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7.15 pm

Ms Sally Keeble (Northampton, North): I am grateful to have a chance to speak in this debate because the amendments are mean minded and petty, and their aim is to undermine the purpose of introducing the ISA in the first place. In view of the time, I will be brief.

On amendment No. 7, the main aim of the ISA is--and always was--to encourage people who do not already have savings to save. The scheme and the way in which it was to be made available were constructed particularly with that group in mind. At present, young people, especially people with children, have the fewest savings. The family resources survey showed that a third of

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pensioner couples had £20,000 or more in savings, and one in five of all couples without children had savings at that level. Those are the people who have the most money in savings and who might not look to the ISA to encourage them to start saving. In comparison, a third of all couples of working age with children and 70 per cent. of single parents with children had no savings at all.

An amendment that would change the regulations to encourage people of over 55 to save and to provide a savings regime that is more suitable for them runs against the entire purpose of the ISA.

Mr. Tim Loughton (East Worthing and Shoreham): The hon. Lady is referring to those 6 million elusive investors who are to be attracted into ISAs. Which feature of the ISA will attract those virgin investors with no savings into becoming savers?

Ms Keeble: I am grateful to the hon. Gentleman for making that point. People may not save with the mainstream financial institutions, but that does not mean that they have no savings at all. They might well have savings in credit unions or the myriad other informal savings schemes. It is extremely important that those people are attracted into the mainstream so that they can get access to a wider range of financial services. If they have savings accounts, they might also be able to get access to loan accounts.

I take the hon. Gentleman's point about which elements of the ISA are the most attractive. I suspect that they will be the points of access, which is why the supermarkets are so important, and the fact that complex services will be offered, but with ease of access so that people can take their money out as well, which will encourage them to start putting money into savings.

Mr. Loughton: I think that the hon. Lady is actually saying something different. If she is alluding to current savings in non-mainstream schemes, such as credit unions or small bank accounts, and saying that those savings could be transferred into the new ISA regime, that will not add a single penny in additional savings. The existing bank arrangements with supermarkets are perfectly accessible and are available to any shopper. Why will ISAs be more attractive and induce people to save more?

Ms Keeble: I am not merely thinking of small banks. Credit unions are one such scheme, certainly, but there are many other informal schemes such as Christmas clubs and so forth, in which people save small amounts of money over a short period. Those provide savings schemes for the people who have the least money of all. I do not know the extent of such schemes, but I am certainly thinking of those people. The hon. Gentleman is right in that we do not merely want people to shift their savings from one scheme to another. I have dealt with the aspects of the scheme that will probably be most attractive to people who do not save in mainstream savings accounts.

The Government need to stimulate savings most among people of working age who have children still living at home. Amendment No. 7 would not primarily help such people. In addition, it would give tax incentives to people who are already relatively wealthy for their cash savings, which would not be a prudent use of tax incentives.

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It would, in some ways be silly to produce a new PEP with cash by the back door. The over-55s are already the most likely to own a PEP; the British Household Panel survey found that 31 per cent. of the richest over-55s and 43 per cent. of the richest over-60s have at least one PEP. A PEP with cash by the back door would not achieve the purpose for which the Government produced the scheme.

On Tory amendment No. 8, it is of course desirable that administration costs are as low as possible. The Labour party has--quite rightly--criticised the high administration costs of, for example, private pensions. The Government plan to introduce benchmarking of costs for the individual savings accounts. That, combined with careful monitoring, is the right way to control administration costs and ensure that people with relatively low incomes get good value for money in their savings.

Mr. Philip Hammond (Runnymede and Weybridge) rose--

Mr. Loughton rose--

Ms Keeble: I have an embarrassment of choice.

Mr. Hammond: Does the hon. Lady think that costs can be equated with value for money?

Ms Keeble: People who do not have much money clearly need savings that provide as much return as possible and are best served by keeping administration costs low. The question is how to do it. I shall deal later with why the proposals in your amendment are not right.

The Second Deputy Chairman: Order. The hon. Lady must be aware that I have not put anything in any amendment.

Ms Keeble: I apologise, Mr. Lord. I mean that I will deal later with the amendments tabled by the hon. Gentleman's party, which I do not believe are the right way to control costs.

The Government's proposals rightly provide flexibility and the means to ensure that mainstream financial institutions will control administrative costs and pass on as much as possible of the benefits to people on low incomes.

Mr. Loughton: I am grateful to the hon. Lady for taking a multi-volley of interventions.

The hon. Lady has raised benchmarking. Is she saying that cost of a product is the only aspect of benchmarking essential to ISAs? Can she distinguish between benchmarking and kite marking? Labour Members have used both terms--but have inter-used and wholly confused them.

Ms Keeble: At the risk of further confusion, I shall give my understanding, which is that kite marking involves approval for particular ways of doing things whereas benchmarking is about criteria for an aspect of a scheme. Certain percentages might be set for

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administration costs, for example. That differs from kite marking, which says that this, that or the other is an approved scheme.

Administration costs must be examined and are likely to be a difficult area of the scheme. Accounts in which people make frequent, small deposits and can withdraw money fairly easily have high servicing costs. That is why the Government must set a benchmark in this area and provide a real incentive to financial institutions to provide such schemes. The institutions will not think up such schemes on their own. Some institutions are not providing particularly good services at present.

Artificially capping administration costs would probably make it extremely difficult to deliver such accounts, at least in a way that makes them attractive to people who have not previously saved in mainstream savings accounts. Some of the factors likely to make ISAs attractive to people on low incomes--such as frequent withdrawal and ability to make small deposits--will make them difficult to service.

The amendment would undermine the success of the scheme. I believe that that is what the Opposition want. Having failed to win the argument in open debate, they are trying to scupper the individual savings accounts by their mean-minded measures, which would do nothing to provide tax breaks to people with less money and would do everything to protect the incomes of the top 10 per cent. of income earners aged over 50. That is another way of saying that the Tory party is simply trying to look after its own, not the wider interests of the country and the public. I urge the Committee to reject the amendments.

Mr. Loughton: First, I must declare an interest, which is in the Register of Members' Interests. I worked for a company that administered PEPs and have run PEPs for 10 years, since their inception.

The amendments tackle problems in the Bill for older people. Like my right hon. Friend the Member for Hitchin and Harpenden (Mr. Lilley), I welcome the climbdown on PEPs. We wish ISAs well and we need them to work, but they must be the right product in the right formulation. We also welcome the tacit admission--at last--that the Government will have to forgo tax relief in order to encourage savings. The net effect of the new proposals will mean forgoing much more tax relief to the Treasury than ever happened under PEPs, as the Paymaster General has had to admit in various answers to written questions.

It is a shame that the ISA proposals contain a major missed opportunity to encourage the elusive 6 million people to save for the long term by not linking a savings scheme with the benefit system and stakeholder pensions. Time and again, we are faced with these 6 million people. We do not know who they are or where they come from. If they are shyly revealing themselves, where are they hiding?

It is a complete fantasy to say that 6 million people are queuing to throw money at the doors of the Treasury.Six million lower-earning people are not remotely attracted by a capital gains tax concession, as they would get nowhere near the current £6,800 limit. They are not attracted by a tax credit that, on an average yield on a £5,000 equity investment, would amount to just £14, which would be more than gobbled up in charges.

As the hon. Member for Northampton, North(Ms Keeble) admitted, the only real attraction of the scheme will be to the Christmas club-type cash element.

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What will really happen is that people who have existing small amounts of money in various pots may shift it to more convenient pots within an ISA. That will not add a single penny to savings, which surely is not the Government's underlying intention. Far from the scheme being a temptation for 6 million new investors, it would be easier for the Paymaster General to feed the 5,000.

The Bill completely misses the need to look after people with existing PEPs. Although PEPs will be allowed to continue, flaws remain that would have had to be changed even if PEPs had remained without an alternative. For example, why should PEP holders be unable to have the full range of overseas investment that new ISA investors may have?

Holders of single-company PEPs from their inception should not have to have six completely ring-circled deposit accounts for different years. If they have had one particularly good PEP--perhaps worth £20,000 or £30,000 now--they must reinvest it in only one stock, which puts a disproportionate exposure on a single equity or fund.


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