arose following discussions between the Bank and the Treasury, as described in a report submitted to the Bank's Committee of Management by the Finance & General Purposes Committee - that report is reproduced below. The report also discusses the desire of some depositors to forego interest on their savings, and for that interest to be paid over to the Government to assist with the war effort.
Loans free of Interest and Determination of Needs

(Finance & General Purposes Sub-Committee: October 21st 1940)

On the 18th June 1940 the Chancellor of the Exchequer announced in the House of Commons that persons desiring to lend money to the State free of interest might find it convenient, where the amount was below 100, to make the deposit in the Post Office Savings Bank, with instructions that interest earned should be surrendered to the Exchequer.


Several depositors asked the Bank to deal with their cases, and the Treasury were asked for instructions as to procedure to be observed. The Treasury replied that there was a difficultyin the Municipal Bank dealing with these cases, because the arrangement for sending excess deposits to the Government did not apply for the duration of the War. Another difficulty concerns Income Tax. Where a depositor merely wished his interest to be paid to the Exchequer he still remained liable for Tax, and where the State is directly responsible for interest, as in the case of the Post  OfficeSavings  Bank, the request could be so framed as to renounce the interest before it is paid or credited, and thus put the individual in the same position as if he dealt direct with the State for lending money to the Treasury free of interest. The Bank's depositors have, therefore, been compelled to withdraw in the usual way and deal direct with the Treasury.


The Chancellor also announced that by increasing their savings to help the Country, people should not be penalised in any application they may subsequently make for Unemployment assistance or for supplementary Old Age Pensions. A depositor raised this point so far as it affected the Birmingham Municipal Bank, and the General Manager asked for the Treasury's ruling, The Treasury replied that the Chancellor's announcement specifically referred to savings by purchase of Savings Certificates, Defence Bonds, or for subscriptions to new War Loans, the Post Office Savings Bank, and Trustee Savings Banks, but the details of the Bill to be presented to Parliament had not then been settled.


On the 8th October 1940, the War Savings (Determination of Needs) Bill was introduced in the House of Commons, and on the authority of the Chairman, representations were made to the Treasury with a view to safeguarding the interests of the Birmingham Municipal Bank.


The Bill provides that savings up to the sum of 375 shall be disregarded in dealing with applications for Unemployment assistance or for supplementary Old Age Pensions, and takes into account such savings in Government Stock, Savings Certificates, money loaned the Treasury without interest, Post Office Savings Bank deposits, Trustee Savings Banks deposits, and deposits in any other savings Bank specified in that behalf by regulations made by the Treasury. It is under the last heading that deposits in the Birmingham Municipal Bank would come.


At a conference with the Treasury on the 3rd September 1940, attended by Alderman Barrow, Alderman Morland, the City Treasurer and the General Manager, to discuss the continuance of the arrangement for placing excess deposits with the Government, reference was made to the War Savings (Determination of Needs) Bill. It was gathered that the position under the Bill was still obscure, but the Treasury Officials said the clause to which the deputation had referred was introduced specifically to cover the case of the Birmingham Municipal Bank, and that providing the arrangement for sending excess deposits to the Government continued for the duration of the War there would be no difficulty and the Bank would be placed in the same position as the Post Office Savings Bank and Trustee Savings Banks. If, however, the present arrangement was not continued for the duration of the War, the Bank could not be recognised under the Bill. The effect of the Bank being excluded would be that a depositor who may be compelled to claim Unemployment assistance or apply for supplementary Old Age Pension would lose the benefit the Bill gives to those who save through other channels and place their savings at the disposal of the Country. Depositors in areas covered by a Trustee Savings Bank would gain such benefit.


The position is a serious one to face, because it throws the onus on the Committee of disqualifying depositors from receiving such benefits if the committee decide against placing excess deposits with the Government for the duration of the War. It is difficult to appreciate the attitude of the Treasury on the matter. They would have had excess deposits from the Bank up to the end of 1940 in any case, and to that extent at least depositors ought to be entitled to the benefits of the Act.


The deputation did not feel disposed to commit themselves to sending excess deposits to the Government for an indefinite period involved in the expression "duration of the War", but intimated their willingness, subject to the approval of your Committee, to extend the arrangement for another year, i.e., to the 31st December 1941. The Treasury Officials said they would be satisfied with that arrangement, but it would not affect the position under the Bill.


On the 6th September 1940, a conference was held at which Alderman Barrow, Alderman Morland, Councillor Martineau, the City Treasurer and the General Manager were present, when the position was discussed as set out above. It was decided that as it was doubtful whether the Bill in its present form would become Law, any consideration of the Bank's action under the Bill shouldbe deferred until the meaning of the Bill is clearer but as regards sending excess deposits, the present arrangement should be continued until 1941, when the position can be further reviewed.


Your Sub-Committee recommend accordingly and that the action taken in making representations to H.M. Treasury for safeguarding the interests of the Municipal Bank, be confirmed.

BMB during the War