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Mrs. Angela Browning (Tiverton and Honiton): On a point of order, Mr. Deputy Speaker. Is it in order that, when my hon. Friend the Member for Bognor Regis and Littlehampton (Mr. Gibb) referred to the Institute of Chartered Accountants, the hon. Member for Croydon, Central (Mr. Davies) said, from a sedentary position, although his remarks were audible to us, "How much are they paying you?"
Mr. Deputy Speaker: That is not a point of order for the Chair. The matter may come up in debate, but I did not hear that remark.
Mr. Christopher Leslie (Shipley): On a point of order, Mr. Deputy Speaker. Is it in order for a signatory to the motion--
Mr. Deputy Speaker: Order. I can already advise the hon. Member that that is pursuant to a point of order that I have ruled is not a point of order.
10.21 pm
The Economic Secretary to the Treasury (Ms Patricia Hewitt): I thank the Opposition and the hon. Member for Bognor Regis and Littlehampton (Mr. Gibb) for giving us another opportunity to debate individual savings accounts. We have done precisely what the Opposition did when they introduced PEPs by way of regulations rather than through primary legislation. However, what we have done that the Opposition did not do with PEPs when they were in government is to consult widely about the detail of ISAs. The House has already debated ISAs on a number of occasions and at some length.
The consideration that the House has given to ISAs and the extensive consultation outside the House have helped to lay the ground to make the introduction of ISAs a success. ISAs are, indeed, going to be a great success, and that is now widely accepted within the savings industry.
A recent circular sent out by a stockbroking firm says:
Annulling the tax regulations now, as this motion seeks to do, would spread uncertainty and alarm throughout the savings industry. That is what the Opposition are seeking to do, and such a step would be deeply unpopular. Firms are currently busy designing their ISA products and their advertising campaigns.
Mr. Loughton:
Of the more than 7 million people who own PEPs and TESSAs, how many does that financial, foreign-owned firm have on its books?
Ms Hewitt:
I am astonished to hear a Conservative Member apparently objecting to a stockbroker firm operating in this country because it is foreign owned. I shall happily quote the literature of Virgin Direct and Marks and Spencer, which enthusiastically welcome ISAs.
Let me return to my point about the Opposition motion. Firms are busy designing their ISA products and their advertising campaigns. The time and effort that they are putting into ISAs would be wasted if the regulations were annulled, and that would certainly not be well received--especially when it was discovered that the motions were technically flawed, as they are.
Let me give two examples. First, the motions seek annulment of only three of the four ISA-related sets of regulations that were laid before Parliament on 31 July. Secondly, they would leave cash savers high and dry. I think I am right in saying that the hon. Member for Bognor Regis and Littlehampton served on the Finance Bill Committee, on which I understand he was known to his colleagues as "Mr. Bean from Bognor". The Act that the Bill became prevents tax-exempt special savings accounts from being opened after April 1999.
I see no merit in the motions, but what I can do is commend the ISA initiative. We designed ISAs to encourage people to save in a fair and efficient way, and to raise the level of long-term savings. Half the population have less than £200 in savings, and half those people have no savings at all. Many people--I know this from my constituency, Leicester, West--have no bank accounts, let alone any form of savings. This Government are determined to help people who are not saving to get started, and to help people who are already saving to save more.
Offering tax incentives is an important way of encouraging people to save, but we need to balance that against the cost to the public purse. As a new Government, we set about looking at how we could rebalance the cost of the PEP and TESSA schemes that we had inherited. We wanted to encourage more people to save, and at the same time to distribute the available tax relief more fairly.
It may be helpful if I now dispel one of the common myths about ISAs. They were not introduced to reduce the cost of tax relief. The cost of ISAs to the public purse is broadly what PEPs and TESSAs would have cost if they had continued unchanged. That cost is forecast to grow to about £2 billion in five years' time. ISAs are very much about distributing tax relief more fairly among more people; they are not about reducing the overall tax relief on savings.
Mr. Steve Webb (Northavon):
Does the Minister accept that PEPs and TESSAs probably did little to
Ms Hewitt:
The hon. Gentleman makes an important point. As I shall explain in a moment, in the design of ISAs--and the design of CAT standards--we have overcome some of the most important barriers that are mentioned when those who would like to save, and know that they should be saving, are asked why they are not doing so.
As well as ensuring a wider distribution of tax relief, we were determined to widen the range of savings products in comparison with what had formerly been available. A wider range, including life insurance, will attract new savers and encourage small savers to save more. It was clear to us that PEPs and TESSAs could not be modified in a practical way to meet our objectives. We therefore decided that a completely new approach was needed, and the ISA was developed.
We appreciated that we would get a better product if we tapped into the experience and expertise of savers and the savings industry. We therefore engaged in open, wide-ranging and constructive consultations at every stage in the development of the ISA. Consultation papers have been issued on the structure of the scheme, the detailed tax regulations, CAT standards and product regulation.
It has been widely recognised that the Government listened during the consultation, and that we have acted on what we heard. When I spoke at a recent conference of PEP and ISA managers, several speakers praised all involved for the constructive way in which they had listened and responded. Praise for the Inland Revenue, the Treasury and the Financial Services Authority all at the same time is not, in my experience, common, but I heard it, and on several occasions.
The results of that approach are often presented by the Opposition as some sort of climbdown or U-turn. That completely misunderstands what consultation is about. Consultation is a much better approach than the excessive secrecy under which such changes were introduced in the past. The previous Government introduced PEPs in 1987 without such consultation and had to relaunch them in a substantially modified form just two years later.
We are committed to open, genuine and honest consultations and we are grateful to all those who contributed to the ISA consultation. Their input has been highly valued and highly valuable. We have modified our approach, including the detail of the regulations, as a result of their comments. We have a better product as a result.
I turn to the details of the ISA. It offers, of course, tax-free savings, with a broad and flexible range of schemes. As the hon. Member for Bognor Regis and Littlehampton said, it has three different components: cash, a life insurance policy or stocks and shares. It offers the flexibility of one manager managing all three components within a so-called "maxi" account, or the different components can be managed by up to three different managers with so-called "mini" accounts. That flexibility is one of the features that was introduced into the scheme as a result of the consultation.
Research that we have commissioned in the Treasury, confirming results of research by other people, shows that 90 per cent. of people want easy access to savings and that two thirds of them are worried about the small print. ISAs address both those points.
Mr. Loughton:
The hon. Lady again mentions research done within the Treasury. How does she gel that with the statement by Paula Diggle, head of financial services at the Treasury, who said at a PEP conference in June:
"We were pleased to see so many readers at our recent presentation. Some were surprised by our comments on the new Individual Savings Account. Contrary to what newspapers may say, readers should be in no doubt. ISAs should be big, very big. After April, they will be the prime savings product, heavily promoted, with much greater investment scope than PEPs. And Catmarking should be beneficial. It will encourage the development of direct marketing of low cost products."
Mr. Tim Loughton (East Worthing and Shoreham):
Who said that?
"We do not have a market research budget--I wish we did"?
Ms Hewitt:
I am delighted to say that the civil servant to whom the hon. Gentleman refers assisted me in the research that I commissioned.
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