3934 
APPENDIX A. 
to this condition. As we shall show, there are in the present basis certain 
margins over the general average of expenditure to be expected, and 
we shall advise the release of these margins. It should be understocd 
that we do not include the accrued surpluses of the Approved Societies 
in the margins to which we refer; we have felt constrained by our instruc- 
tions from proposing any changes of basis which would involve drafts 
upon these surpluses. Subject to this reservation the provision which 
we shall propose to make will be that which, so far as we can estimate, 
would be required if the whole system were operated through a common 
fund. 
Tar RATE OF INTEREST. 
6. The rate assumed in the present financial basis is 3 per cent. per 
annum. The actual receipts from interest fall into three categories 
(i) interest on reserve values, (ii) interest on the credits of the Approved 
Societies in the Investment Account* maintained by the. Department 
(with which may be included interest on the balances of the societies’ 
current accounts in the National Health Insurance Fund), and (iii) 
interest on the investments made by the societies, or (where this alterna- 
tive procedure has been selected by societies) on the investments made 
by the Department on their behalf. The rate realised is an average 
dependent on the receipts from these three sources, which, it may be 
added, are exempt from taxation. 
As regards (i), interest is credited on reserve values at the fixed and 
uniform rate of 3 per cent. per annum and, the reserve values being 
book credits, is derived from the product of the portion of the contribu- 
tions retained for the service of reserve values as shown in paragraph 1 
above. Receipts under (ii) are also based on a uniform rate; this rate, 
being prescribed by regulations, may be varied from time to time. It 
is at present 43 per cent. per annum, and assuming that after 3lst 
December, 1926, the balances of the interest income of the Investment 
Account are applied solely to the provision of interest on the credits 
of Approved Societies, etc., making up the total of this Account, it will 
evidently be possible to maintain the rate at this figure for a prolonged 
period. Receipts of category (iii) are derived from interest on trustee 
securities selected by the individual Approved Societies. The rates vary 
to some small extent with the types of investment selected by the societies, 
but the average appears to be about 5 per cent 
7. The average rate of interest to be realised in future, taken ‘over 
the whole of the funds and credits of the Approved Societies, will depend 
very largely upon the relation between the amounts of funds (or credits) 
respectively attributable to those three categories. Reserve values 
represent at present about 45 per cent. of the societies’ assets and, since 
the interest provided on reserve values is at the rate of 8 per cent. only, 
the average rate of interest now realised is under 4 per cent. notwith- 
standing the high rates at which the actual money investments have 
been made. 
In this respect, however, present conditions are about to be greatly 
altered. The limitation of the sickness and disablement benefits to 
the age of 65, for which the Contributory Pensions Act provides, will 
have the effect of reducing the reserve values by about £37,000,000+ 
and, so far as present benefits are concerned, a further reduction in this 
asset is to be expected as a consequence of the change of basis which 
we shall find it possible to recommend for the purposes indicated in our 
terms of reference Under these new conditions the proportion which 
* For convenience the singular number is used: there are in fact three Investment 
Accounts maintained respectively by the Ministry of Health, the Scottish Board of 
Health and the Welsh Board of Health, but the procedure is identical throughout. 
Similarly there are three National Health Insurance Funds. 
+ Report of the Government Actuary (Cmd. 2406), para. 29.