Consideration of Bill, not amended in the Public Bill Committee
New Clause 1
Save as You Earn: employee request
‘(1) The Secretary of State may, by regulations, make provision for a Save as You Earn scheme.
(2) The scheme shall require employers to make deductions from wages if—
(a) the employee has requested to enrol on the Save as You Earn scheme;
(b) the deducted wages are paid into a Help-to-Save account; and
(c) the amount deducted does not exceed the maximum monthly amount as defined in paragraph 10(2) of Schedule 2 to this Act.’—(Mr Gareth Thomas.)
Brought up, and read the First time.
With this it will be convenient to discuss the following:
New clause 2—Impact review: automatic enrolment and pensions savings—
‘(1) The Treasury must review the impact of Lifetime ISAs on workplace pensions automatic enrolment and pensions savings within one year of this Act coming into force and every year thereafter.
(2) The conclusions of the review must be made publicly available and laid before Parliament.’
This new clause would place a duty on HMRC to review annually the impact of Lifetime ISAs on automatic enrolment.
New clause 3—Lifetime ISAs: Advice for applicants—
‘(1) The Treasury must, by regulations, make provision for all applicants for a Lifetime ISA to have independent financial advice made available to them regarding the decision whether or not to save in a Lifetime ISA.
(2) Any applicant that opts in to the services offered under subsection (1) shall be given a signed declaration by that service provider outlining the financial advice that the applicant has received.
(3) Any provider of a Lifetime ISA must confirm whether an applicant—
(a) intends to use the Lifetime ISA for the purposes of paragraph 7(1)(b) of Schedule 1,
(b) has a signed declaration of financial advice under subsection (2), or
(c) is enrolled on a workplace pension scheme or is self-employed.
(4) Where the provider determines that the applicant is—
(a) self-employed and does not participate in a pension scheme,
(b) not enrolled on a workplace pension scheme,
(c) does not intend to use the Lifetime ISA for the purposes of paragraph 7(1)(b) of Schedule 1, or
(d) does not have a signed declaration of financial advice under subsection (2),
the provider must inform the applicant about the independent financial advice available to them under subsection (1).’
This new clause would place a duty on the Treasury to make regulations that ensure all applicants for a Lifetime ISA have independent financial advice made available to them.
New clause 4—First-time residential purchase: research and impact assessment—
‘(1) Within one year of this Act coming into force the Treasury must conduct a review into the potential impact of provisions within paragraph 7(1)(b) of Schedule 1 on—
(a) house prices in the UK, and
(b) the operation of the housing market.
(2) The findings of the review must be made publicly available and laid before Parliament.’
This new clause would require a review of the Bill’s effect on the UK housing market/house prices.
New clause 5—Distributional analysis of the impact of the Lifetime ISA and Help to Save—
‘(1) Within six months of this Act coming into force the Treasury must conduct an analysis of the distribution of benefits of Lifetime ISAs and Help-to-Save accounts including between—
(a) households at different levels of income,
(b) people of different genders,
(c) people with disabilities, and
(d) black and minority ethnic groups.
(2) The findings of the analysis conducted under subsection (1) must be laid before Parliament.’
New clause 6—Lifetime ISA and Help-to-Save: value for money—
‘(1) Within six months of this Act coming into force the Treasury must assess the value for money provided by the Lifetime ISA and Help-to-Save scheme.
(2) The assessment must in particular include—
(a) the cost to the Exchequer of the measures,
(b) the number of individuals who have benefited from the measures, and
(c) the average tax deduction received by an individual as a result of the measures.
(3) The findings of the assessment must be made publicly available.’
New clause 7—Advice for applicants—
‘The Treasury must make provision by regulations to ensure all providers of Lifetime ISAs or Help-to-Save accounts provide applicants, at the point of application, with advice about the suitability of the product in question for each individual applicant.’
This new clause would require advice to be provided to applicants for LISAs or Help-to-Save accounts which must include information on automatic enrolment and workplace saving schemes.
Amendment 15, in clause 1, page 1, line 1, leave out clause 1.
See explanatory statement for amendment 16.
Amendment 17, in clause 3, page 2, line 17, leave out “1 or”.
Amendment 18, page 2, line 19, leave out “Lifetime ISA or”.
Amendment 19, page 2, line 23, leave out “Lifetime ISA or”.
Amendment 20, in clause 4, page 2, leave out lines 32 to 36.
Amendment 21, page 3, leave out lines 9 to 11.
Amendment 22, in clause 5, page 3, leave out line 23.
Amendment 6, in clause 6, page 3, line 36, leave out from “on” to end of line 37 and insert “30 April 2019”.
This amendment would delay the commencement of the Bill until the end of April 2019, when all firms will be auto-enrolled and the increase in minimum contributions to eight per cent. will be completed.
Amendment 16, page 5, line 1, leave out schedule 1.
This amendment, together with amendments 15 and 17 to 22, would remove provisions for the Lifetime ISA from the Bill.
Government amendment 3.
Amendment 1, in schedule 2, page 16, line 3, leave out “48” and insert “24”.
Amendment 12, page 16, line 31, at end insert—
“(1A) The conditions specified under subsection (1) shall not include the condition that the individual be over 25 years old if that individual meets all other specified conditions relating to the working tax credit.”
Currently those aged under 25 only qualify for Working Tax Credits if they work at least 16 hours a week. This amendment would ensure any individual aged under 25 would qualify for a Help-to-Save account if they met other specified criteria.
Amendment 2, page 17, line 36, at end insert—
“(d) a credit union.”
Amendment 8, page 18, line 16, leave out “maximum” and insert “average”.
See explanatory statement for amendment 11.
Amendment 9, page 18, line 19, leave out “maximum” and insert “average”.
See explanatory statement for amendment 11.
Amendment 10, page 18, line 19, after “means”, insert “an average of”.
See explanatory statement for amendment 11.
Amendment 11, page 18, line 19, after “£50”, insert
“across every two month period within the maturity period”.
Together with amendments 8, 9 and 10, this amendment would allow HTS to provide for “top-up” monthly payments above £50 so long as the average payment for every two months is £50.
Government amendment 4.
Amendment 14, page 19, line 2, at end insert—
“(e) provision for eligible persons to be auto-enrolled into Help-to-Save accounts through deductions from salaries or benefit entitlements unless the individual chooses to opt-out.”
This amendment would enable an ‘auto-enrolment’ workplace saving scheme which would see an individual automatically signed up to a Help-to-Save account. He or she must opt-out to stop money being deducted from their pay or benefits into a savings account.
Government amendment 5.
Amendment 13, page 19, line 31, at end insert—
“(3A) Where a bankruptcy order is made against a person with a Help-to-Save account any bonus paid into the Help-to-Save account will not form part of a debtor’s estate during insolvency proceedings.
(3B) Any bonus paid into a Help-to-Save account shall not be liable to be taken as repayment via third party debt orders.”
Amendment 7, page 20, line 23, at end insert—
“(ba) for a bonus in respect of a Help-to-Save account to be paid after six calendar months beginning with the calendar month in which the account is opened and at six month intervals thereafter;”.
This amendment would reduce the time before the holder of a Help to Save account would receive a government bonus to six months.
I am grateful for the opportunity to speak not only to new clause 1, but to amendments 1 and 2. I should declare an interest as a member of the M4Money credit union and as chair of the all-party group on mutuals.
New clause 1 seeks to give a statutory right to anyone wanting to save with a credit union via payroll deduction. Amendment 1 would reduce to one year the two years that those who are just about managing will wait before getting the Government top-up under Help to Save, to better incentivise saving under the scheme. Amendment 2, about which I shall speak a little more first, seeks to allow credit unions to offer the Help to Save product.
I took part in the Second Reading debate and raised the concern that credit unions would not be allowed to offer the Help to Save product. I have read through the transcripts of that debate and of the Committee proceedings and I can still see no good reason for the Government’s resistance to allowing credit unions to offer the Help to Save scheme. I recognise that Ministers want to ensure national coverage of Help to Save so that everyone who meets the criteria—the potentially 3.5 million people across the UK who Ministers think might do so—regardless of where they live can access the scheme. That clearly makes sense. I have no objection to the choice of National Savings & Investments as that national provider of choice. What I cannot see is any valid reason why credit unions cannot be allowed to complement the NS&I offer.
I too declare an interest as a member of the Cardiff and Vale credit union and I am also pleased to be, like my hon. Friend, a member of the Co-operative party. Does he agree that the Government need to be far more ambitious as regards credit unions playing a full part in financial services, and that, as I mentioned on Second Reading, we need to be heading in the direction of other countries, such as Canada, that have a much bigger credit union sector?
My hon. Friend makes an important point. We need much more ambition for credit unions and for financial mutuals and co-operatives more generally. I am thankful for his intervention.
Ministers claimed in Committee that a multiple provider model for Help to Save would not offer value for money, yet as far as I can see they have produced no costings to justify that claim. It is not as if Ministers are dealing in the case of NS&I with a private company demanding an exclusive arrangement as it feels threatened by the competition that credit unions can offer. NS&I is a state-owned bank, effectively, and is responsible to the Treasury. Indeed, I understand that the Minister responsible is the Economic Secretary to the Treasury, who is also responsible for policy on credit unions. NS&I has some 25 million customers and £135 billion in assets. By comparison, credit unions across the UK have £1.37 billion in assets, less than 1% of the value of NS&I’s investments. In short, credit unions are no threat to NS&I.
NS&I is under the control of the Treasury, as I have said, and it is in Ministers’ hands, or it was until the start of the House’s proceedings on this issue. The House now has the opportunity to decide whether credit unions should be allowed to offer the Help to Save scheme.
I thank my hon. Friend for giving way, and I am delighted to serve as a Labour and Co-operative MP alongside him. Does he agree that allowing such diversity is important in helping to change behaviour? Many of the issues with savings are about cultural attitudes, and having ways to reach out to communities that might not have engaged in such behaviour is an important part of changing the savings culture in this country.
My hon. Friend makes a good point, and I hope to deal with it a little more in due course. She is right that credit unions have scope to reach out to more of the 3.5 million people Ministers want to assist through the Help to Save scheme, whom NS&I might not be best placed to help.
Credit unions are not-for-profit financial co-operatives, owned and controlled by their members. They are, I would argue, more uniquely exposed to low and middle- income financial services markets and are used to offering financial services to those who are often excluded from other better known sources of finance. They provide safe savings and affordable loans, with some credit unions offering other products, such as current accounts, individual savings accounts and mortgages.
Is it not true that what is key is that credit unions can also provide loans? We know that low-income families have more bumps in the road than the majority of people on a higher income, so that provision, combined with the opportunity to keep saving, is an important service that NS&I cannot offer.
My hon. Friend has stolen one of my lines from later in my speech. She makes an entirely appropriate point: credit unions can offer access to an affordable loan while encouraging people to save at the same time. When the loan is paid off, the incentive to keep saving is still there.
Credit unions have until now enjoyed the support of Members on both sides of the House. From 2006 to 2007 the growth fund, launched by the Co-op party’s—and now Strictly’s—very own Ed Balls, saw more than 400,000 affordable loans offered and saved recipients between £120 million and £135 million in interest that would otherwise have been paid to high-cost lenders. It is that type of success that, after a long Co-operative party campaign under the last Government, saw Ministers, led by the right hon. Member for Broxtowe (Anna Soubry), agree to allow three credit unions to offer services to our soldiers, sailors and airmen and to their families—in short, to offer an armed forces credit union. Given the funding from the Department for Work and Pensions under the last Government to expand credit unions, it seems odd that Ministers should tonight want to continue to exclude credit unions from offering a product in a market in which they already have significant interest and penetration.
Credit unions—I think this is the point my hon. Friend the Member for Makerfield (Yvonne Fovargue) was alluding to—routinely require those borrowing money from them to save as they repay their loan. On completely paying off their loan, those who have borrowed from a credit union have their own pot of savings, which some have never had before. That approach sees many members continue to save over a far longer period after they have overcome the inertia or budgeting difficulties that perhaps prevented them from getting into saving in the first place.
Credit unions also help people to save towards a particular short-term goal. The idea of a rainy day fund, which a number of hon. Members talked about on Second Reading, is often not tangible enough for people to begin a savings habit, whereas saving for Christmas, to go on holiday, to buy a particular good or to access a particular service is. Indeed, according to the Association of British Credit Unions Ltd—the excellent credit union trade body—the available evidence suggests that people are more likely to begin to save towards a defined goal. In this way, they demonstrate to themselves that they can save, and from there more saving takes place. I am told that this is basic behavioural economics.
Other advantages of allowing credit unions to offer Help to Save include the fact that NS&I is not a particularly familiar organisation for many low and middle-income earners. Its offer is fairly impersonal and remote, with little face-to-face contact or obvious customer support. It is difficult to think that many of the target audience will be particularly inspired by such an offer, whereas a credit union trusted by friends or family and able to provide face-to-face support will, for some, be the difference between signing up and starting saving or not.
If credit unions were supported by this House to offer Help to Save, it would boost their ability to grow. It would further raise public awareness, and potentially introduce credit unions to a new group of savers. Given credit unions’ lack of advertising and branding firepower, compared with the great megaliths of financial services, such as the banks, that can only be helpful to the Government’s claimed aims of increasing support for credit unions and creating a more diverse banking market.
New clause 1 locks into law the right of anyone wanting to join a credit union to request payroll deduction. When saving is in the interests of the individual and the country at large, why should we not expect business and other employers to help a little by making it as easy as possible for people who want to save? One way some choose to save is by having an amount, which they decide, deducted automatically from their pay packet by their employer. That is a process they can stop immediately, and it is known as payroll deduction.
Yet, at the moment, whether or not payroll deduction is allowed is entirely in the gift of the employer. The best employers have no problem with it. Often, they will reach agreement with local credit unions or credit unions that operate in their industry. Once they have done so, payroll deduction will be offered by their back office. Indeed, the Ministry of Defence granted the facility of payroll deduction to three credit unions, which now offer services to our soldiers, sailors and airmen and to their families. In so doing, they help to save them, as I alluded to, huge amounts of interest. Some £1 million of affordable credit is already being offered to military personnel.
ABCUL has pointed out to me that the Department for Work and Pensions is the latest Whitehall Department to offer payroll deduction for credit union services to their staff. Again, it has chosen three particular credit unions to work with: Commsave, Hull & East Yorkshire, and Voyager Alliance. A number of staff who work for the DWP have already benefited to the tune of several hundred thousand pounds-worth of affordable loans. Many other Departments in Whitehall also offer this facility. Most police forces offer payroll deduction for credit union members, as does much of the NHS. Hospitals, NHS trusts and other parts of government are quite right to do so. Unfortunately, however, some outsourced payroll companies try to exploit the terms of their contract and demand a fee for agreeing to offer such a service to an employee.
Payroll deduction takes a tiny amount of time to sort out, yet some employers will not do the right thing to help their employees to save in the way that best suits them. The worst offender that I know of currently is Transport for London, which employs almost 28,000 staff. It claims that there is no demand for credit union access. It says that it offers generous emergency assistance if staff get into problems, that it would be costly to offer payroll deduction, and that it certainly would not want to get into the picking of which credit unions to work with. I struggle to see why, in this regard, TfL is any different from the Ministry of Defence. There were not thousands of soldiers queuing outside the MOD to join a credit union either, and it cost the MOD, whose payroll is outsourced, a fee. Ironically, the payroll company concerned offers payroll deduction to its own staff. TfL’s offer, important as it is, of emergency loans if staff get into trouble is a bit of a red herring. This is about making it easy for an employee to save on an ongoing basis with a reputable and regulated credit union. If the MOD can work out which credit unions to work with, it should not be beyond the wit of Transport for London to do so as well. I hope that TfL will change its mind. We are having discussions with it, and I hope it will come to see sense in the end; it has a responsibility to do so. Nevertheless, Government should cut through this sort of nonsense and legislate to allow employees the right to request payroll deduction up front through joining a credit union. If saving is both in the individual interest and in the national interest, we should seek to make it as easy as possible for this to be offered.
The last amendment in my name in this group is amendment 1, which would lower the qualifying period of the Help to Save product before the Government top-up begins from 24 months to 12 months. There was some debate in Committee about reducing the time that people have to wait before the top-up is granted. I simply draw the House’s attention to the evidence put in by StepChange, the debt advice charity, suggesting that 24 months was too long to ensure that the Government’s objective of incentivising more savings was met.
I look forward to hearing the views of other Members. I hope that Ministers will, in particular, reflect on the case that I have made for amendment 2. If they are not willing to shift on this issue, I will seek your leave, Mr Speaker, to divide the House on it.
It will come as no surprise to many people in this House that I am here in full support of my Co-op party colleagues on this matter, and in full support of the vital importance of supporting our credit unions because of the debt tsunami that is coming our way as a nation. Some people may think that it is one of my greatest hits to talk about personal debt and the scourge of the high-cost lenders. The credit unions have always been very much part of the answer to this, and I support amendment 2 on that basis. It is absolutely critical, with the debt tsunami that is coming towards us, that we act to support the credit union movement as a vital component of helping people.
For too many people in our nation, debt is a part of life. There is simply too much month for their money. That has been the case for many years, but the problems are becoming endemic, to the extent that people may not even realise the level of debt that they have. For other people, it may be all too clear: two out of five people are very worried about their level of personal debt. Let me be clear that we are talking about unsecured personal debt. These are not people who are just worrying about their mortgages; these are people who are worrying about the day-to-day cost of everyday living.
For 54% of people who are struggling, the cost of food is the problem—literally, the cost of putting food on the table as well as keeping a roof over their heads and those of their families. For 30% of people, the problem is the cost of energy. Those people will look at the weather forecast fearfully as the temperature drops, knowing that they simply cannot afford to put money in the meter to keep their families warm. Increasingly, people are in debt because of their debt: 22% of people are struggling because of credit card repayment debt.
That is everyday Britain. That is the kind of country we have become—a country where debt is so commonplace that people are not just waving but drowning in it. It is the responsibility of all of us to act. We must not simply give people debt advice, or shrug our shoulders and see this as part of how our economy works. We must ask whether there are things we can do to help people to manage their debts.
The debt tsunami will only become worse as we head into 2017. We all recognise that inflation is likely to rise from 1% to possibly 4%, some experts suggest. The cost of food and basic goods such as energy is going to get higher, not lower. So many people’s wages have been frozen for so many years that in 2017 the gap between the start of the month and the end of the month will feel very large. That is why we have to be pragmatic. Pragmatism is about offering people good options for managing what little money they have, and that is where the credit union movement comes into its own. When the Government want to encourage saving, it is absolutely vital that instead of excluding the credit union movement, they embrace it and the benefits that it can offer. A quarter of people in this country have no savings at all, so we need to ask ourselves which movement always has its doors open to every citizen, and how we can help it to bridge that gap. That means looking to the credit union movement.
My hon. Friend the Member for Harrow West (Mr Thomas) has made an admirable case for helping our credit union movement and its work. At the risk of repeating what has been said, I want to echo his words and say that we can do so much more. This scheme and the involvement of credit unions are the start, not the end, of that conversation. My own credit union struggled for many years to get on to the high street in Walthamstow, but what a difference that has made. My credit union struggled for many years to get into workplaces and to work with people, but what a difference doing so can make.
Councils around the country, such as Southampton, are working to give people access to a credit union as savers, in return for helping those who would otherwise have gone—let us say it—to a payday lender to get the money that they needed. That sort of work enables us to link communities together. It is crucial that we see credit unions as being not just about borrowing, but about saving. We must recognise that saving enables us to support wider social objectives in a local community.
That is why this omission must be corrected and why Co-operative MPs are standing here tonight to try to get the Government to think again about excluding credit unions from the Help to Save scheme. Instead, we ask the Government to embrace credit unions by accepting the amendment. I join my hon. Friend in saying that if we do not get support from the Government for this change, we will seek to divide the House.
We want to send a message. We know that people will have to borrow. When 2017 looks as dire as it does, with inflation rising, people’s wages still stalling and the cost of living continuing to rise, we have to make sure that people have sensible borrowing options. They also need to have sensible saving options, and the credit union movement is the answer. It is the solution for people who might not have gone anywhere else. If we can get them into a credit union, we can start dealing with their debts and getting them to save.
This is a critical time for our country’s debt portfolio. As I said at the beginning of my remarks, a debt tsunami is heading our way. Let us not turn our backs on it. Let us be sensible about what we can do to help, and let us make credit unions part of the solution.
I thank my hon. Friend the Member for Harrow West (Mr Thomas) for his indefatigable pursuit of the issues he has raised today, particularly on the role of credit unions. He is supported by other Members, such as my hon. Friend the Member for Walthamstow (Stella Creasy). No reasonable person could disagree with anything articulated by my hon. Friend the Member for Harrow West in his usual coherent, cogent and reasonable way. He has the support of Labour Front Benchers and of many other hon. Members in the Chamber.
My hon. Friend is in line with organisations such as StepChange Debt Charity, which welcomes the concept of Help to Save, but feels that the Government have not gone far enough in their commitment to facilitating saving. It says that only one in seven people eligible for the scheme are likely to take it up, and it supports the payroll deduction concept suggested by my hon. Friend.
Before I deal with the Opposition new clauses and amendments, I will first summarise our overall view. Although we fully support any measure that will encourage people to save, particularly young people and those on lower incomes, we feel that the proposed lifetime individual savings account will do little to help those two groups. In the Public Bill Committee, we heard a raft of expert evidence in support of that view, with many experts citing their concern that this may be simply another product in an overcrowded market. The products are not necessarily complicated per se, but the market is.
The Opposition will not stand in the way of the Bill, but we want to make a number of reasonable changes to ensure that the proposed ISA and right-to-buy scheme proposals do what they say they will do. Those with low incomes are already struggling to make it through the week, and they have seen the Government drastically cut in-work benefits. I do not see how people will meet the minimum threshold, particularly given the reports showing that half of UK adults have set aside less than £500 for emergencies. Some families will simply not be able to save £50 every month, as was raised by Scottish National party Members in Committee.
On the impact review of auto-enrolment, the Opposition’s wider concern is that the new savings scheme will interfere with and perhaps even have a negative impact on the automatic enrolment of people into pensions. Do the Government really want to gamble that, with 6.7 million people already auto-enrolled across 250,000 employers, they will not reach their target of 10 million by 2020? The Opposition new clauses and amendments are designed collectively to address the concern expressed across the board, including by the pensions industry, the trade union movement, Select Committees of this House and the Office for Budget Responsibility, which is that the lifetime individual savings account poses a threat to traditional pension savings and, most significantly, to auto-enrolment.
It is self-evident that automatic enrolment, which was mandated by the previous Labour Government, is an outstanding initiative that, as time passes, is starting to achieve the objective set for it. Hence our new clause 2, which proposes to place a duty on Her Majesty’s Revenue and Customs to review the impact of lifetime ISAs on automatic enrolment annually. Auto-enrolment is one of the few success stories in the pension landscape, and it is widely acknowledged in all sectors to be right. We fear that, intentionally or not, the Government’s policy may put the wider landscape in jeopardy and be a dangerous path to follow. Pensions history suggests that this will only be recognised in years to come. We want the Government to review the situation and the impact on the auto-enrolment scheme annually to ensure that the introduction of lifetime ISAs does not have a negative impact on the success of automatic enrolment.
Similarly, not all employees will be auto-enrolled until February 2018, and the increase in minimum contributions to 8% will not be completed until April 2019. The level of drop-outs is relatively low among younger people, but we do not want anything whatsoever to jeopardise the maximum possible number of people enrolling or to provide any incentive for them to opt out. That is not an unreasonable position to take, given the implications of getting things wrong. We have therefore tabled amendment 6 to delay the commencement of the Bill until the end of April 2019, when all firms will have been auto-enrolled and the increase in minimum contributions to 8% will have been completed. The simple truth is that many people cannot afford to pay into both a pension and a LISA. In fact, many can do neither. The Work and Pensions Committee has warned the Government:
“Opting out of AE to save for retirement in a LISA will leave people worse off.”
Government messages on the issue have been mixed. The DWP has been very clear that the LISA is not a pension product, but the Treasury has proffered an alternative view.
New clause 3 is on independent financial advice. If the Government cannot get their position on the lifetime ISA clear, how will ordinary people in the street be clear about it? Compared with those of other pension plans, the benefits of the LISA are relatively confusing and unclear when set in the context of the wider market. That is why we have tabled the new clause, which would place a duty on the Secretary of State to make regulations that ensured that all applicants for a lifetime ISA
“have independent financial advice made available to them”.
In other words, the new clause’s purpose is to ensure that those opening a lifetime ISA for retirement savings receive independent financial advice.
Advice is crucial in purchasing any expensive product, in particular one involving post-retirement income. The advice would be offered automatically—through an opt-in service, for example—and the service provider would sign a declaration outlining the advice the applicant had received. Any provider would have to confirm the status of the applicant, whether they were enrolled in a workplace pension scheme, whether they had signed a declaration of financial advice and whether they planned to use the lifetime ISA for a first-time residential purchase.
Independent financial advice does not have to be expensive. In fact, to give an example, the Government could mandate a robo-advice scheme, which is an online platform where an individual can get independent financial advice. Given the putative simplicity of LISA that the Minister has championed, experts inform me that having a robo-advice scheme would be a reasonable course of action, although such a scheme would need safeguards. First, it should be backed up by accredited financial advisers. Secondly, the Government should take steps to ensure that no one company has the contract, something that is all the more important to avoid a repeat of the Concentrix scandal.
The Opposition believe that it is only right that anyone considering a lifetime ISA be given the opportunity to see its benefits compared with those of other schemes on the market. New clause 3 would ensure that people could make an informed choice with the benefit of independent financial advice. It would enable parity in the quality of advice for all those entering the scheme and mean that much-needed oversight and education about the benefits of the scheme would be in situ.
It goes almost without saying that a pension is perhaps one of the most important purchases a person makes. That issue has exercised the minds of many people in government, in the regulatory sector and in the products sector. The history of mis-selling has left a long, deep shadow across the financial products sector. We must take that into account—we cannot ignore it. With so many bodies from across numerous industries outlining their concerns that there is a risk that people will save into a lifetime ISA when it is not the most beneficial retirement savings option, I cannot see a reasonable argument against ensuring that applicants receive independent financial advice before opening an account.
Millions of people have lost confidence in much of the sector to some degree or other. As witnesses in Committee alluded to, that is partly why when people are saving they do so in cash ISAs. They are not sure about stocks, shares and other products and so put their savings into products that give them a return of 0%, 0.1% and so on—up to 1% if they are lucky. We must create an environment in which people save and feel confident that they will get a reasonable return on their investment, especially if that investment is for their later years. That, too, is perfectly reasonable.
On new clause 4, the Opposition recognise that many people want to own their own home, and would encourage people to do so if that is what they wish, but we are concerned that the Government’s housing policy will only inflate housing prices further, and that the lifetime ISA will make things even more difficult in a housing environment that is already strained because of the limited numbers of houses being built nationwide. I will not even mention the huge cost of housing, particularly in London and the south-east. The average figure nationally is as much as £250,000 and over £500,000 in the capital. That is why new clause 4 would require the Government to conduct a review, within a year of the Act coming into force, of the potential impact of the lifetime ISA on house prices in the UK. It would also require that the review be made publicly available and be laid before both Houses of Parliament.
Evidence received in Committee, from the likes of Martin Lewis of MoneySavingExpert.com, acknowledged the potential popularity of the lifetime ISA but highlighted concerns about its potential impact and argued that unintended consequences of the scheme were a possibility and a concern. Worryingly, fewer homes were built in the last Parliament than under any other peacetime Government since the 1920s. The lifetime ISA might help to overheat a market already short of capacity. The Government’s priority should be to try to mitigate, not to add to, the problem. I do not consider that an unreasonable point either.
People are increasingly chasing a product in a market that has low supply levels. As I indicated in Committee, it so happens that that product is housing. The facts speak for themselves: the Government are almost two years through their five-year housing plan—not counting the previous five years—and still falling badly behind on their targets. If I recall correctly, the OBR’s assessment suggests a 0.3% inflationary effect on the housing market from products such as lifetime ISAs. If there are 100,000 house transactions a year, at £750 a time, that will add about £70 million a year to prices. If we are to implement policies that will affect an already overheating sector, it is important that we take into account their overall impact.
New clause 5 calls for a distributional analysis. As mentioned earlier, the Opposition’s underlying concern about the lifetime ISA is that it will do little to help those on low incomes to save. That is why we would like the Government to produce, within six months of the Act coming into force, an analysis of the distribution of benefits of lifetime ISAs and Help to Save accounts, including of the distributional effects between households at different income levels, genders, people with disabilities, and black and minority ethnic groups.
We should not forget that the Government’s huge cuts to universal credit will see 2.5 million people in working families lose as much as £2,000 a year, even after the Chancellor’s recent minor adjustments. It is difficult to imagine that such families will have a spare £50 a month to put into a Help to Save account. I made a point earlier about the low take-up. Those who can afford to save are generally better off, so the lifetime ISA will deliver subsidies to those who least need them. Meanwhile, the danger is that the Help to Save measure, which is specifically for universal credit and tax credit recipients, might encourage those on low incomes to save money when it is not, at that point, necessarily in their best interests. According to the Women’s Budget Group,
“Incentives to encourage saving—via the ‘Help-to-Save’ and ‘Lifetime ISA’ measures”—
“likely to disadvantage women”
and tend to represent
“a move away from collective provision of welfare”.
It is concerned
“that in the future such individual accounts are used to provide an income during periods of caring, illness or disability…As women are both less likely to have funds to save and more likely to require time out for caring, they would be significantly disadvantaged by such an individualized approach as opposed to a collective system that enables redistribution.”
New clause 6 feeds into the overall debate about whether the lifetime ISA and Help to Save measure will be good value for money, particularly if they do not help those on low incomes and minority groups to save. We welcome the sensible measures to address the thorny issue of the low retirement savings of the less well-off, and anything that puts money into the pockets of middle and low earners is welcome, but I wonder how that aim sits alongside the Conservatives’ planned cuts—they are more like a heist—to universal credit. According to the OBR, the various pensions and savings policies introduced since 2011, including the lifetime ISA, will create a £5 billion lacuna in the public finances.
It is therefore imperative that the scheme benefits everyone in society, not disproportionately those who are already in a position to get on the housing ladder and save. It would be a real shame if the beneficiaries of the scheme were limited to those who were already able to afford to save and afford the deposit for a house. Given that the two policy announcements come at more or less the same time as cuts to tax credits, the juxtaposition of an investment of £1.8 billion in housing support for those in a better position to afford to buy against the significant cuts for those in lower-paid work will be seen at the very least as insensitive, and by some as crass and unfair.
Even in less stressful economic circumstances, it is incumbent on the Minister to ensure that taxpayers’ money is used with the concept of fiduciary duty uppermost in mind. It is all the more necessary in times of economic turbulence that the spending of taxpayers’ money must be both prudent and canny. That is why we are asking the Government to implement an assessment within six months of the Bill coming into effect on the value for money to the taxpayer provided by the lifetime ISA and Help to Save scheme.
The Opposition are concerned about the effectiveness of the scheme. While we welcome any reasonable measures that will allow those on low incomes to save and encourage younger people to start saving earlier, the fear is that the scheme will disproportionately benefit a minority of people who are already more likely to be in a position to save and get on the housing ladder. There is a clear contradiction—some might say a tartuffery—between the Government cutting universal tax credits on the one hand but expecting people to somehow find the money for this scheme on the other. Is that fair?
I have laid out our clear concerns about the need for independent financial advice and assessment of the impact that right-to-buy schemes will have on the housing market and its cost-effectiveness. It is paramount that in due course the Government lay out clear evidence about who is using this scheme and, if necessary, amend it to allow wider participation. This scheme should not interfere with the continued success of auto-enrolment, so it should be delayed until 2018-19 when auto-enrolment is completed.
To be clear, this is not a scheme we would have initiated. We have huge reservations about any move by the Government away from a collective pension system towards an individualised payments system. That is a very slippery slope that the Government will not be here to regret. That is why we will continue to scrutinise the lifetime ISA—a potential Trojan horse for the current pension system—and the Help to Save scheme, which is an attempt to salve the conscience of a few Conservative Back Benchers after the chainsaw the Government have taken to tax credits. If the Government will not concede, we shall pursue new clauses 2 and 6 to a Division.
It is a pleasure to be called to speak in the debate. I rise to speak to new clause 7 and amendments 7 to 11 and 13 to 22, which were tabled in my name and those of my hon. Friends.
We in the SNP—[Interruption.] I see that Conservative Members are laughing, but if the Government had taken this issue seriously and accepted some well-intentioned amendments in Committee, we would not have had to table all these amendments this evening. Let me tell Conservative Members that this Bill is a seriously bad piece of legislation, and they should take it seriously, not scoff at it.
The Scottish National party has consistently warned of the dangers of the Bill and its consequences for savers. The SNP is supportive of any initiative that promotes savings, but the lifetime ISA is a gimmick, as it will work only for those who can afford to save to the levels demanded by the Government to get the bonus. The LISA falls short of real pension reform, and it is a distraction to allow the Treasury access to taxes today rather than having to wait for tomorrow.
Savings into a LISA are made out of after-tax income; pension contributions are tax exempt and tend to receive employer contributions. Saving through pensions remains the most attractive method of saving for retirement. While anything that encourages saving for later life has to be welcomed, the danger is that the Government will derail auto-enrolment. Help to Save is another example: we agree working to encourage savings is welcome, but once again the UK Government are only scratching the surface, rather than really targeting those struggling to plan for emergencies or later life.
The Bill risks seducing young people away from investing in a pension by encouraging investment in a lifetime ISA. We have said before that no one investing in an ISA can be better off than someone investing in a pension. Why are the Government persisting with the Bill? Let us be clear: if we pass the Bill tonight, we could create circumstances in which young people might be sold a lifetime ISA when their interests would be better served by investing in a pension. That is what we will do if we pass this Bill.
In Committee, we sought to make sure that safeguards were in place and that advice was available for applicants to remove that risk, but for some reason the Government refused to accept our reasonable proposals. This evening, we are pressing new clause 7, which would require the Secretary of State to make regulations requiring all providers of LISAs or Help to Save accounts to provide applicants, at the point of application, with both advice on the suitability of the products to the individual and information on automatic enrolment and workplace pension schemes. Auto-enrolment is still in its infancy and is due to be reviewed next year, although we heard today that increases in payments to auto-enrolment schemes are now off the agenda. That too should be debated by the House and changed.
That has to be our priority for savings, but if we are not successful in pressing the new clause tonight, our only alternative is amendment 15, which would completely remove the LISA from the Bill. Our primary problem with the Bill as drafted is the LISA. While the UK Government rely on low opt-out rates from auto-enrolment to justify their claim that the LISA would not risk pension savings, we are not convinced. The Bill is a missed opportunity to focus on strengthening pension saving, rather than tinker with the savings landscape.
The amendments we tabled in Committee aimed to delay the LISA until safeguards were built in; they also highlighted the need for mandatory advice. The Government say that the LISA is a complementary product, not an alternative to pension saving, but they have given no real thought to the difficulties facing consumers in understanding their options and, for those who have savings, whether they are in the best product for their needs. Pensions are already confusing and complex; the LISA as it stands adds to that complexity. We need to build trust in savings. That can only come if consumers have confidence in what is offered to them. A new suite of savings products that in many cases are inferior to existing offerings does not help build confidence in savings.
On Second Reading the Financial Secretary said:
“What is attractive about the lifetime ISA is that people do not have to make an immediate decision about why they are saving this money…people not having to make that decision at an early stage when they cannot see what is ahead.”—[Official Report, 17 October 2016; Vol. 615, c. 607.]
That is an astonishing statement. Why is the Financial Secretary not saying that we ought to be encouraging pension savings? I get the point that we need to consider ways to help young people to get on the housing ladder. Perhaps we need to think about how investments in pension savings might help in that regard. That is one of the reasons I keep asking for the establishment of a pensions and savings commission, so we can look at these matters in a holistic manner. I keep making the point, and I make no apology for saying again, that nobody should be better off with a LISA than with pension savings.
The long-term cost of forgoing annual employer contributions worth 3% of salary by saving into a LISA would be substantial. For a basic rate taxpayer, the impact would be savings of roughly one third less in a LISA over a pension by the age of 60. For example, an employee earning £25,000 per annum and saving 4% of their income each year would see a difference in excess of £53,000. After 42 years, someone saving through a pension scheme would have a pot worth £166,289.99 at a growth rate of 3%; in a LISA at the same growth rate the value would be only £112,646.75. That is a difference of over £53,000, and the difference would be even greater if wage growth was factored in. That is why we cannot support the Government tonight on the LISA elements of the Bill.
Without the introduction of advice, we are creating the circumstances in which mis-selling can take place. How can we stop someone being sold a LISA when a pension plan would be better for the consumer’s needs? We cannot. That, quite simply, is why the Bill is wrong. The Government ought to be thoroughly ashamed of themselves. They are creating the circumstances in which mis-selling can take place. I point the finger of blame at the Government for introducing this Bill and at every Member who is prepared to go through the Lobby tonight to support the Bill. Dwell on the example I gave where someone earning £25,000 per annum saving 4% of their salary could be as much as £53,000 worse off after 42 years. Who can honestly support that? That is not in consumers’ interests. It is de facto committing a fraud on savers in this country.
Today research has been published by True Potential. A poll of 2,000 employees showed that 30% of people aged between 25 and 40 would chose a LISA instead of a pension and that 58% of 25 to 34-year-olds would use their LISA for retirement savings. These statistics are the early warnings of the potential for mis-selling. Tonight, the House must vote to protect the consumer interest by backing new clause 7 to put in place an advice regime; failing that, Members should support amendment 15, which would delete LISAs from the Bill. Failure to do so will be a failure to take responsibility by each and every Member of this House.
I said on Second Reading:
"We would resist any further attempts to undermine pension saving and, specifically, to change the tax status of pension savings. That would be little more than an underhand way of driving up tax receipts—sweet talking workers to invest after-tax income in LISAs when their interests are best served by investing in pensions.”—[Official Report, 17 October 2016; Vol. 615, c. 620]
The sheer fact that the use of LISAs for retirement savings will be encouraged will confuse the public that this is a pension product and could disincentivise retirement savings in what should be traditional products. The Government's response that an amendment on advice would not work in practice, as it would create a barrier to accessing the LISA, is another quite extraordinary argument, as all that advice would do is make sure that consumers can make informed decisions. If there are consumers who choose to invest in a pension rather than a LISA product, I would be delighted, and so should the Government be.
The Government said it would be the role of the Financial Conduct Authority to ensure that sufficient safeguards are put in place. Specifically on advice, we welcome the FCA’s proposed protections: firms will be required to give specific risk warnings at the point of sale, which include reminding consumers of the importance of ensuring an appropriate mix of assets is held in the LISA; they will also have to remind consumers of the early withdrawal charge and any other charges and they will have to offer a 30-day cancellation period after selling the LISA. However, still the risk is simply too great for the Government to treat it as an afterthought. There must be a formal mechanism to assist those seeking to increase saving, particularly where they are looking for a retirement product.
Even the Association of British Insurers, which cautiously welcomes the LISA, has said:
“LISA (and other ISA products) receives savings from money that is already taxed. This keeps the burden of taxation with working age people and takes money out of the real economy”.
This takes us back to why we are here and what the Government are proposing and why it is wrong.
As I also said on Second Reading:
“SNP Members welcome any reasonable proposals that encourage savings—we will work, where we can, with the UK Government to seek to encourage pension savings—but we very much see the Bill as a missed opportunity for us all to champion what we should be focusing on, which is strengthening pensions savings. Instead we have another wheeze that emanated from the laboratory of ideas of the previous Chancellor, the right hon. Member for Tatton (Mr Osborne), and his advisers, who had form on constantly tinkering with the savings landscape. The right hon. Gentleman may have gone from the Front Bench, but his memory lingers on with this Bill.
Let us recall what the former Chancellor said in his Budget speech this year:
‘too many young people in their 20s and 30s have no pension and few savings. Ask them and they will tell you why. It is because they find pensions too complicated and inflexible, and most young people face an agonising choice of either saving to buy a home or saving for their retirement.’”—Official Report, 17 October 2016; Vol. 615, c. 618-19.]
This assertion was not backed up by any evidence, and it was also half-baked. Young people under the age of 30 have the lowest level of opt-out rates of all those who have been automatically enrolled into workplace pensions. Department for Work and Pensions research has found that for the under-30s the opt-out rate was 8%, compared with 9% for 30 to 49-year-olds and 15% for those aged 50 and over. One would have thought that the then Chancellor and the Minister today would look at the DWP evidence and recognise that the assertion behind the justification for these measures was wrong. The fundamental principle that young people, when presented with a solution for pension savings, such as is now the case with auto-enrolment, are not saving for a pension is wrong. After much effort, auto-enrolment has been successful at encouraging young people to save. That is what we should be prioritising tonight and it is why we should vote to delete LISAs from this Bill.
Of course we know that the Treasury has been flying kites on moving from the existing arrangements for pensions—exempt, exempt—to one of taxed, exempt, exempt. This in my opinion would have a drastic impact on incentivising pension savings, but clearly from the Government’s point of view it would mean higher tax receipts today rather than pensions being taxed on exit, a wheeze from the previous Chancellor to deliver higher taxation income today rather than taxing consumption in the future—a modern-day reverse Robin Hood. Is it not the case that when this was kicked into the long grass, along came the Chancellor with proposals to achieve the same ends through the back door?
We must focus on pension savings and auto-enrolment. We must not undermine those efforts by inadvertently encouraging people to opt out through by consumers with new competing products. As has been stated by the likes of Zurich Insurance:
“There is a real danger that the LISA could significantly derail auto-enrolment and reverse the progress made in encouraging people to save for later life.”
I agree with that.
What is inconceivable is the reason why the Government are pushing ahead at such haste with the product: with the right hon. Member for Tatton gone from the Cabinet, why are they holding on to his big ideas? Providers have already said that they may not be ready for the implementation date of April 2017. Surely, to ensure quality and safeguards and overcome the challenges of complexity, at least the Government should accept our amendments to remove this ISA on these grounds.
Let me turn briefly to our Help to Save amendments. Currently those aged under 25 only qualify for working tax credits if they work at least 16 hours a week. Amendment 12 would ensure that any individual aged under 25 would qualify for a Help to Save product if they met other specified criteria. Amendments 10, 11, 8 and 9 would allow Help to Save to provide for “top-up” monthly payments above £50 so long as the average payment for every two months is £50. Amendment 14 would enable an auto-enrolment workplace saving scheme which would see an individual automatically signed up to a Help to Save account. He or she may opt out to stop money being deducted from their pay or benefits into a savings account.
Amendment 13 would ensure that individuals subject to a bankruptcy order would not be stripped of their assets. Amendment 7 would reduce the time before the holder of a Help to Save account would receive a Government bonus to six months.
We welcome the Government’s Help to Save, which we believe will help to boost the financial resilience of lower-income households. A survey conducted specifically about the scheme by StepChange demonstrates the importance of helping low-income households to save. Over three-quarters of respondents said that they need to pay an unexpected cost at least once a year, and on average it is worth between £200 and £300.
Without savings, many people have cut back on essentials such as food or heating, or had to borrow money. Boosting accessible cash savings among lower-income groups is vital to keep struggling families out of debt. Having £1,000 in accessible cash savings reduces the likelihood of a household falling into debt by 44%. If every household in the UK had at least £1,000 saved, it would reduce the number in problem debt by 500,000. However, in terms of the entire pensions and savings landscape, the Government could do much more.
We will support these aspects of the Bill. However our amendments simply add further security and protections for those the Government have not considered. StepChange is also calling for the Government to come forward with a plan to tackle anticipated low take-up of Help to Save, to ensure the maximum benefit among eligible households who are just about managing. Our amendment for those under 25 would help to do that.
We also support StepChange’s calls for Ministers to commit to bring forward a plan no longer than six months after Royal Assent of the Bill that shows how Help to Save will reach half of the eligible target group. The review of auto-enrolment should be used to look at how we can enhance the numbers and those eligible for pension savings, and more broadly how we can help families to build short-term savings.
I hope the Government reflect on our amendments. There must be advice for those looking to invest in LISAs. Failing that, I will be seeking to remove LISAs from this Bill through amendment 15. We must as a House protect consumers from any possibility of mis-selling. A failure to do so will see us back in this Chamber discussing the consequences, and it will be the Government at fault.
This has been a wide-ranging debate, albeit with a relatively small number of speakers. Many of the arguments today were given a good airing during our Bill Committee discussions. I will try to address the key points raised by hon. Members, and will also set out why we think the Government amendments are necessary.
First, however, I want to touch on a point of policy that is of some relevance to the debate: a change to charges in the first year. We are making a small change to charges on early withdrawals from the lifetime ISA in its first year of operation, for the benefit of consumers. Although these rules will be set out in regulations, so do not affect the substance of the Bill before the House today, as a courtesy I thought some hon. Members would be interested, given the points raised in oral evidence to the Bill Committee.
The 25% Government charge on unauthorised withdrawals from the lifetime ISA recoups the Government bonus and applies a small additional charge. This is fair as it reflects the long-term nature of the product and ensures that individuals save into it for the intended purposes, protecting Government funds and taxpayers’ money. However, in 2017-18 only, the bonus will not be paid monthly, as it will be from April 2018 on, but will be paid as an annual bonus at year-end. This could create a difficult case where people face a 25% Government charge up to 12 months before they receive the bonus. We have listened to representations on this point, and so, to improve the product for consumers, I can confirm that there will be no Government charges in 2017-18.
If people want to withdraw from their lifetime ISA in 2017-18, they must close their account, and there will be no Government charge to do so. No bonuses will be paid on such closed accounts.
An individual who has closed their account will be able to open another lifetime ISA in 2017-18 and contribute up to £4,000 into it, if they wish to. From April 2018 the Government bonus will be paid monthly. This means that the 25% Government charge on withdrawals other than for a first-time house purchase, in the event of terminal illness or when the individual is over 60 will apply as per the overarching policy intention.
Government amendment 3 is about data sharing, and I wrote on this issue to the hon. Members for Bootle (Peter Dowd) and for Ross, Skye and Lochaber (Ian Blackford) and copied in the rest of the Bill Committee. We have heard that the lifetime ISA will provide an eligible first-time buyer with a new choice in saving for their first home, in addition to the existing help to buy ISA scheme. Both schemes provide that generous Government bonus of 25% that can be put towards a first home.
As we set out when we first announced the lifetime ISA, we intend that individuals will be able to save into both a Help to Buy ISA and a lifetime ISA, but they will only be able to use the bonus from one of the schemes when they buy their first home. Amendment 3 introduces a new paragraph to schedule 1 to allow HMRC and the administrator of the Help to Buy ISA to share information about bonus payments and charge-free withdrawals so that those rules can be policed. It also provides appropriate safeguards and sanctions in relation to the use of account holders’ information, including a criminal offence for unlawful disclosure of that information, in line with HMRC’s established duty of taxpayer confidentiality. The amendment is straightforward and will ensure that the scheme rules on Government bonuses can be effectively administered. I hope that the House will accept it.
Government amendments 4 and 5 concern residency conditions for Help to Save. That is a targeted scheme, as we have heard, that will support lower-income savers by providing a generous Government bonus on their savings. It is only right that that Government bonus should be available for savings made while an account holder is in the UK or has an appropriate connection with the UK, such as Crown servants serving overseas. The Bill already provides that, as well as meeting conditions in relation to working tax credit or universal credit, an individual must be in the UK to open an account. However, it is currently silent on the rules that apply where an account holder leaves the UK during the four-year lifetime of an account.
The amendments address that situation by allowing regulations to provide that the monthly payment limit for Help to Save can be set at nil in certain cases. We intend to use that power to provide that an individual cannot make payments to an account, and cannot thereby earn additional Government bonus, when they are not in the UK or do not have the appropriate connection to the UK. That will be supported by a requirement to notify the account provider if an account holder’s circumstances change and they will be absent from the UK. That approach broadly mirrors the arrangements currently in place for ISA accounts. The amendments also provide for a penalty where there is a failure to notify the account provider of such a change. However, that penalty will not apply where there is a reasonable excuse for the failure, and any person who receives a penalty will have the right to appeal. The House will have the opportunity to consider regulations dealing with eligibility for an account before the launch of the scheme.
These amendments allow an effective targeting of the generous Help to Save bonus, so that it can be earned only on savings made by individuals in the UK, or with an appropriate connection. On that basis, I hope that the House will accept them.
I will now respond to the non-Government amendments and new clauses. Again, we debated most of these issues at length in Committee. I will try not to recap all the arguments and to summarise the main ones.
New clause 3 and new clause 7 both concern advice for people opening either type of account. We have heard concerns that people may not get all the advice they need. I have been clear that the regulation of providers is the role of the independent Financial Conduct Authority, which regulates ISA providers and will likewise set the framework for the Lifetime ISA. It is consulting on its approach at the moment. On 16 November, it set out its suggested approach.
The Government of course want to ensure that people have the information that they need to make important financial decisions. We will provide clear information on gov.uk as well as work with the Money Advice Service and its successor to ensure that they make appropriate and impartial information available. The risk of mandating that people receive independent advice is that it makes investing in these products prohibitively expensive for many people. In Committee, we talked about the cost associated with mandating financial advice of that nature. Therefore, although I understand the sentiment behind those new clauses, I urge hon. Members not to press them and instead look at what the FCA has recommended in its initial suggestions to us.
I accept entirely, and it is evident from the hon. Gentleman’s speech, that he objects in principle to the lifetime ISA, but the matter before the House is whether we legislate for it, and the new clause I am addressing at the moment concerns financial advice. I have given examples of where the Government will be steering people towards advice. We are as keen as anyone that people have access to advice, but I urge him to look at the FCA consultation and what it has said, because it is the FCA’s job to steer us in that regard.
Amendment 2 is on Help to Save and credit unions as providers. I agree that credit unions play a key role in offering affordable, responsible credit to under-served communities. The Government are very keen to support them. The Conservative manifesto committed to support the credit union movement in making financial services more accessible. The Government supported the movement through the Department for Work and Pensions credit union expansion project. They have provided £38 million of funding to help the sector to modernise and to become self-sustainable. The coalition Government, as the hon. Member for Walthamstow (Stella Creasy) will know, increased the maximum interest rates that credit unions can charge.
Amendment 2 concerns the potential for credit unions to offer Help to Save accounts. We have chosen to appoint NS&I as the single provider of Help to Save accounts, as it provides the most cost-effective way of ensuring national coverage for the scheme. As I have said, we acknowledge the important role that credit unions play in local communities, but it became clear during this summer’s consultation that a multiple provider model reliant on financial providers, including credit unions, offering accounts on a voluntary basis would not have guaranteed the UK-wide coverage that we wanted. By appointing NS&I as the scheme provider, we can achieve that nationwide account provision. It also means that we can work with a single provider to ensure that accounts are easily accessible by all the eligible people. That removes a significant administrative and compliance cost that would be associated with a range of different providers.
However, I want to stress—I hope this reassures the hon. Member for Walthamstow, who was not on the Bill Committee—that the Bill does allow HMRC to approve a credit union to be an authorised account provider, if we decide to adopt a multiple provider model of account provision in future. NS&I has been adopted in regulations as the provider at this stage, but nothing in the Bill would preclude expanding the provider model in future. I want to assure the hon. Lady and the hon. Member for Harrow West (Mr Thomas) that nothing precludes credit unions from being further involved in future.
I listened with interest to the points made by Labour Members about credit unions. I am a member of the Bedford credit union. Will the Minister look specifically at this issue? I think the hon. Member for Walthamstow (Stella Creasy) was saying that the Bill was an opportunity to expand the role of credit unions—they could be given almost a preferred provider status. When the Minister considers expanding the provider model beyond NS&I to include alternative providers, will she look specifically at expanding it solely to credit unions, rather than more broadly?
I hope that my hon. Friend will understand that it would be pre-emptive of me to make such a commitment at this stage. However, we have been clear that we think that credit unions have a big role to play. The primary legislation does not preclude them from being part of a multiple provider model in future. Indeed, my officials have been in constructive discussions with the credit union movement throughout the passage of the Bill. We are working with the credit union sector to ensure that the final design of Help to Save meets the needs of the target audience. I know that the Economic Secretary to the Treasury is looking forward to meeting the hon. Member for Harrow West and my hon. Friend the Member for South Ribble (Seema Kennedy) to discuss the issue further with the Association of British Credit Unions. Therefore, this is not about excluding the credit union movement. We are in regular, constructive discussion with credit unions. We just feel at this stage that the amendment would not allow us to offer that simple nationwide model on the introduction of Help to Save.
I thank the Minister for what she is saying. Our concern is that savings are a critical part of credit unions’ ability to deliver the services that they provide. Her argument does not preclude the amendment that Co-op MPs have tabled. The conversations that she is talking about could then happen. There has been no suggestion that there would be any legislative bar. She is making the case for accepting the amendment in saying that it is exactly what she wants to do in future.
I am just saying that nothing in the Bill precludes that from happening now, so the amendment is unnecessary. We are in constructive discussions with the credit unions. They are not precluded from being part of a multiple provider model in future. I have laid out that, throughout the consultation, we identified that that was not a suitable model for the starting point. However, I honestly think that we are essentially coming at this from the same point of view. I hope that, in the light of what I have said, hon. Members will not press the amendment. As I say, we will continue to have those constructive discussions.
Amendment 7 seeks to pay the bonus every six months, rather than at the two and four-year mark of the Help to Save product. We believe that paying the bonus at two years and at account maturity strikes the right balance between giving people enough time to build up their savings and develop a savings habit and allowing them to access the bonus within an appropriate timescale. That is supported by evidence from similar savings schemes. Some Members will be aware that the savings gateway pilots showed that the optimal period for the saving habit to be embedded is two years.
I emphasise that people will still have full access to their savings with Help to Save, so even if they are able to save for only six months, they will still be entitled to receive a bonus at the two-year point or at maturity. I hope that that reassures hon. Members that we have looked carefully at the issue. I accept that it is, to an extent, a judgment call, but evidence from the savings gateway pilots, as well as from other peer-reviewed research, shows that the optimal time for the saving habit to be embedded is about 19 to 24 months. We think that we have struck the right balance, so I hope that the amendment will not be pressed.
Amendments 8 to 11 centre on the contribution limits. Not many Members spoke specifically about the issue and we explored it well in Committee. It is about being able to contribute a two-monthly average of £50. Our consultation specifically addressed the question of whether individuals should be able to pay in more than the £50 limit in certain circumstances. Respondents were very clear that that would add complexity to the scheme, both for savers and for account providers. It is worth noting that the Office for Budget Responsibility-certified forecast suggests that people will deposit £27.50 into their accounts each month on average. The £50 monthly limit is adequate, so I hope that the amendments will not be pressed.
Amendment 12 centres on eligibility for under-25s. The issue was explored in Committee and it has been touched on briefly today by the hon. Member for Ross, Skye and Lochaber. Our intention is to passport people into eligibility for Help to Save from working tax credit and universal credit. That is a well-established way of targeting people on lower incomes, and we think that it is the most simple and effective method for determining eligibility. Importantly, it removes the need for people either to complete a further means test to prove that they are eligible for an account or to contact the Government, both of which deter people from opening accounts. It also avoids additional costs associated with developing a new and complex eligibility checking system.
The hon. Gentleman also touched on amendment 13, which seeks to exempt bonuses from bankruptcy proceedings. Our approach is consistent with what we have done elsewhere. In the benefits system, for example, deductions are sometimes made to claims to repay debts. We think that, in reality, any accrued bonus represents an asset to the account holder and should be treated as such during any insolvency proceedings. Again, I urge Members not press the amendment.
The hon. Member for Harrow West began by speaking to new clause 1, which focuses on save-as-you-earn and the payroll reduction, which is also the subject of amendment 14. Both proposed amendments seek to introduce rules to allow people to deduct automatically amounts from their salary into a Help to Save account. In fact, amendment 14 goes further by proposing the introduction of auto-enrolment for Help to Save, allowing employers or benefit-paying bodies to divert money from employees’ pay into a Help to Save account, unless they opt out.
As I said in Committee, we want the decision to save into a Help to Save account to be an active choice made by eligible individuals at a time that is right for them. For many, that will mean saving flexibly, putting aside what they can afford each month, rather than committing to having a fixed amount deducted each month from their salary. There is nothing in the Bill to stop an employer offering payroll deduction for Help to Save to their employees, but we do not intend to make it a statutory requirement for employers to offer payroll deduction for Help to Save. Automatic enrolment into workplace pensions must remain the priority for employers.
New clauses 2, 4, 5 and 6 seek to place a duty on the Government to review or publish analysis on certain aspects of the policies. In all cases we have already conducted an impact assessment, published alongside the Bill. At the time of the autumn statement, we published a cumulative distribution analysis of all the policies implemented during the 2015-20 Parliament, including of the lifetime ISA and Help to Save. We believe that it is important to look at the cumulative impact of tax and spending decisions, rather than the impact of individual measures in isolation. The distributional analysis that the Government have published since 2010 has always taken that cumulative, rather than measure-by-measure, approach.
As with all Government policies, we will, of course, keep the lifetime ISA under review to ensure that it is meeting its objectives. Indeed, we already regularly publish a wide range of detail about the take-up of Government-supported savings accounts such as ISAs. We intend to take a similar approach to the lifetime ISA, so we have already done a lot in that regard.
We discussed the interaction with the housing market in Committee, as the hon. Member for Bootle (Peter Dowd) has said. In essence, any impact that the lifetime ISA has on the housing market is likely to be very difficult to detect among other factors. As was said in Committee, the accusations that this product benefits only the wealthy do not bear scrutiny, given that the Help to Buy ISA has been used to buy homes worth on average £167,250, which is well under the property price cap. The accusations are not fair.
The interaction with automatic enrolment dominated the contribution of the hon. Member for Ross, Skye and Lochaber. We covered the issue in detail in Committee, and I once again stress the Government’s absolute commitment to automatic enrolment. It is wrong to say that we are seeking to derail it. The lifetime ISA—the Treasury is clear on this—is designed to be a complement to automatic enrolment and workplace pensions, not a replacement. Our costings do not assume that people will opt out of their workplace pension in order to pay into a lifetime ISA. Encouragingly, the figures show that the opt-out rate is very low so far. Taking all those things together, we do not think that the proposed new clauses are necessary, so I urge hon. Members not to press them.
Amendments 15 to 22 would effectively cancel the lifetime ISA from the Bill. It is evident from my comments so far that I have no intention of accepting the amendments. It is clear that we have a disagreement in principle. The hon. Gentleman’s accusations against the measure bordered on hyperbole. He said that he is prepared to look at any reasonable proposal that helps people to save, but we know from the consultations on the complex subject of saving for the future that this is a product that will help many people save. It is a direct response to the comments made in response to a public consultation about the complexity of savings options.
Amendments 15 to 22 seek to cancel half the Bill—I am not going to accept them. I refer the hon. Member for Ross, Skye and Lochaber to the FCA’s consultation; I do not think that it would recognise his comments, and neither do I.
Amendment 1 would change the normal maturity period for Help to Save accounts from 48 to 24 months. In practice, people would be able to save into a Help to Save account for only two years rather than four. We designed the scheme so that people can save into a Help to Save account and get a Government bonus after two years, and then continue to save and receive a further bonus when the account matures after four years. We have done that because we want the target group to be able to save as regularly as other people and they may take longer to save towards that vital rainy day fund. It also provides an incentive for people to continue saving beyond two years, which fits with our objective to encourage people to develop a long-term saving habit. I hope that the amendment will not be pressed.
Finally, amendment 6 would delay commencement until April 2019, when automatic enrolment into workplace pensions will be fully rolled out. We have been very clear that we do not expect lifetime ISAs to drive opt-outs from pension saving. There is, therefore, no reason to delay. In fact, such a delay would disadvantage those who wish to open a lifetime ISA and who have been preparing for a 2017 launch. The hon. Gentleman completely disregarded the fact that self-employed people do not have the option of access to a workplace pension scheme. That came out in evidence to the Bill Committee. There was not a word about the self-employed.
No, I will not.
The proposal would also delay Help to Save for a year, disadvantaging the savers on low incomes who will benefit from the scheme. Like many hon. Members, I am passionate about the Help to Save scheme and want to see it go ahead as planned. I intend to work with all who have been mentioned—the credit unions, many financial inclusion charities, and the Churches—to ensure that we exceed the take-up target for Help to Save. I will be delighted if we vastly exceed the target, and that is my intention.
I am grateful for the level of interest that Members have shown in this important area of helping people to save. I appreciate that many amendments were tabled to try to improve the Bill, so in that collaborative spirit I hope that Members will accept Government amendments 3 to 5, which will improve the policies. I have set out why the other new clauses and amendments are unnecessary, and I hope that Members will be prepared not to press them to a vote as I have responded and provided reasons. I am confident that the Bill will further the Government’s aim of supporting people to save for their future in different ways, and I commend it to the House.
This debate has been short but interesting. I hope that Members will forgive me if I confine my brief remarks to the three amendments tabled in my name. My hon. Friend the Member for Walthamstow (Stella Creasy) made a characteristically excellent speech dwelling on the debt tsunami coming our way. She rightly alluded to the challenges that many credit unions face in providing a service through local employers to their employees.
My hon. Friend the Member for Bootle (Peter Dowd) made an excellent speech from the Front Bench—perhaps inspired by listening to the works of Shostakovich, of whom he is a devotee. Given the numbers who might be eligible, he is rightly worried that the number of people who sign up for Help to Save will not be as great if credit unions are not included among the providers that can offer Help to Save.
I was interested by the Minister’s response, and I hear her concerns about new clause 1, which I look forward to exploring more in a meeting with the Economic Secretary to the Treasury. I was grateful to hear the Minister offer some reassurance on amendment 1 and the possible reduction to 12 months from 24 months. As a result, I will not press amendment 1 or new clause 1 to a Division.
I will, however, seek a vote on amendment 2 because I gently suggest to the Minister that she did not make a convincing case as to why credit unions should not be allowed to offer this product. It is clear that NS&I will be a good national provider, but it is unclear why credit unions cannot be given the opportunity to offer the product at the same time. Given all the effort and expense that the Treasury is going to, it seems odd not to take advantage of the opportunity that credit unions can provide to get more people signed up. In that spirit, I intend to press amendment 2 to a vote, but I will not press new clause 1 or amendment 1.
Clause, by leave, withdrawn.
New Clause 2
Impact review: automatic enrolment and pensions savings
‘(1) The Treasury must review the impact of Lifetime ISAs on workplace pensions automatic enrolment and pensions savings within one year of this Act coming into force and every year thereafter.
(2) The conclusions of the review must be made publicly available and laid before Parliament.’—(Peter Dowd.)
This new clause would place a duty on HMRC to review annually the impact of Lifetime ISAs on automatic enrolment.
Brought up, and read the First time.
Question put, That the clause be read a Second time.
Government contributions to Lifetime ISAs
Amendment proposed: 15, page 1, line 1, leave out clause 1.—(Ian Blackford.)
See explanatory statement for amendment 16.
Lifetime ISAs: further provision
Amendment made: 3, page 14, line 36, at end insert—
Information sharing between HMRC and others
“18 (1) Sub-paragraph (2) applies to information which—
(a) is held as mentioned in section 18(1) of the Commissioners for Revenue and Customs Act 2005 (confidentiality),
(b) relates to withdrawals from a Lifetime ISA, and
(c) is relevant to whether an individual is eligible for a bonus under the Help to Buy: ISA Scheme.
(2) Information to which this sub-paragraph applies may be disclosed to the Administrator for use for the purpose of establishing whether or not an individual is eligible for a bonus under the Help to Buy: ISA Scheme.
(3) In this paragraph—
‘the Administrator’ means the person who for the time being is the Administrator under the Scheme Rules (as from time to time amended or supplemented) of the Help to Buy: ISA Scheme, and
‘the Help to Buy: ISA Scheme’ means the scheme of that name—
(a) announced by the Treasury in March 2015,
(b) launched on 1 December 2015,
(c) for which Scheme Rules were published on that date by the Treasury, and
(d) which is governed by those Scheme Rules (as from time to time amended or supplemented),
and paragraph 1(1) (meaning of ‘bonus’) does not apply for the purposes of this paragraph.
(4) Information disclosed in reliance on sub-paragraph (2) may not be further disclosed to any other person without the authority of HMRC (which may be general or specific).
(5) If revenue and customs information relating to a person is disclosed in contravention of sub-paragraph (4) and the identity of the person—
(a) is specified in the disclosure, or
(b) can be deduced from it,
section 19 of the Commissioners for Revenue and Customs Act 2005 (wrongful disclosure) applies in relation to the disclosure as it applies in relation to a disclosure of such information in contravention of section 20(9) of that Act.
(6) In sub-paragraph (5) ‘revenue and customs information relating to a person’ has the meaning given by section 19(2) of the Commissioners for Revenue and Customs Act 2005.
(7) A person who holds any information may disclose that information to HMRC or an officer of Revenue and Customs if the disclosure is made for the purposes of the exercise of any of the functions of HMRC, or an officer of Revenue and Customs, under section 1 and this Schedule.
(8) This paragraph does not limit the circumstances in which information may be disclosed apart from this paragraph.”—(Jane Ellison.)
It is proposed that a saver buying their first home who has both a Lifetime ISA and a Help to Buy: ISA will get a government bonus from one only of those accounts if they withdraw money from both for their purchase. To enable the necessary cross-checking, this Amendment would allow HM Revenue and Customs (“HMRC”) to provide the Administrator of the Help to Buy: ISA Scheme with information about withdrawals from Lifetime ISAs. The Amendment would also allow anyone to provide HMRC with information for use by HMRC in carrying out their Lifetime ISA functions.
Help-to-Save accounts: further provision
Amendment proposed: 2, page 17, line 36, at end insert “(d) a credit union.”—(Mr Gareth Thomas.)
Question put, That the amendment be made.
Amendments made: 4, page 18, line 20, after “amount”, insert “(which may be nil)”.
This amendment would allow Treasury regulations to specify that the maximum monthly amount that may be paid into an account is nil in certain circumstances (for example where the saver is not in the UK).
Amendment 5, page 19, line 15, at end insert—
“Account provider to be notified about absence from UK
11A (1) Treasury regulations may, in connection with any stipulation that (directly or indirectly) links entitlement to bonus in respect of a Help-to-Save account with the presence in the United Kingdom of the individual for whom the account is opened—
(a) impose duties to notify the account provider about absences of the individual from the United Kingdom;
(b) make provision for the imposition of a penalty, which must not exceed £300, for failure to comply with a duty imposed under paragraph (a).
(2) Paragraphs 44, 45, 46(1), 47 to 49 and 52 of Schedule 36 to the Finance Act 2008 (penalties: liability, assessment, appeals and enforcement) apply in relation to a penalty under regulations under sub-paragraph (1)(b) as they apply in relation to a penalty under paragraph 39 of that Schedule.
(3) An assessment of a penalty under regulations under sub-paragraph (1)(b) must be made—
(a) within the period of 12 months beginning with the date on which the failure first came to the attention of an officer of Revenue and Customs, and
(b) within the period of six years beginning with the date on which the person became liable to the penalty.
(4) Without prejudice to paragraph 49(2) of Schedule 36 to the Finance Act 2008 (enforcement) as applied by sub-paragraph (2), regulations under sub-paragraph (1)(b) may (in particular) provide for a penalty under such regulations to be deducted from amounts to be paid by way of bonus in respect of the Help-to-Save account concerned.”—(Jane Ellison.)
This amendment would allow Treasury regulations to impose duties requiring that account providers are informed about an individual’s absence from the UK, where that absence could be relevant to the amount of bonus which is payable in respect of a Help-to-Save account.
I beg to move, That the Bill be now read the Third time.
I thank all right hon. and hon. Members who have taken the time to scrutinise the Bill during its passage through the House for the good, constructive debates, which have been very helpful. We want to make it easier for everyone to build up savings, to meet their ambitions and to feel secure in their personal finances, and we have already set to work to make that the case. We put an end, for example, to 17 million people having to pay tax on the interest they received on their savings and we announced the biggest ever increase in the ISA allowance, to £20,000 from April next year. This Bill, legislating as it does for the lifetime ISA and the Help to Save account, carries on that hugely important work.
As we have heard, the lifetime ISA provides a new option for young people looking to save for the long term. It is a positive move for savers that complements pensions and is yet another way in which we are supporting people who are doing the right thing and putting money aside.
Help to Save has received cross-party support in the House. We know why this is so important. Research from the Centre for Social Justice estimates that 3 million low-income households have no savings at all, so we can be in no doubt that moving forward with this account is a hugely important step.
The Savings (Government Contributions) Bill is important, and its passage through the House has been met with thoughtful and constructive challenge. We have debated a number of important principles during our deliberations, but the Bill is fundamentally about people who are trying to save for the future so I have no hesitation—indeed, I take great pleasure—in commending it to the House.
I echo the Minister’s sentiments about the scrutiny the Bill has received. I am grateful to the witnesses who came to our sessions, as well as for all the written evidence, informal information and contact that we received.
Of course, the provisions are in two parts: the lifetime ISA and Help to Save. No one has any objection to helping people to save; it is a question of how to do it. We are not convinced that the Bill will help people to save. We do not think that there is sufficient evidence to back up what the Minister said and we do not think that it sorts out the problem with the shortage of housing. It sets aside £1.8 billion by 2019-20, there are questions about its value for money, and we think that it complicates the market and might introduce a Trojan horse. Not everybody is convinced about it.
I am not sure that Help to Save does the business for those on a low income. It comes in the wake of major cuts to tax credits and only puts a little drop back into a very big ocean. The Government should listen to what many people, including our witnesses, have said. Nevertheless, we accept that we need to help people save for the future, and all the information that has been provided to us sets the scene for continued future debates. I thank the Minister for her helpfulness and civility throughout the process.
I must say that I think we will repent of this legislation in due course. We cannot get away from all the evidence that was presented to us. The evidence from the Association of British Insurers makes it abundantly clear that anyone who has the opportunity to invest in a workplace pension will be worse off investing in a LISA than investing in their pension. I listened to the Minister talking about those who are self-employed and who do not have the opportunities and advantages of auto-enrolment when what we should have been doing was introducing legislation to deal with that problem.
We have the opportunity to do that when we review auto-enrolment next year. There is no need for this legislation for ordinary people; they will not benefit from the LISA. I put it to the House that this will reward those who have already maxed out their pension schemes by giving them another opportunity that will help them through this Government bonus. It is not so much a LISA as what we would call a “Rupert”—a really useful perk for extremely rich Tories. They are the only people who will benefit from the Bill.
When it comes to what is really important, I am delighted that True Potential has published its evidence today. Let me give two statistics from that. First, 30% of people aged between 25 and 30 would, if given the opportunity, choose a LISA instead of a pension, and 58% of 25 to 34-year-olds would choose the LISA for retirement savings. We know that those with the opportunity to invest in a pension will always be better off. As I said on Second Reading, the Government have wilfully created circumstances in which young people in this country will be mis-sold LISAs. The Government should be utterly ashamed.
I was a member of the Bill Committee and I made many of the points I wish to make at that time. I was not able to be in the Chamber for the first part of this debate, but I wanted to say a few words in support of what we have heard from the Opposition Front Bench. My hon. Friend the Member for Bootle (Peter Dowd) and the hon. Member for Ross, Skye and Lochaber (Ian Blackford), speaking for the Scottish National party, have expressed strong words of scepticism about the Bill. I reinforce those words.
The very poorest need a much bigger state pension. For many people, a compulsory earnings-related state pension scheme would be much better value and would guarantee that everybody saved some of their earnings for a decent old age. That would be a much more positive way forward. I echo what has been said by the Opposition Front Benchers and am grateful for this opportunity to speak.
It is a pleasure to follow my hon. Friend the Member for Luton North (Kelvin Hopkins). I did not have the privilege of serving on the Bill Committee, but I spoke on Second Reading and on Report. I welcome Ministers’ commitment to continue to engage with credit unions, which was the primary issue I sought to raise.
There is one issue we did not address in relation to Help to Save. With a national provider—National Savings & Investments—it would be relatively easy to disaggregate the data on who is taking advantage of the Help to Save product and to publish them in an anonymised form. We could track the postcodes to see where people are taking advantage of it. I raise that issue in the context of work that the Treasury is doing with the British Bankers Association to encourage banks to publish data about what financial services products are being offered to whom and who is taking advantage of them. The banks have been forced, reluctantly, to reveal where they are lending, but the information being provided is not yet perfect—we are on a journey with the banks.
One thing the Treasury could do once it gets this Bill through both Houses, as it seems likely to, is to require NS&I to publish on a postcode basis where people are taking up the Help to Save product. I commend that point to Ministers, and I hope they will take it up. I also hope that Members of the other House will explore this additional issue in a little more detail.
Question put and agreed to.
Bill accordingly read the Third time and passed.