346 
APPENDIX A. 
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have explained in a note to para. 26, we think that in any circumstances 
that are likely to arise the balances of the Reserve Suspense Fund will 
be material, and, having regard to the altered conditions as to reserve 
values, we see no pressing reason why after 31st December, 1926,* these 
balances should continue to be applied to the redemption of these credits. 
We would, therefore, submit for the consideration of the Royal Commission 
that the balances in question should be made available for grants sufficient 
to avert the creation of deficiency by the imposition of the new charges in 
the cases to which we have referred. We think it unlikely that the 
balances would be insufficient to meet this burden, but a liability to 
become operative in the event of this contingency arising might, we 
think, be placed upon the Central Fund. 
‘We are disposed to place the amount required eventually to give effect 
to this recommendation at something under £1,000,000 in a quinguennial 
period. We put forward this estimate, however, with much reserve, 
since the future course of the claims for sickness and disablement on the 
weaker units (a factor which obviously contains potentialities of great 
variation) must have a material effect upon the capacity of these units 
to bear the strain of any new charges. 
32. Before concluding this report we think it essential to explain the 
position so far as our recommendations may affect the surpluses of the 
Approved Societies. The aggregate amount of surplus carried forward 
from the valuation of 1922-23 will, we are informed, probably exceed 
£15,000,000, to which falls to be added the accumulated Contingencies 
Funds existing at the valuation date and amounting to a further aggre- 
gate sum of probably £7,000,000. The subsequent interest earnings on 
these sums, and the considerable profits that will have accrued from 
interest earnings in excess of the valuation rate and from other sources 
must, we think, bring up the total surplus at the end of 1926 to a sum 
considerably in excess of £30,000,000. This amount, moreover, will be 
augmented by the contributions credited to the Contingencies Funds 
subsequent to the valuation, the total at 31st December, 1926, being about 
£5,000,000. These accrued surpluses with their interest accumulations 
to the date of the third valuation, will not be affected by our recom- 
mendations, but since the new expenditure is to be provided out of what 
have hitherto been margins, and therefore sources of surplus, the creation 
of further surplus must be substantially checked, so soon as the new 
expenditure becomes operative. In these circumstances the surpluses 
declared on the third valuation will serve a very definite purpose; with 
their interest earnings and with the related State Grant they will every- 
where provide a large part, in some cases, indeed, the major part, of the 
additional benefits to be provided in the future 
33. We have indicated in the last paragraph that the creation of new 
surplus will be materially checked if and when our recommendations are 
carried into effect. It will be understood from this observation that to 
some extent further surplus will accrue and it is perhaps necessary that 
we should explain why surplus funds will continue to arise after the adop- 
tion of measures of reconstruction by which the available margins in the 
contributions have been absorbed. The reason 1s that these margins are 
calculated on the general average of the working of the scheme, wheseas, 
in fact, it operates through Approved Societies with widely differing 
experiences. Under such a system both surpluses and deficiencies must 
arise. Moreover, if the future experience, taken as a whole, should in all 
respects agree with our assumptions, there would still be a net surplus of 
moderate amount resulting from the operation of the Contingencies Funds 
and the Central Fund. Theoretically’ the amount representing this net 
surplus could be released as a further margin if the svstem were. in fact, 
* Tt is an essential condition of our calculations that the estimated balanee at 
31st December, 1926, should be applied to redeem reserve values as provided by the 
existine reculations.