Long before we had the National Lottery we had Premium Bonds, unveiled by Chancellor of the Exchequer Harold Macmillan on April 18th, 1956.
Although it offered regular cash prizes, the Premium Bond scheme was not just a one-off gamble. Instead it was a state-sponsored savings scheme, backed by the government’s National Savings and Investments Agency.
The idea was that anyone with a bit of spare cash could use it to buy Premium Bonds, costing £1 each – about £24 in today’s money. The government would pay interest on the bonds, but instead of going to the bond owners it was paid into a prize fund, paying out to winners in a quarterly draw. The top prize was £1,000 tax free – about £24,000 today and a small fortune to most people in the austere 1950s.
If you suddenly found yourself short of cash, the money you invested in Premium Bonds was saved rather than spent, because the government guaranteed to buy them back at their original price. Each Premium Bond had a unique number and the winning numbers in each draw were generated at random by a rudimentary computer nicknamed ERNIE, standing for Electronic Random Number Indicator Equipment.
Unveiling the scheme, Mr Macmillan said it would be “something completely new for the saver in Great Britain”. He hoped it would encourage more people to squirrel some money away in the hope of winning a prize, but also knowing it was there to be reclaimed if they needed it.
“This is not a pool or a lottery, where you spend your money,” said Mr Macmillan, stressing that the government would buy back the bonds at any time, so that the bondholder’s original ‘stake’ always remained safe. The new scheme was part of what he called his “savings budget”.
Labour’s spokesman (and future Prime Minister) Harold Wilson urged the Chancellor to put the idea on hold so it could be discussed in depth by MPs as part of the government’s forthcoming bill on gambling and betting. In fact, there was considerable debate over whether Premium Bonds were ‘gambling’ or ‘saving’. Those backing the idea said it couldn’t be gambling if you never risked losing your original stake, but others disagreed.
Rev. J. Clark Gibson, secretary of the Churches’ Committee on Gambling, said he understood the Chancellor’s aim, but rejected the idea: “As the prizes are distributed by chance, the deal therefore becomes a gamble,” he said, “because the gains of the few are at the loss of the whole body of investors, whether they want to gamble or not.”
But Lord Mackintosh, chairman of the National Savings Committee, said he hoped the prospect of cash prizes would appeal to millions of new savers who so far had not been attracted by conventional forms of saving.
Despite ongoing debate, the plan ploughed ahead and the first Premium Bonds went on sale in November 1956, with the first quarterly prize draw held in June the following year. The bonds proved extremely popular with the public, whose only other chance of winning a large sum of money at that time was on the football pools. Unlike the pools, they knew they could always cash in their Premium Bonds, which also brought the ever-present hope of a big win to their daily lives.
The cost of Premium Bonds has risen over time so that the minimum investment is now £100, after which further bonds can be bought at £1 each. The frequency and value of prizes has also gone up, with a draw taking place each month and prizes ranging from £25 to two top prizes of £1m. each.
ERNIE has been updated several times and monthly winners are now randomly generated by ERNIE 4, which is the size of an average home computer and can generate a million numbers an hour and check them against a list of valid bonds. The original ERNIE generated 2,000 numbers and hour and was the size of a van.
It is thought about 23 million people in Britain have Premium Bonds, which were often bought as birthday or christening gifts in the early day. Many of the bond numbers in ERNIE’s data banks will be held by people who have since died or moved address without notifying National Savings, so prizes often go unclaimed. Premium Bonds also became less popular following the introduction of the National Lottery in 1994, which introduced a weekly televised draw for big cash prizes.