Households are benefiting from steady economic growth, and they are benefiting from low and stable interest and inflation rates. The level of household savings ratio since 1997 reflects that stability, with households having the confidence to reduce their contingency savings, unlike in the early and mid-1990s.
Will the Minister confirm that the household savings ratio is now one third of what it was in 1997, and is the lowest of any sizeable EU country? Can he explain why?
The UK is not unusual, as the savings ratio has declined in the United States, Australia, Japan and Canada, and is lower in the US than in the United Kingdom. The level of the savings ratio in the UK is broadly similar to the level in the 1960s, when there was also high employment, a stable economy and low inflation, so people had less need for the cushion of security that savings can offer.
The savings ratio for low-income householders and individuals has not moved much in the past 10 years, but a Government initiative—saving gateway phase one—has helped people, because it has provided assets for people on low incomes. The Economic Secretary will appear before the Treasury Committee next week, but will my hon. Friend have a word with him before then to extend saving gateway phase one, which is simple and has been well received, to ensure that people on low incomes increase their assets and play a more active part in the economy?
My right hon. Friend is right to draw attention to the importance of savings, and his Committee has consistently examined the issue. We recently completed the second pilot on the saving gateway, which shows promising signs of success. He will know that twice as many people hold the individual savings accounts that we introduced as their predecessors, personal equity plans and tax-exempt savings accounts. He will know, too, that one in four families and people on low incomes hold ISAs, which is far better than the performance of previous schemes. The savings ratio in the UK hit its peak at the very time that repossessions and negative equity hit their peak, and I can assure him that what we will not do is introduce economic policies that will drive us back to the point in the early 1980s, when an estimated 1.5 million households suffered from negative equity.
My constituent complains to me that when he chides his grown-up children for not making any savings they laugh in his face and call him a mug, because he saved and consequently lost not one but two pensions. He blames the Chancellor. Who does the Minister blame?
Clearly, the hon. Gentleman and I share the view that savings are important, so I am disappointed that he has not got behind the pensions reforms that the Government have introduced, the child trust fund and ISAs—all schemes that we introduced to raise the level of savings, particularly for the young and those on lower incomes.
Given the changes to demography that we are all witnessing, will my hon. Friend give the Treasury’s view of the report by Sir Derek Wanless, requested by the King’s Fund, about the cost of long-term care? Does the Treasury hold talks with the financial services sector about bringing together public and private policies so that we can have a range of financial products in which it makes sense for people to invest when they are young for their care when they are old?
My hon. Friend is an active and articulate advocate for stronger policies and support in that area. Following the Wanless report, and particularly in preparations for the comprehensive spending review, we are looking at precisely those areas.
An article in the Eastern Daily Press yesterday states that one in 10 East Anglian families cannot afford food or medicine, or risk eviction because they are
“too poor to pay rent”.
Research shows that that is due in part to poor financial management and inadequate saving. Does the Minister accept that he needs to do much more to encourage people on low incomes in constituencies such as mine to save money and learn how to manage their finances more effectively?
We need to do a good deal more not just in constituencies such as the hon. Gentleman’s, but right across the country. I hope that he will recognise the potential of the child trust fund, particularly alongside the greater education on financial affairs that we are looking to put in place through the education system. I hope that he and his party will be prepared to weigh in and support the efforts that we are making in that regard.