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 aggregate
 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 recommendations,
 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 everywhere
 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 adoption
 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.