346 APPENDIX A. ——— 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.