My Lords, the Budget has supported people saving for retirement through setting a market-leading rate for the NS&I investment bond. More broadly, the Government continue to support people to save through automatic enrolment into workplace pensions. This will lead to 10 million people newly saving or saving more by 2018.
I thank the noble Baroness for that response but could she explain to the House how the ordinary person—we are given to understand that the Prime Minister is committed to protecting such people—can possibly plan for the future given changes such as those just announced to dividends, together with the introduction of lifetime ISAs, primarily designed to assist younger people in house purchase but which could undermine saving? How, with an ageing population and an ultra-low savings ratio, can we make sure of the vital necessity of younger generations saving for the future? What is the Government’s plan to improve savings for much longer later life, which people on the whole do not even realise that they will experience?
I thank the noble Baroness for that and for all she does in this important area. I think we have a clear sense of direction and a plan to restructure our finances and to invest in the future. Of course, all taxes and reliefs are kept under review through the annual Budget process. Our priority has been to increase the personal allowance, which benefits everyone. The lifetime ISA, which comes into operation very shortly, complements automatic enrolment, which will help people to save so much more. All these changes will help people. I know that the changes to automatic enrolment are expected to generate an estimated £17 billion a year more in total workplace pensions saving by 2019-20. I know noble Lords here were involved in that. It will make a lot of difference. Obviously, we have longer-term problems but the sense of direction is important.
My Lords, the Minister is fiddling when, for so many people, Rome is burning. How are the just-managing meant to cope with a situation where there has not been a pay increase for the duration of this Government—a situation unparalleled since 1800? That is the crisis facing our people at present. It is therefore not surprising that unsecured household debt rose dramatically last year. No wonder the savings ratio fell last year from 2% to -0.03%. How can people save when living standards decline for the many—while, of course, lavish wage increases occur for the few, buttressed by a taxation policy that favours them?
As we have discussed before, living standards have been rising. Yesterday, it was announced that we had a record number in employment and a 40-year low in unemployment. Getting people into work makes a huge difference. We made a series of proposals in relation to both pensions—this step change with auto-enrolment—and savings products that help people to save. The most important thing is to have a plan to restore our finances—we inherited a considerable mess—for everyone in this country, and for our children and our children’s children.
My Lords, most people, in their busy lives, just want a savings scheme that is trustworthy, has a reasonable rate of return and does not eat a large amount of their savings through fees. Instead, the Government—and previous Governments—constantly come back with competition, incredibly complex rival products and switching. Will the Government finally identify someone—I would almost say anyone—whether a government Minister or regulator, to make sure that a workable product that meets most people’s needs is actually delivered, rather than this endless tinkering, which only a sophisticated financial adviser can possibly unravel?
I certainly do not take such a gloomy view of the products. The NS&I investment bond, which we started on, gives a rate of 2.2% for three years. That is significantly higher than the market average of 1.38%. Savers know that they can trust products offered by NS&I. Obviously, rates of return on savings products have come down and that has to be reflected, but the £7 billion of additional government financing will be at a cost of £295 million compared to borrowing through gilts.
My Lords, while ISAs have their place, does the Minister not agree that pension schemes are the more attractive—and, tax-wise, the more generous—vehicles for people to save for their retirement? Does she also agree that many people have perhaps been mistaken in cashing in their pensions and incurring tax liabilities, when it would have been better for them to leave them to accrue for the ultimate stage of retirement?
I agree with my noble friend. The Government are at pains to make sure that our communications draw attention to the value of pensions on automatic enrolment, because of course the employer makes a contribution as well as the employee, and this has been a very important reform. However, ISAs, which now have an allowance of £20,000 from next month, and the lifetime ISA, which is particularly helpful to younger people and the self-employed, also have a place. We want to encourage people to save and I am glad that we are doing so.