I beg to move, That the Bill be now read a Second time.
It is a pleasure to open the debate on the Saving Gateway Accounts Bill. The Bill will create a national saving gateway scheme, starting in 2010, giving 8 million people on low incomes the chance to save, with Government help, and I hope that it will have the support of hon. Members on both sides of the House. The aim is to give those on the lowest incomes help to start saving, to kick-start a saving habit among those who are often the least likely and least able to save, and to bring people into contact with mainstream financial services, some of them for the first time.
I am grateful to my right hon. Friend for giving way this early in her speech. I very much welcome the Bill. Does she accept that people on carer’s allowance are often among those on the lowest incomes? Will she extend the saving gateway provisions so that they apply to those people as well?
My hon. Friend might be aware that many carers will be covered by the saving gateway. Certainly, those on the lowest incomes will be covered. The Bill, as it stands, provides for a particular set of benefits and tax credits to be covered. It also allows for an extension to cover other benefits and tax credits in the future. It is right that the Bill should have that flexibility. At this stage, we have concentrated the focus of the saving gateway on people of working age who would most benefit from the support and incentive to start saving for the first time. The provisions are being aimed at those who have no savings, who are often the most vulnerable as a result.
We know that the lower a household’s income is, the lower its savings tend to be. For example, the most recent family resource survey shows that 24 per cent. of households have no savings. While that includes some households that lack savings only for a short time or for a particular period, it also includes households on the lowest incomes that never manage to build up savings and that might be most in need of savings to deal with the financial problems that can occur from time to time in everyone’s life.
My right hon. Friend has been talking about the client groups that might be referred to the saving gateway. I am sure that she is aware that our colleagues in the Department for Work and Pensions have been preparing the reform of the social fund. Many of the clients of the social fund are exactly the same people who will qualify for the saving gateway. Is she having discussions with that Department about the opportunities that the Bill might give us to refer people making social fund applications to the saving gateway, so that our dialogue with them can do more than just deal with their present emergency, and perhaps enable them to move towards accessing better financial services in the long term? The gateway might provide a means for them to do that.
We are in discussions with the Department for Work and Pensions about a series of ways in which we can help those on the lowest incomes. He is right that in many ways the approach of the saving gateway is to encourage people to put a little by to deal with the sort of problems that can end up driving people to ask for help from the social fund because they have no savings. If somebody’s fridge breaks, for example, and they need to buy a new one, but do not have any way to make ends meet or any savings to draw on, it will be much harder for them to do so. I will certainly pursue my hon. Friend’s specific point about whether different referral points could be considered. The intention behind the gateway is that people will be contacted and told that they have entitlement at the point at which they begin to claim a benefit or tax credit. When the scheme starts, there will be an initial wave of needing to contact everyone who is currently on benefits, but I will discuss my hon. Friend’s points further.
Before the Minister moves on to the body of her speech, may I welcome the principle of the Bill, which is absolutely right at this time? The recent VAT cuts were designed to encourage spending and promote economic activity, and now we have this Bill, which is designed to encourage low-income people to save. Both are absolutely appropriate and both are right at this time, but how can we ensure that the target audience does not get a mixed message?
The saving gateway is a long-term programme to help those on the lowest incomes. It will be implemented in 2010 and it is intended in the long term to help people who otherwise might not save at all to build up some savings. The VAT cut was introduced as a temporary fiscal stimulus in order to support the economy right now by putting money into people’s pockets. Some will have to use the money they save from the VAT cut to pay down debts or deal with problems in their lives while others will be able to spend their money. It is part of a temporary fiscal stimulus, which is about supporting the economy in the short term.
Those on the lowest incomes are the least likely to have savings; 36 per cent. of households with weekly incomes of £100 to £200 and 43 per cent. of those with less than £100 a week have no savings at all. We all know the advantages that come from building up a stock of savings: they can provide people with independence and security if things go wrong and with comfort in old age, and make it easier to deal with unexpected events and to plan for things such as presents for the kids at Christmas or putting down a deposit on a house. We all know about the problems that can be caused by a lack of savings.
Our approach is that the Government will match people’s savings with an additional 50p for every pound saved, up to a certain monthly amount of about £25. Over time, people will be able to get a lot of support from the Government in response to the savings that they have put in. In addition—[Interruption.] Hon. Members are asking how that Government support would translate into an annual interest rate. Account providers may provide additional interest, but that will be a matter for the account holders. I urge those concerned to provide that interest, but the Government’s matched contribution will match the contribution of the saver rather than the interest added by the account provider.
My right hon. Friend has been generous in giving way so early in her speech. On the basis of the figures she has given, she is making a very clear case that the Bill is a desirable and significant measure. It is certainly a simple measure, but is she happy that the eligibility criteria are wide enough? The Treasury impact assessment suggested that £130 million in the accounts would be doubled up by the Government to £260 million over a two-year period. That £130 million a year represents about one five-hundredth of the additional retail banking deposits in 2007, for instance. If the scheme is to be commercially viable, should not the criteria be widened beyond the groups that she has described?
We believe that 8 million households will be eligible to set up a saving gateway account. The Bill provides for that eligibility to be widened, narrowed or otherwise changed in accordance with circumstances, but we think it right to begin by making the accounts available to the 8 million people who are on the lowest incomes who need and could depend on such support. Some of the pilots set up to examine different ways of widening eligibility found that those on higher incomes were more likely simply to recycle existing savings into the accounts. The purpose of this programme is to help those without savings to start saving for the first time, and to give them additional support and incentives.
We have wider programmes that support savings more generally. For example, 18 million people—one in three adults—have individual savings accounts, which provide tax-free savings. More than 4 million children have child trust funds, which the Government introduced to encourage and help families to build up assets for the youngest in our society as they grow, and to provide for their future. However, we believe that there is a case for a new incentive for people on lower incomes in addition to those schemes, and that is what the saving gateway is designed to provide.
The Chief Secretary is being very generous in giving way. May I pick up her point about eligibility and breadth? Have the Government any views or information on the persistence of the change in behaviour that they are trying to create? In other words, if they can create a saving culture among low-paid workers, how long will their assistance need to continue before that culture is ingrained and state interference—or state help—becomes unnecessary?
One of the purposes of our pilots was to explore such issues. We concluded that people should be given help with the savings that they made each month for two years, and that at the end of that period they should be able to decide what they wanted to do with the sum, but an account would be available for it. The evidence from the pilots suggested that people continued to save after the expiry of the two-year period, but obviously people will make different decisions. Some people will decide that they have saved the money for a purpose, in order to buy or do something.
It is right for people to be able to make such decisions themselves, but we believe that the pilots had a significant impact. Those involved in them spoke very positively about the effects. One participant said:
“We now realise the importance of saving for a rainy day or emergency...It’s definitely made a difference.”
A participant in the second pilot said:
“They gave you that push forwards, they gave you that step forward that a lot of people find hard to take into saving. Once that happened, it was easier to carry on from there.”
The outcome of the pilots, between them, was that people saved more than £15 million and earned more than £5 million in Government contributions. People did save more. In the first pilot, which involved a higher matching rate, the number of people saving regularly quadrupled, and the amount being saved each month doubled.
Can my right hon. Friend extrapolate from the figures that emerged from the pilots how many of the 8 million eligible people would open a gateway account, and what percentage would move to mainstream financial organisations after two years?
It is difficult to provide precise predictions about what the long-term consequences will be. We think that the results from the pilot were significantly strong, however, to justify introducing the scheme on a national basis. After the first pilot, 41 per cent. of the participants were still saving regularly three months after the first pilot finished, compared with only 16 per cent. who had done any saving before the pilot started. About 88 per cent. of those in the first pilot indicated an intention to continue saving. That was a significant response, but we should be clear that people will make their own decisions and will have different requirements and different needs that they need to fulfil with the money. We think that it is right to provide that support.
The aim of the scheme is not simply to support savings, but in many cases to encourage people to use mainstream financial services, often for the first time, to set up bank accounts. The Post Office, for example, has said that it will run a saving gateway account. People will be able to access mainstream financial advice and support and so on, too.
I congratulate my right hon. Friend on introducing the Bill, which encapsulates the flexibility that she has talked about in how the accounts operate, and on the incentives built into the scheme to get people to save. Of course, one of the things that we have learned from the child trust fund experience is the difficulty of reaching the most difficult-to-serve group in the country. It will be extremely difficult to reach those 9 million people with the benefits that this saving can allow them to achieve. What efforts will my right hon. Friend make to ensure that the messages about the account are put across to that group?
My hon. Friend makes an important point. To make the scheme as simple as possible to operate, people will be passported across from existing qualifying benefits and tax credits. They will not need to fill in a means-testing form, to complete a means test or to demonstrate in any way that they are eligible. They will not need to contact the Government. They will receive a notice of eligibility automatically from Her Majesty’s Revenue and Customs, which will be operating the scheme. The gateway accounts will be offered by a wide range of providers. We have discussed the scheme with a wide range of institutions, and as I said, I am pleased that the Post Office will be making the accounts available through its branches. The chief executive of the British Bankers Association has said:
“Britain’s banks are committed to helping this vital initiative to work”.
My hon. Friend is right that we will have to keep the subject under review and that some people will need more support than others.
We see the scheme as part of the wider programme of investment in financial inclusion more generally. We have provided support through more than £100 million that has been put into support for people through credit unions, advice services and debt services over the past few years. We have put in additional money as part of the pre-Budget report in order to help people to deal with the often difficult circumstances that they might face as a result of the global credit crunch. On all such occasions in future, we would want people to receive advice on whether they might be eligible for the saving gateway and on how they might be able to use it.
In the context of the wider work that we are taking forward around the Thoresen review, which was about providing people with generic, free advice about how to manage their money not just when they reach financial difficulties or crisis but in planning for the future, the savings gateway might be exactly the right thing for many people who are asking for that more general financial advice. We need to ensure that those schemes work together as well as possible.
I said that I would give way to my hon. Friend the Member for West Bromwich, West (Mr. Bailey). After that, I shall give way to the hon. Member for East Antrim (Sammy Wilson), but then I shall make some progress, as I am conscious that other hon. Members want to speak.
I thank my right hon. Friend for giving way; she is being most generous. I welcome the Bill. It is vital, in my view, for targeting a section of the community that historically has not saved. We need to get it saving, not just for social reasons but for economic reasons. May I pick up on her point about providers? Given the fact that the sums of money involved are not terribly significant to the mainstream financial providers, although they are significant to the target clientele, will she confirm that she is talking with organisations such as mutuals, building societies and friendly societies, which have already demonstrated that they can be low-cost providers through the child trust fund, about whether they can deliver this product?
My hon. Friend makes an important point. We are having discussions with a wide range of financial institutions, and we hope that credit unions, building societies and others will be able to offer these types of saving gateway products. He is right to say that that provision may fit with the other services and products that those organisations, especially the credit unions, already offer. We hope that the additional Government support being made available will enable them to offer these products more widely to people.
The provision of these saving gateway products by financial institutions is also a way to help people avoid some of the unregulated products that can cause difficulties. For instance, when Farepak collapsed just over two years ago, there was no protection for people under the financial services compensation scheme. In contrast, people who put money in through the saving gateway will get the additional support that comes with regulation and financial back-up.
This important measure is intended to get people on low incomes to start saving and my party supports it, but in the pilot schemes, what percentage of those eligible actually took advantage of the opportunities being presented? Many of the folks who will be covered by the Bill probably find it hard enough to make ends meet day to day, so what lessons have been learned about what needs to be done to encourage eligible people to take up the opportunities being offered?
I do not have the precise details of the answer to the hon. Gentleman’s question, but we have published the results of the pilot schemes and they covered all these matters, including the level of take-up and how people responded to the measures. About 16 per cent. of those who did save said that they had been saving before the pilot scheme started, so there was a big increase in the number of people who saved who had not done so before, but I shall be happy to provide the hon. Gentleman with further information on that. We wanted the pilot schemes to try different approaches for the people who might be eligible, and to use different types of matching rates so that we could determine which worked best. It was on the basis of those pilots that we decided that the 50p matching rate would be the best, as it would enable us to use Government money to support as many people as possible and have the maximum impact on savings in the longer term.
I am grateful to my right hon. Friend, who is always very generous. With reference to the question asked by my hon. Friend the Member for Edmonton (Mr. Love), may I urge the Government to look at some inventive ways of reaching out to people? We all recognise that the Government have difficulty reaching the sort of people who one hopes will enrol in this scheme, whereas doorstep lenders, some of whom are sharks and charlatans, seem to be able to reach people on the estates. They are able to manage weekly collections and so on, and the Government, with all their resources, should be able to do the same, if they could be a little more inventive. May I therefore urge the Minister to adopt a certain level of inventiveness, and to use mechanisms such as credit unions as well?
My hon. Friend is right that we need to guard against the exploitative approaches often adopted by loan sharks or other types of doorstep lenders. That is why we have taken action to clamp down on such practices, and why we are putting investment and support into providing people with different types of advice; for example, it might be possible to provide such advice through people’s housing association or local council. Other sources of money help and advice at different times of people’s lives might be Sure Start staff, or health visitors. We should not limit ourselves to the traditional services and approaches, because we want to make sure that the savings gateway is linked into our wider approach in respect of financial inclusion and the provision of advice, education and support on money matters.
Clause 8 sets out how the Government contribution will work. The maturity payment will be calculated on the basis of the highest balance reached during the account, which means that as savers build up money in their account they will also build up entitlement to the maturity payment, but they will not be penalised for withdrawing their money at any time. We think that is important to build confidence for those on the lowest incomes, so that if they have savings that they might need—perhaps in 12 or 18 months’ time—they will have access to them and will not find that their money is tied up for the full two years until the maturity payment is made. That is the kind of important flexibility that will benefit people and encourage more of them to take up the scheme.
That approach has been widely supported by organisations working on financial inclusion and money support, by representatives of people on lower incomes and by the financial services industry. It has also had long-standing support, which I welcome, from the Treasury Committee, which said:
“The introduction of a national Saving Gateway would be the most important single step towards achieving the aim of increasing saving among low-income individuals and households.”
Our approach is to build up support for those of working age who need to consider saving for the first time. The Bill comes alongside other measures to look at how we can encourage people to save more for their pensions and for their future. I welcome the support and engagement that we have received from a range of bodies, from community groups to financial institutions.
The saving gateway offers a real incentive to save for working-age people on low incomes—a group with lower savings than the rest of the population and that needs them most. We think it is the right way to approach savings and support, providing help that could make a real difference to the lives of up to 8 million low earners, encouraging them to build a savings habit and helping to bring them into the financial mainstream. I hope there will be widespread support for those objectives both inside and outside the House, and widespread support for the Bill. I commend it to the House.
People might ask why, in the middle of a recession, when the Government are encouraging people to spend, they are proposing a Bill that encourages people to save, but I see it as long overdue recognition of the need for savings and the impact of the lack of savings on families today. No one should underestimate the importance of savings for families. Savings provide a cushion against financial uncertainty, especially in times such as these. They help people to take responsibility for their future and enable them to make purchases without relying on credit.
The culture of saving should never be seen as the preserve of the affluent. It is important that, when possible, people are encouraged to save, regardless of income. That message was brought home to me when I visited a credit union a couple of years ago. Staff told me that people were paying their benefit into their account and then withdrawing all of it, bar a few pence. When I asked why, I was told that it was a way for people on benefit to accumulate a small nest egg, to put aside some money for a rainy day or to meet unexpected expenses. People who might otherwise have turned to a loan shark or a pay-day lender could rely on their savings instead.
The Bill is helpful in tackling financial exclusion and encouraging savings, but it comes against a backdrop of low saving in the economy as a whole and an astonishing degree of complacency from the Government, who seem happy to allow the economy to grow on the back of debt rather than build sound foundations with a reasonable level of savings. Ministers challenged about the fall of the savings ratio from 9.6 per cent. in 1997 to 1.8 per cent. today seem to wear it as a badge of honour and as a sign of people’s confidence in the Government’s running of the economy. That hubristic attitude means that households are now badly placed to face the downturn; they do not have savings to act as a cushion against financial uncertainty. With the lowest savings ratio in 30 years and a third of families having no savings in 2006, compared with only one in 10 in 1997, families are ill prepared to cope with the financial shocks that many face today.
There is evidence of families in financial distress turning to their credit cards for short-term help; they are even being encouraged to use credit cards to pay their council tax, because they have no savings to dip into. That is a symptom of an economy built on debt and a culture that depends on debt to fund a lifestyle. What we need to move towards is an economy built on savings—savings that provide investment in industry, as well as a cushion for people’s future and savings that help people to provide for themselves as well as help them to face unexpected challenges in their income and outgoings. We must help people to rebuild their savings in good times to prepare them for bad times.
The Bill’s narrow focus means that it will not help the vast majority of families and households to build up savings and protection for their future, because it is targeted very narrowly on people in receipt of benefits or on low incomes. The Bill will do little to repair the savings culture in the UK, which the Government have allowed to decline over the past 11 years; nor will it help families to switch to paying for big-ticket items from savings rather than from debt, or restore saving as a mainstream habit rather than an eccentric interest. In short, it is no answer to our nationwide addiction to borrowing.
Like my hon. Friend, I think it very important to encourage a savings culture. Did he notice how, when I asked the Chief Secretary what return people could expect on their savings, there was no answer? The concentration was on the bonus element from the Government. Do we not also need to concentrate on what return over the longer term people might enjoy on their savings?
My right hon. Friend makes an important point. The Bill does not stipulate that the account provider should provide interest. In this time of low interest rates, I would expect account providers to pay relatively low—if any—interest, so savers will be dependent on the bonus on maturity to provide a return. One of the challenges that emerged from the pilot which the Chief Secretary did not mention was that some savers need to be advised that if they put their money into a straightforward savings account, they will not get the same rate of return as from a saving gateway account. Some financial education needs to be attached to the Bill’s implementation to ensure that people know what rate of return they are likely to get when the account matures at the end of the two years.
The proposal is important in tackling the financial exclusion of families in receipt of benefits. It should provide an incentive to them for creating a saving habit.
The hon. Gentleman says that the Government have done nothing to encourage saving, but does he accept that measures such as individual savings accounts have provided some incentives in the tax structure for people to save? The saving gateway account helps people who do not pay tax—who are below that income threshold—so it makes an important addition to a suite of Government products to encourage saving.
It is a welcome addition to a suite of products, but the savings rate in this country has fallen from 9.6 per cent. in 1997 to 1.8 per cent. today. The Government’s measures have not been effective in encouraging people to save. If they had been, we would see more families with savings, not an increase in the number of families who have none. The Government’s measures have not been effective in creating a savings culture. Instead, people have moved from seeing savings as a way of protecting themselves from financial uncertainty and unexpected changes in their income to depending far more on credit to see them through. We need to address the cultural change, which is one of the factors behind the decline in saving.
It is important that we give people an incentive to start a saving habit, and the gateway account recognises some important truths about the way people save. People are more likely to save more if the money is put into a separate account, rather than staying part of their current account, preferably with an incentive to discourage access. The scheme works in that way by rewarding savings with the 50p in the pound bonus based on the highest account balance. We understand and support the concept of heavily incentivising long-term savings, while recognising that people may need to withdraw savings to meet short-term needs—indeed, that concept underpinned the proposal in our 2005 manifesto of a lifetime savings account. There is some common ground in our understanding of the approaches that need to work if we are to encourage and rebuild the savings culture.
We need to ensure that the scheme can demonstrate a change in cultural attitudes—that it can encourage people to save. People must be able to save while the account is in existence, and they must be able to increase their net worth, not just over the saving gateway account period, but in future. We also need to make sure that banks, building societies, credit unions and the Post Office participate in and promote the scheme. Interestingly, the pilots indicated that the further away someone lived from a bank that offered the saving gateway account, the less likely they were to open the account. That is why it is important to ensure a network of providers.
In her opening remarks, the Chief Secretary to the Treasury said that the Post Office was interested in providing the accounts. It would be helpful to know which other institutions are prepared to set them up. Banks and building societies have said a lot of warm words in support of the saving gateway account, but I am not aware of anybody else who has made a definite commitment to establishing a saving gateway account.
The hon. Member for Northampton, North (Ms Keeble) mentioned the Government’s other measures to incentivise savings. Stakeholder products were introduced following the Sandler review of savings, but take-up of some of the basic products has been poor because of flaws in their design. The child trust fund could contribute significantly to saving, but the proof will come when the fund starts to mature and we see what 18-year-olds do with the amount that has built up in their account.
I suspect that we all know what they might do with it, but perhaps we ought to think about how we stop young people doing that. How do we encourage them to reinvest the proceeds in savings, so that a positive benefit results from the child trust fund?
The saving gateway is another of the Government’s initiatives—some of which have been successful, and some of which are unproven so far—to try to tackle financial exclusion. We have had to wait an awfully long time for the Bill, which was a manifesto commitment in 2001. The Minister has not really said why it has taken so long to get to this point; perhaps the Economic Secretary to the Treasury will explain why in his winding-up speech. There were two pilots before the scheme was approved last year, and it was re-announced three times.
Even today, after such a long gestation period, lots of details are missing from the Bill. A lot of the key points are deferred to regulations, but so far we have seen only two sets of draft regulations—on tax credits and on the definition of UK residents. When will we see the other draft regulations? Will we see them before the Committee sits in a couple of weeks?
Questions remain. The Bill does not require banks or other account providers to pay interest. We do not know whether there is an expectation that providers will pay interest. If there is, it will clearly be a financial disincentive to the providers who are setting up the accounts. We need to be clear about the Government’s expectations. What will happen to the money in the account at the end of the two years? Will it automatically roll over into another savings account, or will it transfer to a current account?
Again, it is such a pity that the Chief Secretary to the Treasury will not engage with this important issue. The Government appear to think that there will be some interest, because the worked examples show interest, albeit at a tiny rate, below even the current very low market rates. That is one of my concerns.
I suspect that, despite the worked examples, the expectation is that no interest will be paid on the accounts and that the return for investors will purely be the matching bonus paid for by the taxpayer—not interest paid by the bank, the body with custody of the money. The return will be off the back of the bonus that the Government will provide.
One challenge, and one issue that we need to flush out—not necessarily today, but in Committee—is to understand the economics of the model for the provider. Will other bank account customers end up subsidising the provision of the saving gateway accounts? We need to understand the issue clearly, because the extent to which the product is uneconomic for banks will limit its availability. That was one of the lessons of the Sandler review on savings and basic stakeholder products: because it was uneconomic to provide them, no one did so. That undermined the Government’s initiative to try to tackle financial exclusion.
Does my hon. Friend agree that if interest is not offered on those accounts, the following lesson or habit is likely to result? People will become subsidy farmers searching for bonuses from the taxman, rather than search for economic returns on their savings, so we will not necessarily succeed in creating a savings culture. Does he agree, too, that further to his earlier point about the distance that people must travel to account providers, if there is not sufficient local competition, especially where there is low bank penetration and there are not many branches, interest is even less likely to be offered?
My hon. Friend makes a number of interesting points. Consumer access to banks and post offices selling those products is important. The only organisation that has indicated that it might launch the products is the Post Office, but post offices are closing across the country, and that makes it more difficult to find access points. It would be good to see a vibrant market, so savers must be given information and guidance about the accounts, enabling them to understand what will happen at the end of the two-year period and what standard returns they can expect from other savings accounts. They need to recognise that there is a value in savings that are not simply about returns, although they are important. We must look carefully at that, but my hon. Friend has made a brave bid to serve on the Public Bill Committee, and perhaps in its evidence session he will openly put some of those questions to witnesses. My hon. Friend the Member for Reigate (Mr. Blunt), who is the usual channel today, will have noted his comments with interest.
I accept the hon. Gentleman’s point about whether the accounts will pay interest, but the important thing is that there should be an incentive for people to start saving. If a 50 per cent. bonus is available, and even if in the first two years no other interest is available, that will be an incentive. If people wish to obtain a return after the two years have elapsed, they will have a fund of savings that they can put into an account that offers a return. The essential point of the initiative, however, is to give people the incentive regularly to start putting money aside. Will the hon. Gentleman at least concede that the Bill provides that incentive?
We all share the Bill’s laudable aims. Through that incentive, it will create a savings culture and encourage people to save regularly, giving them the confidence to plan their expenditure and protecting them from uncertainty. One of the challenges is to make sure that that happens, so we must consider what needs to be in place to ensure that it does. The Minister presented a rosy view of the pilots, but the outcome was not as clear-cut as she suggested, and I shall come on to that in a second. Yes, we want a strong savings culture to emerge from the measure, and for many people the bonus may be enough in itself to encourage them to save, but they must accept that they are likely to obtain a low return once the account matures.
Before the hon. Gentleman generously accepted a series of interventions, he was discussing what would happen at the conclusion of the two-year period. I agree that clause 16 is not entirely clear, but if he turns, as I am sure he has, to paragraphs 81 and 92 of the explanatory notes, he will see that the Government’s intention is that funds in the accounts should go into individual savings accounts.
Yes, and the Bill certainly enables any roll-over to be treated as a subscription for ISAs, but it will be for account holders to decide what happens to the money—whether it goes into their current account or into a cash ISA. In many cases, the money will go into a cash ISA by default, which will have a lock-in effect. The evidence from the pilots was that many people were keen to put the money that they had built up into their current account and revert to more informal methods of saving.
I was about to raise some questions about the amount of interest that institutions have shown in the account. I dealt with that in my comments about the Post Office and the lack of any clear evidence from the banking sector of a willingness to participate in the scheme. Without interest from the financial services sector, it will be a challenge to make saving gateway accounts widely available.
There are questions that get to the heart of whether the scheme will work. Will it boost long-term savings, and will it change the behaviour of account holders? The pilot scheme demonstrated some benefits, but it demonstrated some challenges too. In an article that he wrote for this week’s Parliamentary Brief, the Economic Secretary stated:
“The evidence is that it works.”
That is an emphatic statement, given that the pilots were not quite as emphatic as that. We know that user participation was high—seven out of 10 users contributed in 16 out of the 18 months of the trial run—but participation is not enough.
What are the long-term benefits? What are we getting in return for the quite generous bonus that we are giving to savers? For the scheme to work, first, the savings made under it must be new savings, rather than a transfer of existing savings with a match from the Treasury, and, secondly, at the end of the life of the saving gateway account, savers must continue to save through other financial products. In other words, saving must become a permanent feature of people’s lives, not a one-off opportunity for a windfall.
In the second pilot, questions were raised about whether the scheme was effective in meeting those two objectives. First, there was no statistically significant evidence that, in delivering genuinely new savings, the saving gateway accounts delivered higher overall net worth. The number of anecdotes, rather than hard evidence, used to support the proposal is interesting. It appears that money was moved from one set of savings to another, perhaps from a current account to a savings gateway account, simply to secure the Government match. Despite offering a significant programme of financial education about the availability of saving gateway accounts, fewer than half the participants said that they would save all the money that they had accrued when their accounts were closed.
Financial capability is an important part of tackling financial exclusion. The accounts should not be opened unless support is available. There was substantial support in the second wave of pilots. We must ensure that people are equipped with the knowledge and skills to judge the trade-off between paying off debt and saving—how to manage their bills and to save. People need to understand that the generous incentives offered by the saving gateway account are not replicated in other savings accounts. Tackling financial capability will help with saving gateway accounts, but it should be seen as an important part of rebuilding the savings culture.
Tax incentives have a role in encouraging savings, as we recognised in our plans to scrap the basic rate of tax on savings for basic rate taxpayers in the 2009-10 fiscal year. That was a sign of our commitment to rebuild the savings culture. We also advocate an industry-funded national money guidance scheme to help improve financial capabilities. The Government announced today some partners in their roll-out of pilots, but the current financial crisis demonstrates how important it is that there should be a national money guidance scheme, so that people will be able to think more carefully about how they manage their money, so that they will be more likely to save and so that they will have greater confidence in savings and investment. There is a range of measures that we need to take if we are to rebuild the savings culture and the long-term health of the economy.
The saving gateway could be a valuable tool if the incentive to save through the matching contribution creates a savings culture and results in a long-term increase in net wealth, but we need to be bolder in our vision. If it is right to encourage people on benefits to save, should not we be looking for ways to encourage people across the income range to save for their future, to cushion them against unexpected changes in their income and outgoings? The Government’s record in the past 10 years has been one of presiding over a collapse in savings. We have talked about the calamitous decline in the savings ratio since 1997 and we need a change in Government if we are to change Britain’s savings culture.
I am grateful to have the opportunity to contribute to discussion on a Bill that commands broad support in principle from hon. Members on both sides of the House. I share the concerns that others have expressed, including most notably the hon. Member for Fareham (Mr. Hoban), about the declining savings ratio in Britain, so in that regard the Bill is timely. We are now seeing the product of a decade of encouragement for instant gratification, excess consumption and excess credit. We are all now reaping the consequences of that in the form of a significant recession, which may last for an extended period. Therefore it is right to step back and consider how we can try to encourage a broader savings culture across all stratas of society and income scales.
I remember that when I was in my teens and becoming more interested in politics the big buzz phrase was “a share-owning democracy”. I was supportive of that concept, as were other hon. Members who were here at the time and who vocalised their support, because in order to have a more socially mobile society and to have greater opportunity for people to have a stake in society, we need to ensure that more people have assets and do not live on a day-to-day or week-to-week basis in terms of their finances, and that they have a more entrenched and permanent stake in the society in which they live. If people look back, they will see that in the 1980s there was a broadening of the asset base in the UK, but it was largely, although not exclusively, broadened to people who could loosely be defined as middle class. There is nothing wrong with that. I make no criticism of that; I merely make the observation that many people on middle incomes who previously had not had assets acquired assets, particularly in state-owned companies—utilities—that were sold in the 1980s. Interestingly, this legislation seeks to improve the savings culture and incentives for people lower down the income scale who in most cases did not take advantage of the opportunities that presented themselves during that period.
For a lot of people their biggest and, at the moment, most rapidly depreciating asset is indeed their home, and home ownership increased substantially in the 1980s, although to be fair to the Government, home ownership has increased substantially again during this decade as well. The problem for some people is that if they bought their homes for close to the maximum mortgage that they were permitted to take out a year or two ago, they are probably now in negative equity, but I do not doubt that for millions of our fellow citizens their house is their biggest asset and they are very pleased to own a house, or at least part of a house, and to have a mortgage on the rest. However, with regard to the Bill, we are in many cases talking about people who would not realistically be able to afford a house, although they may use the scheme as an opportunity to try to put together a sum of capital that could conceivably be used as a deposit on a property.
Society is strengthened if savings and assets are widely spread. People may have views about whether the state should continue to own utilities, particularly monopoly-providing utilities, but leaving that to one side, the benefit was that people who previously did not have assets in society and a financial stake in society then did so. My party and I support the Bill because it extends those advantages, in a modest way, to perhaps the 10 or 15 per cent. of people at the lower end of the scale who would not have felt that they could participate in the savings culture in the past and may now see it as being attractive.
We should all welcome that, because savings give people greater security and independence. I venture to suggest that most of us in this Chamber have the flexibility to be able to afford a one-off surprise cost. The Minister gave the example of a fridge or a washing machine breaking down and needing replacing, or there could be a school trip where the parents wish for their son or daughter to go with the rest of their classmates but are expected to make a contribution to the cost. Enough leeway should be built in to ensure that they do not get to a day or two before pay-day and have to say, “I’m afraid we can’t do that because we’ve run out of cash and are just trying to keep the machine running on empty until the next payment comes our way.” They should not have to operate in that hand-to-mouth way in their personal finances. People on bigger incomes with some savings have the security of not having to do so. Inasmuch as this scheme helps people on lower incomes, it will be widely welcomed.
Does the hon. Gentleman agree that another reason for welcoming such a scheme is that, in a small way, it redresses the balance as regards pensions? I imagine that almost all those who will be eligible have little or no pension provision. The state currently subsidises pensions to the tune of £18 billion a year through tax relief, which is available to an awful lot of people, but not to those who will be incentivised under the Bill. Those people will get a different kind of incentive from the state to save for the future.
The hon. Gentleman slightly diverts me from the path that I was taking, but he makes a good point. People such as Members of Parliament who qualify for tax relief at the higher rate get a large subsidy from the state to save for their retirement. Obviously, someone who does not have that level of income in the first place cannot qualify for that level of subsidy. That means that a lot of people reach retirement and have to be wholly or almost wholly reliant on the state pension, which makes it difficult for them to achieve a standard of living that they would wish to achieve having worked for perhaps 50 years up until that point.
Inasmuch as people can be encouraged to save, the scheme is clearly beneficial. As the hon. Member for Fareham suggested, we can try to encourage people not necessarily to say to themselves, when the scheme reaches maturity, “Oh, here is an opportunity to buy an item”—a new car, a new fridge, or whatever—so that money is still left over after they have dealt with the emergency contingencies. They may then continue saving and put the money into different schemes or initiatives. That will mean that they have a savings culture—a point touched on by the hon. Member for Weston-super-Mare (John Penrose)—instead of seeing the scheme merely as an opportunity to qualify for an enticing state-run, taxpayer-financed, one-off way of accruing a capital lump sum without acquiring a savings habit at the end because all the eligibility for taxpayer support has been exhausted. That would be a shame. The Economic Secretary will assist us if he gives a sense of how much the Government think that the scheme is going to stimulate a wider savings culture and whether he is satisfied that the pilot studies will achieve a multiplier effect in terms of the initial taxpayer subsidy encouraging beneficial behaviour many years down the line.
It is important for people to have a stake in society. This morning, I was in a debate in Westminster Hall initiated by the hon. Member for Nottingham, North (Mr. Allen) in which the right hon. Member for Chingford and Woodford Green (Mr. Duncan Smith) also spoke. They have both worked hard—one Labour Member and one Conservative Member—on early intervention and social exclusion. In all of our constituencies, even in those that might be regarded as being reasonably affluent overall, there are pockets of social exclusion and deprivation where people live on very low incomes with no sense of a wider time scale than beyond the end of the week or the end of the month. There is not a culture of people planning their finances for the longer term, or for their retirement, in that way. Many people who live in those circumstances have very modest incomes, so their scope for saving is curtailed, but we should welcome the opportunity for those people to embrace a culture of saving and seek to save as much as they reasonably can within the modest means available to them, and for the Government to incentivise and encourage them to do so, particularly if it leads to the longer-term change in outlook that I have touched on.
I would like to deal with a few related issues. It will be a problem for the scheme, and also for taxpayers, if those who are already saving transfer their funds into this initiative in order to qualify for the generous taxpayer assistance that it brings. The difficulty is trying to target those who would not save while not penalising those who have a slightly higher income or a slightly greater propensity to save. That is a difficult balancing act because we are creating a new kind of poverty trap where people are regarded as slightly too wealthy—even though, compared with most people, they are quite poor—or even too responsible to qualify for the scheme. There may be people on low incomes who nevertheless manage to find some scope for saving, and I would not want them to be in any way discouraged or penalised because they were already saving. We have to walk that tightrope to get best value for the taxpayer, while encouraging the maximum number of people who would not otherwise save. That requires a little second-guessing of how people might behave in the future. We can investigate and discuss those issues at greater length in Committee.
I am also concerned that the scheme should not be abused. In the case of a number of Government initiatives, parents can, with some creative accounting, ensure that one side of the couple holds all the assets and income, and that the other side of the couple—particularly if they are divorced, or not married in the first place—holds none of the assets. People who are effectively one financial unit may be able to qualify through one person’s status and not the other’s. I am not saying that anyone is perpetrating that abuse, but it is important that the scheme, and the taxpayers’ money going into it, is targeted at people who will genuinely benefit from it, rather than at those who see it as an opportunity to qualify through spurious criteria. That means it is important that we ensure, when scrutinising the legislation, that any loopholes are ironed out in Committee.
I say in passing that a member of the hon. Gentleman’s Front Bench team was claiming tax credits a little while ago, but on his point, clause 3(2)(c) refers to someone on jobseeker’s allowance. Does he agree that a more felicitous wording would be “income-based jobseeker’s allowance”, because millionaires can get jobseeker’s allowance if they lose their job, for up to six months afterwards?
Not for the first time in one of these debates, the hon. Gentleman makes a precise, targeted point of exactly the type that I hope he will make more of if he sits on the Committee that considers the Bill. That is precisely what I was driving at. People in those circumstances—not committing fraud, or doing anything improper—could qualify for support in a way that most of us would regard as an inappropriate use of taxpayers’ money. He alluded to my hon. Friend the Member for Northavon (Steve Webb); I do not know the details of the case, but that was another example of someone who was doing nothing improper, and all it did was serve to underline the fact that the basis on which tax credits were available to British citizens were too loosely drawn by the Government, and went too high up the income scale. He underlined the failings in the Treasury’s initiative. That was precisely what I was driving at, and I am grateful for the intervention.
Earlier today, I showed a delegation of members of the Taunton Royal British Legion around the House. I told them that I was hoping to participate in the debate, and I told them about the nature of the Bill. Not all of them are of working age any longer, so some of the legislation will not apply to them directly, but they made the good point that they thought it unreasonable that the minimum starting point for premium bond saving was £100. I confess that I was not aware of that. I know that it is not directly related to the Bill, but it is indirectly related to it. They said that they would like to encourage saving—for example, by giving their grandchildren some premium bonds as a Christmas or birthday present—but were not in a position to give £100 of premium bonds. While considering the Bill, the Government need to examine other ways in which people on lower incomes may be prevented from saving or from participating in savings initiatives.
Finally, and directly related to the Bill, I wish to raise a small, procedural point. There is cross-party support for the Bill from the three largest parties and from the nationalist and Northern Ireland parties, but that does not mean that the Government should hope to pass a Bill that is so loosely drawn that it leaves questions unanswered and leaves things too open to interpretation. A number of matters are to be left to regulations, with 29 separate delegated powers in a Bill of only 32 clauses. I have a list of them, which is not exhaustive, and I might not even read to the end of it depending on how I judge the mood of other Members present.
If the Bill is passed unamended, the Government will be able, by regulation, to change the rules governing the issuance of a notice of eligibility; change the rules governing the approved institution criteria used by Her Majesty’s Revenue and Customs; impose infinite compliance requirements on accounts in order for them to be saving gateway accounts; limit the size of monthly deposits; give HMRC unlimited powers to impose conditions or withdraw approval; design a true declaration to be included with each account application; decide on procedure and eligibility for account transfers; decide the level of the maturity payment; decide how long the account provider has to pay the account holder at the end of the maturity period; impose requirements relating to statements; decide when an account is no longer a savings gateway account; require account holders to submit returns to HMRC and decide on the time frame and content of those returns; force repayment if HMRC has overpaid to the saver; set a level of interest on payments to and by HMRC and the circumstances in which that will occur; exempt savings and payments from capital gains tax and income tax, and so on.
I am already getting bored of reading those out, but my point is that a lot of us will be uneasy about passing legislation if we are just assured by Treasury Ministers that everything will be okay, as we are all reasonable people who agree on a sensible way to go forward. That would be a recipe for problems down the line and our getting letters from constituents a few years hence asking why certain matters were not examined in greater detail during the passing of the Bill. The onus is on us to ensure in Committee that, although we share the Government’s laudable objectives, the savings system is as practical, efficient and workable as possible, and the best possible value for taxpayers’ money.
I am a company director and have declared my interest in the register, but I am not a director of a deposit-taking institution that could be affected by the Bill. I have in the past been a director of a bank, so I have some banking experience to draw on.
It is a great pity that the Chief Secretary to the Treasury did not go into the fundamental issue involved with savings, which is what kind of return the saver will be able to make on their savings. My party and I entirely agree with the aim of the legislation. It is an excellent idea to spread a savings culture more widely, and it is good that taxpayers should make a contribution to try to trigger savings interest for those who have little income and manage their daily budgets largely on benefits. However, if the Government want to inculcate the virtues and values of saving, they must demonstrate that the art, and task, of saving is to put aside some money every month to earn a modest return. One reason why there has been so little saving in recent years is that people believe that the returns have not been good, but the Government’s answer to the problem, through their monetary authorities, is to depress interest rates more and more so that the returns become ever smaller.
The worked examples that the Government have provided show that they are working on the assumption of an interest rate of less than 1 per cent. for saving gateway accounts. Even by the standards of modern accounts, that is a pretty poor return. My hon. Friend the Member for Fareham (Mr. Hoban) may have stumbled across the point when he said that the accounts will be expensive to operate, and that perhaps the Government are assuming that the banks will not be prepared to pay any interest, or will pay only very low interest because the accounts will be complicated to run for the amount of money in them. I hope that that is not so, but now that the Government are such a huge owner of banks, I look to Ministers to come to the House properly briefed with the answers to these issues. They are no longer theoretical, and the Government need not go to the market to obtain the answers. Ministers, on behalf of taxpayers, should be grappling with them daily because they now hold such an important position in banks on our behalf.
Everyone in the House and our constituents are involuntary shareholders of the Royal Bank of Scotland, in which taxpayers have a majority share. We are involuntary shareholders in Northern Rock, which is wholly owned by taxpayers. We are substantial minority shareholders in the Lloyds TSB group following the private sector shareholders’ decision not to take up the rights issue. In that capacity as shareholder representatives in the House, surely we are entitled to some answers today from the Government on what the attitude of those leading banks will be to such accounts and what rate of interest they would pay if the accounts were up and running today.
That is not a difficult question. One would have thought that any sensible, intelligent Minister—the Chief Secretary is clearly intelligent—would ask that question during the preparation of the Bill, which has had a long gestation, and would be able to tell us today. If Ministers want to generate enthusiasm for a savings culture in this country, surely they should come to the House proud of the rate of return that they can offer through their state-sponsored banks and the Post Office and in other ways.
Does my right hon. Friend agree that the reason for Ministers being unable to provide the answers that he seeks is that so many powers will be dealt with by regulation that the detailed design of the accounts is unclear? The cost to the banks of running them is difficult to project, and they do not know whether they want to be involved because of that uncertainty.
I fear that I am coming to that conclusion, but it is difficult to believe that that is true. Treasury Minsters are not stupid, and they have had a long time to prepare the legislation, so one would have thought that they would have fitted in a few meetings, talked to private sector and nationalised banks, and come up with some answers. If they want to enthuse people to save, they must do better than just suggesting that if people put money away for 24 months they will receive a special taxpayers’ subsidy to welcome them to the savings community. If Ministers are serious about people becoming long-term savers, what matters is the total package on offer, so that those concerned will want to roll their savings over when they have received the increment from the taxpayer and really adopt the savings habit.
I am glad that the Government have run some pilots, as pilots can be very instructive. The Government have learned something from them, but the most important thing for me is what the rate of continued saving by the people who participated in the pilot will be after one, two or three years. Will they simply take all the money out and spend it once they have the Government cash, thereby ceasing to be savers, or will the process do something important? Will it trigger the idea in those individuals that saving is a good idea and that they can save a deposit for a property, save the money for a training course that can give them the skills to get a better job or save for some other capital purpose from which savers can reap the benefit when they genuinely gain the saving habit?
The taxpayer’s interest is being protected by Ministers limiting the amount that can be paid in. We are told that the maximum will be £25 a month for any individual over the two-year term of the proposed package. I can see the common sense of that, because a high bonus is being offered relative to the amount put in. One thing that the Government might need to explain in more detail to the Committee is why they chose that balance. Why not have a lower bonus rate, but allow a longer and bigger build-up of savings? Did the pilots really prove that we need such a big bonus element relative to the amount of money being put in to make the account attractive? Is that not rather more in the spirit of a lottery and rather less in the spirit of savings than we perhaps need if we are to get the savings habit going?
I am delighted that the hon. Member for Taunton (Mr. Browne) said that he and his party are now very much in favour of wider ownership. As an adviser who tried to lead the charge for wider ownership in the ’80s for the then Government, I do not recall the Liberal Democrats being enthusiastic in those days. Nor do I accept his charge that people who were on lower incomes were excluded from the process. They were not excluded at all. I remember the lorry drivers of National Freight buying shares in their company on favourable terms and making a lot of money, and good luck to them.
I do not wish to be disagreeable, but I was not saying that there were not people on relatively low incomes who bought shares, including sometimes shares in the company that they worked for, in the 1980s. I was simply making the point that the current legislation deals with people on very low incomes. I was not saying that it was undesirable for people who would not consider buying shares, but who may have been slightly higher up the income scale, to own shares; I was merely saying that the Bill perhaps deals with a slightly separate section of society.
I am relieved by that clarification, but that was not the position of the hon. Gentleman’s party at the time. One of the exciting things about that process was the granting of free shares in companies that people worked for, so that they could get the habit of share ownership and make something on capital account out of the businesses that they worked for. That supplements the scheme proposed in the Bill, which largely targets people who do not have jobs and who therefore do not have the opportunity to get some capital out of working for a company.
We hope that people in the scheme will go on to do that and that it will be part of a comprehensive package to address exclusion from wealth ownership. Like most hon. Members, I think that one of the worst features of Britain over the past 50 or 60 years has been that not enough people have enough wealth of their own—they might not own a property in which they live, own shares in the company that they work for or have a savings account. I welcome very strongly anything that can be drawn into legislation or put into operation in the market that can change that.
My hon. Friend the Member for Fareham rightly raised the issue of whether there is enough saving in this country and whether the legislation, on its own or with help from one or two other measures that the Government may have in mind, is bold and strong enough to turn that around. I fear that it will not be. The sums are rather small and it appears that the number of eligible people likely to take up the scheme will also be quite constrained, for good reasons as well as bad. One thing that we need to do to get out of the current economic crisis is to encourage and promote more saving. There has been far too much borrowing in recent years. In many cases, individuals’ balance sheets are as stretched as bank balance sheets have been and as the Government’s balance sheet is becoming. Savings play an important part in trying to put that right.
For the groups of people identified in the Bill, we need rather more detail from the Government than we have enjoyed so far about who will be eligible and what the restrictions are, in order to avoid people playing the system in a way that the Government did not intend.
As I understand it, under the legislation as drafted it would be perfectly legitimate for someone living on one of the qualifying benefits mentioned in the Bill to have savings somewhere else and to transfer them into an account under the scheme in order to get the bonus element. However, that would not increase savings in the economy in the way that the Government envisage. On the other hand, if the legislation were to introduce a further restriction preventing people who already had savings from taking out one of these accounts, that would knock out a sub-group within the group who were most likely to take up the scheme. It would also encourage people to find ways of hiding, spending or concealing money so that they could qualify for the scheme. It might be an incentive for people to put their money into their mattresses, or to spend inappropriately before starting to save again in order to qualify. That would not be a very clever way to proceed.
Perhaps the Government need to make the best of a bad job and accept that their scheme will allow people who have already saved to get a bonus simply because they have done so. That makes it even more important to look at the categories of people who will be eligible, to see how many that might apply to, and to get a feel for what the impact might be. Certainly, some protection against that will be provided if the scheme makes people put money in only up to a modest limit each month, because individuals will have to organise their affairs in such a way that they transfer the money monthly, rather than being able to put in a big lump sum at the beginning. If the detail of the legislation were to allow bigger lump sums, however, that would make it more likely that people who had already partially saved would be able to play the system rather well.
As so often happens with legislation from this Government, the Bill feels like work in progress or something that they are making up as they go along. I suspect that those who serve on the Committee will work diligently on it, only to discover that a large number of amendments are suddenly tabled on Report or Third Reading, as people out there, realising that the Bill might apply to them or their client groups, either as potential providers of the accounts or as people who might establish such accounts, and realising the pitfalls and problems in the current drafting, come forward with their proposals.
So far, Ministers have not been able to sell the Bill to us in a positive way that makes it really attractive, or in a way that deals with the details that colleagues have already unearthed in this rather general Second Reading debate on the order powers, the eligibility criteria, the interest rates and all the other important issues. I would feel much more confident about the Bill if Ministers intervened a bit more, and if there were rather more substance in what they said to the House about who is to benefit from the scheme, what kind of savings we are talking about, and what other providers might be involved.
I want to make one last effort to get the Minister engaged in the debate. Will he intervene and tell me what the Post Office is minded to offer savers in this account, so that we can have a basis of fact on which to make our arguments and discussions today? Once again, I am afraid that he remains seated. The Government have had meetings with the Post Office. Either they forgot to ask the Post Office what kind of a deal the savers were going to be offered, or they are so ashamed of the deal that they and the Post Office have cooked up that they are not prepared to share it with the House and the wider public. This is not a good starting point for a project that is meant to generate good will around the country and that certainly has, in principle, multi-party support in the House because it is trying to do a good thing.
I look to Ministers quickly to clarify a number of things. First, who is really going to be eligible? Secondly, what are the Government going to do about the issue of rewarding people who have already saved, as opposed to rewarding people who might start saving because of the scheme? Have they looked into how much dead weight—as the Treasury used to say—might apply to this proposal? Thirdly, have the Government optimised the spending of this amount of taxpayers’ money in terms of making the right judgment on how big a bonus element is needed, how that relates to the normal interest rate return, and how much money people should be allowed to put into the accounts and in what time period? I am not sure that the Government have come up with the optimal solution.
Can Ministers quickly find out at least what the Post Office, RBS and Lloyds—organisations that the Government either directly own on behalf of taxpayers or have a very big share in—are going to offer? We presume that those three big institutions will be required to offer this kind of package and they must soon be able to tell us what it will look like. Without our being able to go out and tell our constituents who might be eligible that this is a good scheme because of its underlying savings rate as well as its bonus element, it loses a great deal. I am surprised that Ministers are not more full of the joys of this proposal and not more up to speed about how it might work.
Like everyone else, I am delighted to support the principle of this legislation. We have heard a series of speeches today echoing the principle that it is absolutely the right thing for Britain at this time to broaden the savings habit and culture, to try to establish a culture of putting something by for a rainy day or for retirement and to spread that culture more widely throughout all levels of society. I was particularly pleased to hear from my right hon. Friend the Member for Wokingham (Mr. Redwood) who, having been involved back in the 1980s in the original moves to spread a share-owning democracy, has personal experience to draw on. Many of the principles espoused at that time apply equally strongly to the Bill now.
This is a great idea and a thoroughly good principle that we all espouse and support. In fact, it is so good that it appeared in the Conservative party’s 2005 election manifesto, which said that in order for a Conservative Government to
“get more people into the saving habit, we will create a Lifetime Savings Account in which government contributions top up the money that people save themselves.”
I am not sure, but I suspect that during the hurly-burly of the election campaign, all sorts of vigorous opposition came from the Government. I suspect that people in Labour party HQ were churning out all sorts of awful reasons why it was a bad idea.
As it is outside the scope of the Bill, I shall gloss over that one, but it perhaps illustrates a wider principle that this is part of a long and glorious tradition of the Conservative party proposing ideas that are rubbished as absolutely useless by the Labour Government, who after a decent period of time proceed to swipe the idea and relaunch it, suitably renamed—and here we are today. It would be churlish, however, particularly given that the Minister mentioned that the idea appeared in the Labour manifesto of 2001, to carp or cavil too much about its origins. It is clearly a good one and I am pleased to say that everyone has now got around to supporting it at the same time and in the same way. Everyone is now on side in saying that this is a good Bill that is worth supporting.
The Bill is so good that I would urge Ministers to go a little further. As my hon. Friend the Member for Fareham (Mr. Hoban) pointed out, it is good as far as it goes, but there is much more to be done to improve the habit of saving in British society. My hon. Friend provided some fairly dreadful examples of how the savings rate has fallen dramatically and precipitously over the last 10 years. Clearly, that needs to be turned around as fast as possible.
The difficulty is that this measure should have been introduced many years ago. The problems have been happening for 10 years and now we are at the bottom of the cycle—at least we hope we are—and we are talking about increasing the savings rate when we should be seeking to improve demand in the economy. We are talking about a measure that, at this precise moment in time, would be pro-cyclical rather than counter-cyclical, so the right point to introduce the Bill would have been almost any time during the last 10 years, apart from today. At almost any time during the last 10 years apart from today, we have had a Government presiding over an economy that has been overheating, largely on the basis of a debt-fuelled consumer-led bubble. The result has been rapidly expanding asset prices, particularly house prices—the impact on them has already been mentioned—and an economy that has increasingly lacked the sound economic fiscal foundations, in terms of both Government and consumer debt, that we see in other economies that are better prepared for such downturns. It would have been far better to encourage the savings rate, or even prevent its decline, at any point in the last 10 years.
According to the Government’s projections, the current recession will end in the third quarter of this year, starting in July. I venture to suggest that if those projections are in any way over-optimistic—I have to tell the Minister that almost everyone outside this place agrees that they are far too rose-tinted—and if, perish the thought, the recession continues after July and into the early part of next year, there will be a danger of our starting to create the right savings culture at a time when the economy is only just starting to climb out of the recession. Although I do not believe that the measures in this particular Bill will be macro-economically large-scale enough to make a impact on the savings rate, it will nevertheless be important for the Government to introduce a series of measures that increase the savings rate both substantially and at the right time, which I fear will arrive not this year but once the recovery of the economy is firmly under way, which may not be as soon as the Government would like.
My hon. Friend should bear in mind that the savings rate is a net figure, relating not just to the amount that people save but to the amount that they borrow. This year there will be a big increase—perhaps an inadvertent one—in the savings rate, because there will not be any borrowing.
Would it not be absolutely marvellous if that happened? We will watch with great care.
Let me point out in passing that the decline in the savings rate is not something that everyone has noticed just recently. It has been going on for some time, and Conservative Members have been identifying its dangers and calling for it to stop for a great many years. On 18 November 2002, my right hon. and learned Friend the Member for Folkestone and Hythe (Mr. Howard) said:
“The savings ratio is forecast to fall this year to the lowest level ever recorded.”
That comment is obviously out of date, as the ratio has become even lower since then. He went on to say:
“Meanwhile, borrowing has risen, with household debt at record levels. Far from alleviating this problem and encouraging people to save, the Chancellor has done precisely the opposite.”—[Official Report, 18 November 2002; Vol. 394, c. 406-7.]
On 19 April 2004, my right hon. Friend the Member for West Dorset (Mr. Letwin) said:
“On current trends, household debt will break though the £1 trillion barrier this autumn. For increasing numbers of people, debt is becoming a serious problem”.
In other words, this is not news; it has been going on for a great many years.
The Government have ignored the problem for far too long. Now we are now at the very bottom of a recession, and if anything, demand rather than saving needs to be stimulated at this point in the economic cycle; but now—too late—we have been given savings measures. They are welcome, but my goodness, we could have done with them five years ago, seven years ago, or perhaps even before that.
It should also be pointed out that these measures are comparatively narrow. They will help an important group of people and, we hope, will broaden the savings culture, but whole groups of people will not be helped. I am thinking particularly of a whole generation of pensioners who may have done the right thing during their working lives by putting something by for a rainy day or to ensure that they are financially independent and can stand on their own two feet in retirement, rather than relying on political whims or the largesse of Ministers of whichever party.
Those people have seen the income from their savings drop like a stone, for obvious reasons. We have all seen the rates of interest that are being offered falling very rapidly over the past few months. The danger is that those people who have saved and done the right thing throughout their working lives and now have little income to show for it see that other people who have not behaved as well are getting benefits from the benefits system to a fairly large degree that help to bail them out, even though they did not save during the previous 20 or 30 years.
For those people who have saved, the comparison is very stark. They have tried to put something by and have scaled back and reined in their spending, during their entire working life in some cases. The people who live next door who did not put something by and enjoyed the fruits of their labours, spending all the money as it came in, are getting more in benefits than those who have saved. The implication is that the only logical thing for people who have saved to do is ask themselves what on earth the benefit was of spending 20, 30 or 40 years of their working lives scrimping and saving.
I hope that hon. Members will forgive me for not being in the Chamber earlier. I am very interested in what the hon. Gentleman is saying. Is there not a strong case for substantially raising the basic state pension and getting rid of all the means tests so that all savings are additional to the basic state pension, overcoming some of the problems that he is talking about?
If the hon. Gentleman will forgive me, I will forgo the opportunity to make such a major spending commitment on the hoof. However, I was going to suggest an alternative way of dealing with the problem.
First, let me finish the point that I was trying to make. The conclusion that people who have saved will reach, which is that they have not benefited anything like how they hoped to do from saving over 20, 30 or 40 years of their working lives, is an acid dripping at the foundations of the savings culture. It is undermining the savings instinct for a great many people. The danger is not just that pensioners are affected but that they are tremendously influential on younger generations. If people say, “We saved and it didn’t pay, so you shouldn’t,” to their children and to their grandchildren, that is an incredibly powerful negative marketing ploy further to erode the savings culture in this country. I urge the Government to say that the measures in the Bill are fine as far as they go, but are limited and do not go far enough to achieve the Government’s stated aims.
I want to offer a potential solution, different from the one suggested to me just now by the hon. Member for Luton, North (Kelvin Hopkins). The Government might like to consider some of my party’s fairly recent suggestions about trying to remove the tax burden for basic rate taxpayers on interest income. That would have the effect of achieving many of the Government’s stated aims but would have a much broader impact than the Bill, which will have a relatively narrow impact.
Given the amount of money that the Government are willing to spend on a temporary cut in the VAT rate—I believe it is £12 billion—if they did not carry out that measure they could probably afford not only to introduce the measures in the Bill but those that I have just suggested. They would still have plenty of money left over to do other things to stimulate savings elsewhere in the economy.
On the assumption that the Economic Secretary does not want publicly to commit his party to that measure right this second—although I would be delighted if he did—may I ask a couple of small but technical questions that I hope he will be able to answer in summing up? In particular, I would like him to give us a bit more detail about what discussions he or his Department have had with representatives of the credit unions movement.
I am sure that we all have pockets of comparatively high deprivation in our constituencies. Weston-super-Mare South ward in my constituency is a classic example of a deprived area that, according to the Government’s figures, is in parts in the bottom 2 or 3 per cent. of indices of multiple deprivation. When I visit the credit union that has an office there and the money advice centre that is dedicated to trying to provide better financial advice and improved financial literacy in the area, one of the things that comes across tremendously starkly is that the area is largely unbanked. It does not have a great number of different bank branches and, as my hon. Friend the Member for Fareham noted, that is especially important if we are to have a vibrant and highly competitive market for these saving gateway accounts. When an area has only one provider or even none at all, there is no incentive to offer competitive rates of interest. Although a one-off bonus from the tax man might be welcome, we need the competition that will spur a vibrant savings culture where people get genuine interest. Such a culture is much less likely to be established in places where there is only one local bank branch, or none at all, than in places where there are many.
An alternative way to produce that vibrant, competitive culture is to use credit unions as additional providers of the saving gateway accounts. Credit unions tend to be very local and closely rooted in their communities, and they have very good contacts—what might be called a good footfall or footprint—in the most deprived parts of the communities that we all separately serve. I hope that the Minister will give us more details about the discussions that he has had with representatives of the credit union movement. Are credit unions willing to become providers of these accounts? If so, do the Government consider them to be satisfactory providers of the accounts? Are the Government willing to give approval for credit unions to start providing the service, on a large or even small scale?
This is a tremendously useful and welcome Bill. It clearly espouses a principle that has the agreement and approval of hon. Members in all parts of the House, but it is very limited. The Government could have done more in the past, and I hope that they will take the opportunity to do a great deal more in the future. The foundations of our nation’s economy and the equally vital need to spread the notions of a savings culture and an asset-owning democracy require that they do.
When I hear agreement breaking out on both sides of the House, I always feel that there is a faint echo of the 1931 national Government in the air. Perhaps that is appropriate at this time, and my party supports the Bill’s fundamental aims, which are to regenerate a savings culture in the UK and to provide additional assistance for people on very low incomes.
Those aims always deserve support, but, although I am in favour of evidence-based policy making, I think that this Bill has had a long gestation. It certainly predates the Conservative policy that was referred to earlier, as I think that the first announcement was made in 2001. Later that year, it was announced that there would be only a pilot project, of the sort that is much beloved of this Government. Pilots, pathfinders and so on can be valuable tools for learning lessons, but there will have been nine years between the first announcement of the policy and its full national roll-out. The hon. Member for Weston-super-Mare (John Penrose) was right to say that this measure, and others like it, is long overdue, as we in the UK have seen the decimation—literally so, almost to nothing—of the propensity to save.
There have been two pilot projects, and changes have been made to the maximum that people may have in the savings account. It has now fallen to £300, and the matching amount has fallen from £1 to 50p. There might be good reasons for some of the changes, but one consequence is that whereas under the first pilot if one had saved the maximum amount and received the bonus one would have ended up with about £800 in capital, the maximum now would be £450—a significant difference for people on low incomes. The first press release suggested that there would be a saving period of up to five years, but then the period was cut to three years and now we are left with only two years. If, as the right hon. Member for Wokingham (Mr. Redwood) asked, we are trying to create a long-term savings habit, will a two-year period be sufficient to change people’s behaviour? That is a legitimate question to which the Government might return.
The evidence is disappointingly mixed for somebody who supports what the Government are trying to achieve. The second pilot certainly showed that there was no statistically significant evidence of a positive saving effect. The best evidence was qualitative, not quantitative—what people said in focus groups rather than hard statistical evidence, which was more mixed. In the eligible subset, people on higher incomes tended to respond more to the opportunities, but to substitute their saving gateway account for their savings in other accounts—quite logically, because there was a much higher return. People on lower incomes did not participate to the same degree. Other Members have expressed concern that the scheme might have a deadweight or displacement effect and will not really target the people we need to reach.
Different opinions were expressed about whether people would continue to save after the two-year period. Our most pressing concern is that the saving gateway will simply be a flash in the pan for some people and that they will not begin a lifetime of thrift based on the Government’s two-year programme. That raises a wider issue. When we look across the world and at our own history, we see that the creation of a savings culture is often associated with the creation of new institutions—a point touched on by the hon. Member for Weston-super-Mare in relation to credit unions.
In the UK, the great flowering of saving, especially among the working class, came with the creation of friendly societies in the 18th century. Working-class communities were often frightened of ending up in the workhouse and developed their own saving institutions to avoid that circumstance. In the 19th century, the creation of a savings bank became a national movement targeting those on lower incomes. Those banks were not just financial institutions—there was a real movement, with a sense of evangelical zeal, to protect working-class people from a lifetime of penury. The creation of municipal banks was similar, and there are still six of them in Scotland.
In the 20th century, post offices had a role, as we saw in countries with high savings rates—Japan in particular and Korea. Post offices have a large footprint, with many branches close to people. As the hon. Member for Fareham (Mr. Hoban) pointed out, people who lived closest to the Halifax—the bank used in the pilot—were more likely to participate. The presence of a local financial institution in the community is critical to the propensity to save. Postal banks in Japan and Korea and the local Landesbanks in Germany—state-owned savings institutions—have played a critical role in creating a long-term culture of saving.
We in the UK had the Post Office Savings bank. Created in a different form but initially associated with the Post Office, we also had the so-called “people’s bank”—the Girobank, which was one of the most innovative banks in history. It was the first bank to develop an ATM network and, I believe, the first to develop telephone banking in the UK. The Girobank broke the monopoly of the traditional clearing banks and forced them to open themselves up to the working classes.
When considering the saving gateway, the Government should ask whether there is a case for creating a new institution alongside the account. That idea has recently been floated by the Business Secretary, Lord Mandelson, who has asked whether we could build on the Post Office’s existing financial services—the Post Office savings account it offers in conjunction with the Bank of Ireland and the ISAs it offers in conjunction with a friendly society—and create a new institution.
Credit unions present an interesting alternative. They have developed in much the same way as the savings banks, starting from local and disparate grass-roots voluntary activity. Critical to the savings banks’ success in the 20th century was their development of a national umbrella body and a clearing network, enabling them to spread the risk. I am sure that that is one of the Government’s concerns about credit unions; as I am sure the hon. Member for Weston-super-Mare is aware, about 30 have become insolvent in the past six years, resulting in real concern about whether people’s money is safe in credit unions, which often overreach themselves in their lending. Is there an opportunity to create an institutional umbrella—not just the existing Association of British Credit Unions, but a risk-sharing national body that could try to develop credit unions further than they have been able to develop hitherto?
I am listening with great interest to the hon. Gentleman’s history lesson. Is he not really suggesting that we should have a national, publicly owned savings bank, driven by the interests of the public and not by the interests of shareholders? Does he agree that such an institution would benefit from economies of scale and be cheap to administer, and therefore greatly benefit depositors?
I agree with the hon. Gentleman in this sense: I have great doubts about the willingness or the ability of private sector banks in the UK—what is left of them—to deliver the saving gateway programme. In addition, there may be a lack of trust in the sector among the target audience. I am not convinced, and those banks certainly do not seem to be champing at the bit to provide the product.
When the Institute for Public Policy Research studied the pilot projects, it suggested that the saving gateway should be delivered exclusively by the credit union movement. I am agnostic about whether the programme should be delivered by a publicly owned national savings bank or by the credit union movement. The history of the trustee savings bank movement suggests that there is a positive role for voluntary, locally generated activity.
The Government announced three ideas at the same time in 2001: the child trust fund, the saving gateway, and the universal bank, which the Post Office was meant to deliver. We never got that universal bank. The Government need to re-examine that, because clearly the market is failing when so many people are financially excluded from the mainstream, and the Government are well aware of that. However, there is only so much that they can do by way of exhortation of financial institutions and people.
There is an institutional gap. There is a case for looking at new financial products and tax incentives that can be built up around them. We should consider how we can create new institutions with which people can identify, and which can mark an important new phase that we hope we will enter, as part of a national savings plan. Clearly, the Bill is targeted at a particular segment of the population.
I noticed that take-up was very high—82 per cent.—in the first pilot project. If 82 per cent. of 8 million people take up the saving gateway account in the first few years, the Government’s figures will be way out. The amount will be about 10 times the £130 million that the Government have put up for year one. Perhaps the Government hope that take-up will not be as high as it was in the pilot project.
As hon. Members have said, we need a far wider programme and strategy. We need a national savings plan. We need to start changing the culture, by creating new institutions. People must see themselves as savers—that is fundamental to the process. People’s self-concept is the key to creating behavioural changes. That change will be very difficult, as a number of hon. Members have said. Who will see themselves as a saver over the next 18 months, as people face the storm of the worst economic recession for many generations? It is an incredibly high incline on the uphill struggle that we face. Having said that, the measures are a small, important step in the right direction, and they are part of a far broader debate that we desperately need to have.
I rise a disappointed and unhappy man, because I like nothing more than coming to this place and giving the Government a good old-fashioned partisan lashing; that is the very oxygen of politics. Today, however, I find myself agreeing with a lot of what the Government have done. That is disappointing from a personal perspective. Even if I wanted to pick a fight with the Government, there is only the hon. Member for Luton, North (Kelvin Hopkins) on their Back Benches to pick a fight with, and he is quite a good friend of mine outside this Chamber. I would not want to pick a fight with him anyway.
I am disappointed because I have to say to the Government that the scheme is a pretty good idea. Of course, the devil will be in the detail. I imagine that I will serve on the Committee. If not, I shall be deeply disappointed once again.
Saving is the cornerstone of good financial planning. It does not matter whether one is at the bottom, middle or top of the income scale: putting money aside for a rainy day is a very good discipline, because, as we are discovering, rainy days do come, and they strike people at any point on the income scale—from the highest paid banker right down to someone who, tragically, loses their job on the factory floor.
For those on a low income, it must be very difficult to save. I talk to many constituents who are left with a few pennies at the end of the week, once they have set aside money for the essentials in life, such as food and heating. We must be aware of that, and we must not be guilty of patronising people. Education is critical to the ingraining of a savings culture in our society, and Members on both sides of the House have recognised that.
Financial literacy is crucial, and we must start educating young people while they are at primary school—perhaps in year 5 or 6—about the importance of managing their money and budgeting. The process of education must continue throughout secondary school, and even beyond. Many hard-working families find it difficult to budget. I am a relatively prosperous Member of Parliament, and I find it difficult to budget and could probably manage my finances far better. Financial education is critical to making the measure work and ingraining a savings culture, and the taxpayer has a limited role to play. It is a useful allocation of taxpayers’ money in the short to medium term to support or reward savers for setting aside a small amount each month. Although it is a small amount, for many people it is a considerable sum from their monthly income.
Confidence is another critical part of encouraging a savings culture: people must be confident that their money will be there when they need it. One of the disasters of Farepak was that it damaged confidence among people on low incomes. It was a disaster not only for people who had put money aside in the Farepak scheme, as all their Christmas savings were wiped out and their thrift was penalised, but because of the message it sent to other families on low incomes about the benefits of setting money aside and saving for the important things in life. People must have confidence in the institutions in which they place their money.
The last thing we want to do is to drive people to the doorstep lenders, who fill a vacuum left by mainstream lenders. If there is a criticism to level at the banking sector it is that it has not done enough to help low-income communities. Until the beginning of this year, banks were making enormous profits. They talked merrily about their social responsibility, but Members know full well that in the most deprived communities that we represent the high-street clearing banks were conspicuous by their absence. As the banks try to restore their credibility with taxpayers and the citizens of this country, they should take a good, hard look at themselves and the way in which they work with the poorest communities. That is a good place to start on the road to rehabilitation.
Thrift should be rewarded throughout the income scale. I very much like the suggestion that we should ensure that the income and returns that people generate from their savings in interest accounts remain tax free. We all know pensioners in our constituencies who are not rich by traditional measures, but who have saved in the belief that it would allow them a comfortable retirement. However, the interest that they have earned on their accounts has diminished and, on top of that, they continue to pay tax. It would therefore be a good idea if we rewarded saving throughout the income scale.
May I conclude by saying that we all recognise that budgeting is difficult? I bet that in our own lives we all tend to take the best-case scenario when setting our budget. Perhaps we gloss over the things that we do not like to think about, such as the car breaking down or a pipe bursting. As part of the education process to encourage people to save, we must not be frightened to say that bad things can happen: the washing machine, dishwasher or car might break down, a pipe might burst or we might lose our job. The good times do not last for ever, and any Government who try to convince the electorate otherwise should be shouted out of court.
Let us embrace the Bill, examine the detail and regard it as one very small step, probably in a generational process, to re-entrench saving as the cornerstone of good financial planning in this country.
I apologise for not being present for some of the earlier speeches, but I have heard some interesting contributions while I have been in the Chamber, and I have been provoked into saying a few words myself. I take an interest in general terms in savings and especially in pensions and income for pensioners. The Bill is a step in the right direction, as others have said, but we will have to go a lot further, not just for people at the lower end of the income spectrum, but for those on middle incomes in particular, for whom the savings habit has died.
I come from a long line of devout Puritans who saved money. Even when I had pocket money, my friends suggested that I had only a very small amount, even though I came from a prosperous family. That was because my family believed that we should work for our income. If we wanted something, we saved up for it. I did save up over weeks for things, and it was a habit that our family had. Friends, even from less prosperous families, had fivers thrown at them from time to time in a rather casual way. That attitude is not common in many other cultures. In Germany and Japan, for example, people are much more keen on saving.
A number of important issues have been touched on, such as confidence in where we save. In the longer term, we will have to consider a state savings bank for everyone, where our money is secure, the administrative costs are very low and we get good returns over time. We do not want to see people in Christmas clubs that go bust, like Farepak. We want people to have absolute confidence in where they put their money.
In time, some people may have to be compelled to save if there are not to be millions of people of pensionable age living in penury, even though they had good incomes during their working lives. At the lower end of the income scale, we must aim to raise the basic state pension significantly and for it to rise considerably faster than the rate of inflation or earnings to get back to the kind of ratio between pensions and earnings that we saw before the link was broken in the early 1980s.
At that time the basic state pension was 25 per cent. of average earnings, and we should get there again so that the basic state pension is well above the poverty level. Currently, it is below the poverty level. At the same time we could eliminate all the means-testing, perhaps progressively over a period, so that other savings would be additional to the basic state pension, which we can all take for granted. That is the way forward.
For many other people on higher incomes, the drop from having a reasonable income to the basic state pension would be pretty catastrophic. For those who have lived a fairly modest life, a good basic state pension might be regarded as sufficient, although they might want more. For people who have not saved and have had big incomes, it is a matter of regret for them, perhaps when they reach the age of 65 or whatever state pension age will be in future, that they have not saved properly.
We will have to look towards a universal, comprehensive, compulsory SERPS system for everyone, with defined contributions, as a proportion of earnings or whatever, and defined benefits so that we know what we will get and so that that is not related to the state of the economy, the stock market or anything else. If we had a savings bank, we would know what we were going to get back. That should be defined and not interest-rate related. Other countries have much higher basic incomes than we do for people of pensionable age. The gulf between the rich and the poor will have to be narrowed by looking seriously at the incomes of poorer pensioners in future. At the moment, we are just nibbling at the edges. We are not taking the matter seriously. I want to see much more radical action from, I hope, a Labour Government, this one or future ones, substantially to raise the level of incomes of those who have retired at the lower end of the income scale. That may mean some redistributive taxation from the very rich to the very poor, and I would not disagree with that. [Interruption.] I do not want to go into my usual speech about what the income tax rates were back in the days of the Callaghan Government under Denis Healey. I have made that speech several times so I shall not trouble the Minister with it now. We are starting to take seriously the problems of the poor, particularly when they become older, and the Bill is a step in the right direction. I welcome it, but we must go much further.
It is a great pleasure to wind up this Second Reading debate, perhaps a little earlier in the day than one might have expected, but it was interesting and informative. We have had a number of contributions, which I will take in reverse order.
The hon. Member for Luton, North (Kelvin Hopkins) gave a brief but interesting speech. He regaled the House with tales of his childhood savings habit, and almost entered into one of his usual speeches on the subject of taxation in the 1970s. He has two entertaining speeches, one on that subject and the other on the European Union. I tend to enjoy the latter slightly more, but none the less they are always a valuable contribution to the House. I note that he was the only Labour Member to make a speech in this debate, which is somewhat surprising given that this is a Government measure. One might have expected greater enthusiasm from the Labour Benches. However, I appreciate that we have had nearly three and a half weeks’ break for Christmas, which may not have been long enough for every hon. Member.
In contrast, my hon. Friend the Member for Broxbourne (Mr. Walker) made quite a return to the House. I note that the ConservativeHome website commended him as man of the day for his speech to the House yesterday on the subject of mental health. It also carried a photograph of him taken shortly after he became a Member of the House, demonstrating the success of the diet that he has undertaken during the past three years.
My hon. Friend said that he was frustrated at not being able to lash out at the Government on this matter, but that he wanted to serve on the Committee. He may well be frustrated at not being able to lash out at them because he rather likes the Bill, but I suspect that his application to be a member of the Committee will be viewed sympathetically and will not be a cause of further frustration.
The hon. Member for Carmarthen, East and Dinefwr (Adam Price) spoke about the Bill’s long gestation and the fact that there was a pilot in 2001. He talked authoritatively about the experience of the pilot schemes, the difficulties in producing statistics that are hugely helpful, and the fact that the focus groups produced a number of quotations that suggest that there is something to be said for these matters. He also gave an historical perspective on the savings culture of the working classes and the poorer sections of society, and talked about how at times, when such measures have been successful, there has been a great evangelism for them. I do not know whether evangelism quite categorises the Government’s approach to the Bill, but he made a very interesting contribution.
My hon. Friend the Member for Weston-super-Mare (John Penrose) spoke about the decline in the savings ratio in the past 10 years. He set out the case for how savers are struggling and have been adversely affected by interest rate changes, and made an argument for doing more to support them. It was an excellent speech. I hope—although he did not put it as explicitly as my hon. Friend the Member for Broxbourne—that it can be taken as an application to serve on the Committee.
My right hon. Friend the Member for Wokingham (Mr. Redwood) made an interesting point in his speech and in an intervention on the Chief Secretary when he asked what the interest rate, as opposed to the matching amount, is likely to be on these accounts. He argued that if part of the reason for the Bill is to encourage people to get into the habit of saving, the account should be as much like a normal bank account as possible, including the benefits of achieving interest. When he asked what the Government’s expectation was, he did not get an answer. In the course of that exchange, my hon. Friend the Member for Fareham (Mr. Hoban) stated that he suspected that there would be no interest on the accounts. My right hon. Friend suggested that my hon. Friend had “stumbled across” the point. I think that he probably meant to say that he had “homed in with laser-like intensity on a key possible embarrassment for the Government.” In any event, it was right to raise the matter and to express more general concerns about the lack of clarity in the Bill.
I think that it would be fair to say—indeed, there is consensus on this across the House—that the Bill’s objectives are admirable. The desire to encourage a savings culture, particularly among the poorer sections of society, is absolutely right. We share a desire that people should have assets that provide them with a degree of protection in the event of adverse circumstances. The other aspect, which was touched on by the Chief Secretary, is that that goes some way towards dealing with financial inclusion. If we can encourage people who might be excluded from normal financial products and services to partake in proper accounts and to become part of the wider financial community, that is clearly of benefit.
Conservative Members acknowledge that the Bill’s objectives are laudable. Indeed, as my hon. Friend the Member for Weston-super-Mare pointed out, in 2005 we advocated a lifetime savings account along very similar lines, and it would therefore be rather odd for us to object strongly to these proposals. The Government appear to be in the habit of doing that: yesterday, they announced support for employers taking on the long-term unemployed; tomorrow they may announce a national loan guarantee—who knows? Today continues the pattern of yesterday, and we will not knock it. Some might say that we could save time if we were able to announce and then implement policies instead of waiting for the Government to do so some weeks or years later, but there we go.
This country has a problem as regards the low level of savings. As my hon. Friend the Member for Fareham pointed out, in 1997 one in 10 households had no savings; by 2007, the figure was one in three. The savings ratio has fallen from 9.6 to 1.8 per cent. We recognise that that is a dangerous weakness in the economy. A savings culture is valuable. It makes households more resilient and more able to cope with a rainy day. People should use the good times to prepare for the bad, and one could argue that that applies to Governments as well as people. The decline in the savings rate and the savings culture has left this country, our economy and our people more exposed to difficult times than would otherwise be the case. That is our view, and I would be grateful if the Economic Secretary would say whether he recognises it as a problem. Does he accept that the savings rate fell too low? Is it a weakness in the economy? Does it suggest that we are less well placed for difficult times than we might otherwise be?
There are inherent limitations to the Bill and the saving gateway accounts in tackling the problem. That is not to dismiss the proposals or the Bill. Just because it does not address every aspect of savings does not mean that it is not a useful contribution. Notwithstanding the Bill’s objectives, does the Economic Secretary accept that the Government need to do more to encourage saving in the long term? We need a strong savings culture, and as things stand, we do not have one. Given that this is a week in which the Government are inclined to look sympathetically on our ideas, will he consider abolishing the standard rate of income tax on savings? I know that we announced that only relatively recently, and it usually takes the Government some time to take up our policies, but I urge him to do so.
Although the provisions are limited, they contribute towards tackling a weak savings culture, or at least I hope that they do. One of the issues raised by my hon. Friend the Member for Fareham and the hon. Member for Carmarthen, East and Dinefwr was that the evidence from the pilots is, it is fair to say, a little sketchy. My hon. Friend set out two tests that are useful in assessing whether the pilots demonstrate that the scheme will work. First, are the savings created through the accounts new, or would they have occurred anyway? What is the evidence from the pilots? To the extent that the Economic Secretary is able to address that point, it would be helpful to the House for him to do so. Secondly, what happens at the end of the account period? Will people continue to save at the end of the life of the saving gateway account, or will they just take it as a windfall of £300, which is then spent rapidly? Will there be a real cultural change? That is a key point: what has the experience of the pilot schemes shown?
Another area that I would like to explore was touched on by several hon. Members: the level of interest from potential product providers. In the course of the debate, the Economic Secretary made it clear from a sedentary position that the Government have been talking to banks and other product providers. My right hon. Friend the Member for Wokingham raised a point about the interest rate that is likely to be provided, in addition to the matching fund. That will depend on the level of commercial interest, and if there is little such interest, the Government will be grateful for whatever they can get and will hope that someone will provide the saving gateway accounts. But if there is more interest, we are likely to see interest payable on the accounts. Where are we on that? What are the Government anticipating?
In the course of her remarks, the Chief Secretary said that the Government will be urging the banks or the product providers to provide interest on saving gateway accounts. The Government spend quite a lot of time urging banks to do one thing or another with interest rates, but several banks are now largely in public control. It will be interesting to know whether the Government or Ministers will put any pressure on state-owned banks to provide the saving gateway accounts or to provide interest on them. It would help the House to know precisely what the Government envisage.
There is quite a lot that we do not really know about how the accounts will work. The point has been made that they are a work in progress and that the details will be in regulations. The hon. Member for Taunton (Mr. Browne) pointed out that there are 29 powers to make regulations in this 32-clause Bill—and we are grateful to him for not listing all of them.
A point on which I would be grateful for clarification is that as I understand it, the period of time for which a saving gateway account will exist is two years. I do not think that that is specified in the Bill, but I am sure that the Minister will correct me if I am wrong. If it is not specified, why not? Another question to be answered is whether someone could open more than one account. As far as I can see, it is not made clear in the Bill that a participant could not open two accounts at the same time. Perhaps more realistically, once one account had been completed and the two years were over, would it be possible for someone to open a new saving gateway account, and to do the same every two years? The Chief Secretary said that the intention was to encourage people who have not saved before to do so, which suggests that someone could participate only once. Again, however, the precise intention is not entirely clear.
One could ask many more questions about various aspects of the Bill, and those serving on the Committee will be able to do so. I have raised the matters that I have to indicate that the Bill is very short on detail. Its objectives are laudable, although its impact is likely to be limited and should not be overstated. It is thin on detail, which clearly needs to be much greater. It has been in gestation for eight years, and we heard that the announcement of the first pilot scheme was in 2001.
Only one Labour Back Bencher spoke in favour of the Bill, and I therefore fear that there is a sense that the Government’s enthusiasm for it is a little limited. One could certainly get that impression. I am sure that the Economic Secretary can address those concerns, and that he will demonstrate much enthusiasm for the Bill and assure the House that the concerns that have been raised will be addressed both today and in Committee. I am sure that the Government are confident of the effectiveness of the Bill and the saving gateway accounts, and that the House can be assured that we will make a useful contribution to returning to this country the savings culture that it so badly requires.
It is a pleasure to close the debate, and I thank the right hon. and hon. Members who have contributed to it. I was pleased to hear that there is broad support for the Bill in all parts of the House, and I am grateful to Members for their support for the aims of kick-starting the saving habit among working-age people on lower incomes and promoting financial inclusion.
The hon. Member for Broxbourne (Mr. Walker) was unexpectedly very enthusiastic about Government policy. He went so far as to say that the scheme was a “pretty good idea”. Given my experience of him, that is about as good as it gets. The hon. Member for Weston-super-Mare (John Penrose) went further, saying that it was a “great idea” and a “thoroughly good principle”. He went on to blot his copy book by seeking to claim that it was a Conservative idea, when it is clear to all concerned that it was originally launched for consultation by the Labour Government in 2001. It was not until after the second pilot was under way that the Conservative manifesto made the statement that he read out.
I do not want to play silly games of who takes the credit for different ideas. The hon. Member for South-West Hertfordshire (Mr. Gauke) tempts me to talk about his party’s credit guarantee scheme, which is modelled on the Government’s guarantee scheme. People are not interested in party political bickering; they want to know not where ideas come from, but whether they will produce policies that will benefit people and businesses in this country, and that is what the Government want to ensure.
I welcome the support of the official Opposition and the Liberal Democrats for the Bill. The hon. Member for Fareham (Mr. Hoban) was perhaps more measured than most speakers in saying that there is some common ground, but the hon. Member for South-West Hertfordshire went further and said that the Bill’s objectives are admirable and that it is laudable. As that came from an Opposition Front Bencher, it is a ringing endorsement of our proposals.
The right hon. Member for Wokingham (Mr. Redwood) played a typical cameo role in pretending that he knows what happens in government as a matter of course. As a former Secretary of State, he well knows the process of government, but he tries to pretend that Ministers talk to no one, and do not examine the evidence and or take such matters into account. I shall come to the points that he made, but before doing so and responding to other hon. Members, I want to make two general points.
First, in 2007 net national saving as a percentage of gross domestic product was 3.4 per cent., which was close to the average since 1987 of 3.7 per cent. and much higher than the low of 1.1 per cent. recorded in 1992. That 3.4 per cent. level is close to the national savings ratio of Italy, and much higher than that of the United States.
Secondly, the Bill is not the only means by which the Government are promoting saving. Almost one third of the adult population have individual savings accounts. We successfully launched child trust funds, and we recently welcomed the 4 millionth account. We have a significant financial inclusion agenda on which we made further announcements today, and I acknowledge the points made by the hon. Member for Broxbourne about the importance of financial inclusion and financial literacy.
I welcome the speech made by my hon. Friend the Member for Luton, North (Kelvin Hopkins), who emphasised the importance of saving. We may not agree with all the policy implications of what he said, but he knows that the Government share his aspiration that people save more and that pensioners have a greater income in retirement.
The Chief Secretary may have covered this point, but is there a guarantee that additional savings for income in retirement will not be means-tested away from those on low incomes? Will any return be genuinely additional to the basic state pension, whatever that may be?
The Bill is targeted at people of working age, and those on lower incomes. We want to kick-start the saving habit and to ensure that people continue to save throughout life. Taxation on savings is part of general Government policy, and that is the best answer that I can give.
Yes, they will. I will say more about that in a moment, but I want first to address the points that the hon. Member for Taunton (Mr. Browne) and others made about regulation. First, when formulating legislation there is always a balance to be struck between what should properly be put into primary legislation and what should necessarily be part of secondary legislation, through regulations. We believe that we have got the balance right in this case, in establishing the general principles in the Bill and leaving other matters to regulation, but that is something that we can return to in Committee.
Secondly, regulations relating to eligibility were published yesterday, before Second Reading. The right hon. Member for Wokingham said that the issue of eligibility was not clear, but if he reads clause 3 and the regulations that we published in draft yesterday, he will see that they provide the answers he seeks. We intend to publish additional draft regulations before the Committee stage, which I am sure will help hon. Members who serve on the Committee.
The next issue that I want to cover is eligibility. I want first to respond to my hon. Friend the Member for Northampton, North (Ms Keeble), who raised the issue of carers and suggested that they had been left out of the saving gateway. That is not the case. Carers in low-income households will be able to claim income support, including the carer’s premium, in addition to carer’s allowance. As income support is a qualifying benefit for the saving gateway, many carers will be eligible, and we expect around 230,000 to be so.
We have thought carefully about making carer’s allowance itself a qualifying benefit. However, although all recipients of carer’s allowance will have low earnings, many may be in higher-earning households; in fact, carer’s allowance recipients are less likely to be in poverty than the average adult. Extending the scheme to all carers regardless of their level of savings or other financial circumstances would therefore mean that it was poorly targeted.
My hon. Friend the Member for Wolverhampton, South-West (Rob Marris) made a point about income-based jobseeker’s allowance and questioned whether the legislation was defective. Let me say back to him that the policy intention behind the legislation is for the target population for the saving gateway to be working-age people with lower incomes. We believe that passporting through the benefits and tax credits specified in the Bill, including contributory jobseeker’s allowance and incapacity benefit, is the most administratively simple and effective way of reaching that section of the population.
If contribution-based JSA were not a qualifying benefit, some people who frequently move in and out of low-paid work may never become eligible for the saving gateway, because they never receive income-based JSA. That is why the legislation is framed in the way that it is. However, my hon. Friend will want to probe us to ensure that some of the people he was talking about, who are clearly from wealthy backgrounds, are not eligible for the saving gateway and the Government’s matching contribution. I am pretty convinced that the legislation as it stands achieves that policy objective, but we can explore that further in Committee.
The next issue that I want to cover is the pilots. Both pilots showed that many people saved more during the scheme than they did before it. Among participants in the first pilot, the number of people saving regularly quadrupled. The hon. Member for Carmarthen, East and Dinefwr (Adam Price) rightly said that we ought to be interested in evidence-based policy and that we need to consider closely the implications of both pilots and the variations between them, and we have done that. The second pilot showed that some participants who were higher up the income scale were more likely to recycle existing savings into saving gateway accounts. That provided a useful lesson for the national scheme, which targets those on lower incomes.
In the first pilot, 89 per cent. said that they had saved exclusively from their regular income. The hon. Member for South-West Hertfordshire asked about the dead weight effect, and inquired what would happen after the saving gateway and what lessons had been learned from the pilots in that regard. According to the figures that I have, 16 per cent. of participants in the first pilot said that they had been saving regularly before, but nearly 80 per cent. said that they regularly paid money into their saving gateway. On average, people made deposits in more than 70 per cent. of the months in which their account was open. At least three months after maturity, over 90 per cent. of participants still had a savings account of some kind, and over 40 per cent. were still saving regularly. We take that as reasonable information, and we have taken it into account in the detailed design of the scheme.
The hon. Member for Carmarthen, East and Dinefwr also asked why we had chosen a period of two years, noting that the accounts in the pilot scheme had run for 18 months. He suggested that the period should be longer. In our view, accounts running for whole years are easier for savers to understand, and more straightforward for account providers to operate. We believe that a duration of two years for an account strikes the right balance between giving people sufficient time to develop a savings habit and build up a reasonable match, and allowing them to access that match within a reasonable time scale. Many participants in the pilot schemes suggested that the accounts should run for two years.
I want to turn now to the discussions that we have had with the banks. As I indicated from a sedentary position earlier, when I got slightly irritated with the right hon. Member for Wokingham, we have been discussing the saving gateway at official and ministerial level for a considerable period of time. We have had meetings with the banks, the building societies and the credit unions, and we expect that the saving gateway will be offered by a range of providers. We will continue to discuss this with them. We particularly welcome the commitment from the Post Office, and the support that we have had from the British Bankers Association. The hon. Member for Weston-super-Mare mentioned credit unions, and we are delighted to have the strong support of the Association of British Credit Unions. Its chief executive, Mark Lyonette, has said:
“This is a valuable initiative which will help to encourage low income savers and we look forward to working with the Government to ensure that the scheme is a success.”
The right hon. Member for Wokingham and others mentioned interest rates. It is important that we kick-start a regular savings habit. The hon. Member for East Antrim (Sammy Wilson) put it well when he said that the key point was to stimulate the savings habit, and the point about the match funding is that it will do exactly that. A match rate of 50p in the pound is the equivalent of an interest rate of 44 per cent. The interest rates will be very much a matter for the individual providers, however. We are not planning to see the accounts introduced until 2010, so I would not expect the providers to say now whether they will introduce interest rates or, if they were to do so, what those rates would be.
Some potential providers have suggested that paying interest would result in significant costs and complexities in the design of the systems for these relatively low-level savings accounts. Some respondents to the consultation last year also suggested that the need to understand and compare different types of ratios could put off inexperienced savers. That reinforces the point about promoting financial literacy. This is something that we will continue to show an interest in, but we believe that the deciding factor for people opening a saving gateway account will be the match rate provided by the Government. If possible, we would like to see competitive market and good savings rates offered to those in saving gateway accounts. What happens at the end of the saving gateway is what is important, as both the hon. Member for East Antrim and the hon. Member for South-West Hertfordshire said.
To clarify matters further, savers who have come to the end of a saving gateway account will be free to choose what happens to their money next. The Government believe that an element of choice is very important. We expect providers to treat customers fairly and we anticipate that they will want to help their customers to access the savings option that is most suitable to their needs. We will hold a dialogue with them to ensure that there are sensible default options for those who fail to express a preference during the two-year period of the saving gateway account. As I said earlier, it is possible for the account to be rolled into an ISA and some providers might set that as the default option. To be clear, if a provider offered a poor rate of return, it would be open to savers to move their money to another type of account or another provider with a better rate of return.
One of the concerns expressed earlier was about whether sufficient information would be available when people opened these accounts. We received some reassurances about that from my right hon. Friend the Chief Secretary, but can the Economic Secretary provide some further reassurances about what information will be available to individual savers at the conclusion of their two years—or however long it might be—so that people are aware of their options, whether it be to move their money into ISAs, to close the account or to move it somewhere else? It is important that some of the most financially disadvantaged people in our society have full information, so will the Minister provide some examples?
My hon. Friend makes a very good point. As I mentioned at the start, the issue of financial inclusion is very important to this Government. As he will be aware, we commissioned Otto Thoresen to produce a report, and we are taking forward its recommendations on financial inclusion. With the Financial Services Authority, we are establishing pilots in the north-west and the north-east and today we announced some of the providers that will help to deliver them. We view the establishment of a pathfinder scheme to improve financial literacy and advice as an important area, to which we continue to pay attention, and the Government are taking other measures as well. My hon. Friend will be aware of our efforts in the education and school system to provide better information from an early age, sometimes as young as seven. We are planning to build further such measures into the curriculum, so that better advice is provided in the future.
The hon. Member for Fareham asked about the automatic rolling over of accounts. As I explained, account providers will have to put in place a default option in cases where savers do not provide instructions about what they want to happen to the account on maturity. They should have choices, as I said.
Finally, let me pick up on a matter raised by the hon. Member for South-West Hertfordshire, who asked why the Bill did not make it clear that a person could have only one account. The requirement that a person may open only one saving gateway account in a lifetime will be contained in regulations. Our approach is that the Bill allows some flexibility so that the Government have the option to offer the saving gateway to eligible individuals again in future. Depending on the scheme’s success and the financial climate, that may be appropriate in the future. In our view that represents sensible contingency planning, but no doubt we shall wish to discuss the technical questions in some detail in Committee.
I am grateful to all Members for the points that they have made, and look forward to pursuing them in Committee in a few weeks’ time. I am also grateful for the support that we have received today for our objectives for the saving gateway: kick-starting that saving habit, and promoting financial inclusion. The pilots showed that the gateway could achieve those aims by offering a targeted, clear and strong incentive to the group who need it most, in the form of 50p for every £1 saved.
As a result of the Bill, a national saving gateway scheme will be introduced for the first time, offering that incentive to about 8 million people. It will give them a chance to save up to £600 and earn up to £300 from the Government. It will provide an amount that could make a real difference, and, more important, an experience that could help to build a lifetime saving habit. I commend it to the House.
Question put and agreed to.
Bill accordingly read a Second time.
Saving Gateway Accounts Bill (programme)
Motion made, and Question put forthwith (Standing Order No. 83A(7)),
That the following provisions shall apply to the Saving Gateway Accounts Bill:
1. The Bill shall be committed to a Public Bill Committee.
Proceedings in Public Bill Committee
2. Proceedings in the Public Bill Committee shall (so far as not previously concluded) be brought to a conclusion on Tuesday 10 February 2009.
3. The Public Bill Committee shall have leave to sit twice on the first day on which it meets.
Consideration and Third Reading
4. Proceedings on consideration shall (so far as not previously concluded) be brought to a conclusion one hour before the moment of interruption on the day on which those proceedings are commenced.
5. Proceedings on Third Reading shall (so far as not previously concluded) be brought to a conclusion at the moment of interruption on that day.
6. Standing Order No. 83B (Programming committees) shall not apply to proceedings on consideration and Third Reading.
7. Any other proceedings on the Bill (including any proceedings on any message from the Lords) may be programmed.—(Ms Butler.)
The House proceeded to a Division.
I ask the Serjeant at Arms to investigate the delay in the Aye Lobby.
Saving Gateway Accounts Bill (Money)
Queen’s recommendation signified.
Motion made, and Question put forthwith (Standing Order No. 52(1)(a)).
That, for the purposes of any Act resulting from the Saving Gateway Accounts Bill, it is expedient to authorise the payment out of money provided by Parliament of any expenditure incurred by the Commissioners for Her Majesty’s Revenue and Customs by virtue of the Act.—(Ms Butler.)
Question agreed to.