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Mr. Gibb: If the hon. Lady has done so much research, perhaps she will tell the House by which date the Prime Minister's forecast of 6 million new savers will be met.
Ms Hewitt: There is no target for the number of new savers or new accounts, but we are confident, because of the way in which the design of ISA and CAT standards responds to the concerns of those who are not currently saving, or those who are only saving very little, that, over some years, ISAs will build up extremely successfully.
As I have said, half this country's population have savings of less than £200. There is a large market out there, which we need to reach. I hope that Opposition Members will support us in that aim.
Mr. Loughton:
Will the hon. Lady give way?
Ms Hewitt:
I have already given way twice to the hon. Gentleman. I am sure that he will forgive me if I try to make some progress.
The ISA scheme is guaranteed to run for 10 years. We will review the future of the scheme at the seven-year point, but it means that anyone contributing to an ISA will have a level of certainty that has never been available in the past. Of course, we will keep the scheme under review and we will make changes where necessary to help ISAs run more smoothly. However, the scheme itself is secure for 10 years. Existing PEP and TESSA holders will not be disadvantaged in any way. PEPs can run on, though without additional contributions, and TESSA holders can continue to contribute to existing schemes within the current limits. When the TESSA matures, the capital can be rolled over into an ISA.
I shall deal now with the CAT standards, a feature of the ISA scheme which we believe will help to attract new savers and new savings. I have referred to the research
which shows that people are worried about the small print on existing savings products. It puts many people off saving. They fear that they may be ripped off by people who know considerably more than they do about finance. It is not surprising that people have those fears when, as we all know, too many people have been ripped off in the past. The pensions mis-selling scandal, which we are now having to clear up, shows that only too clearly.
The Government have looked at ways to help investors. For some years now there has been a regime of disclosure. It has been beneficial, but insufficient to increase competition when inexperienced consumers are faced with expert providers. So we opted for a system of voluntary benchmarks that will empower consumers and strengthen competition in the financial services marketplace.
We have introduced CAT standards. The term is designed to avoid any confusion and describes quite succinctly the purpose of the benchmarks. CAT standards will set levels for costs, for access and for terms of ISA products. If an ISA account meets the CAT standard, people will know that it offers fair charges, easy access and decent terms.
Under the CAT standard, charges will be fair and transparent and will not exceed the set upper limits. For example, on a standard stocks and shares ISA there will be an annual charge that cannot exceed 1 per cent. and the saver will not face the hidden charges which, all too often, exist at present in addition to the annual charge.
The hon. Member for Bognor Regis and Littlehampton asked about precisely what is covered in the annual charge. There is no confusion on that point. Let me make it clear that, whenever they have been asked, Treasury officials have spelt that out to applicants who want to become managers for ISAs, and to others seeking guidance. The annual charge includes dilution levies and the stamp duty on the individual investor's unit, but it does not cover the cost of transactions in the underlying fund. The single price that will be required for a fund to meet the CAT standard is struck after the costs of transactions, stamp duties and dealing costs have been covered. In other words, the price automatically takes account of them and they are not logged against the annual management charge.
Mr. John Butterfill (Bournemouth, West):
Is it not possible that people may be misled into thinking that something that has a CAT standard is entirely appropriate for their circumstances, whereas it may be inappropriate for that investor? Is there not a danger that the introduction of CAT standards will lead to even more widespread mis-selling?
Ms Hewitt:
That is an important point and it is something that we thought about carefully before deciding on the nature and design of the CAT standard for the equity ISA.
It is clear from research carried out by the Financial Services Authority and on its behalf, that investors faced with the sort of basic information that will be required for a CAT standard ISA understand very well that it is not a Government guarantee. The CAT standard spells out that there will be an investment risk. We believe--we have good reason to believe it on the basis of that research--that the CAT standard will strengthen consumers in
inquiring about the difference between a CAT standard equity ISA and a non-CAT standard product. Therefore, providers offering non-CAT standard products, either instead of or alongside CAT standard equity ISAs, will be able and even encouraged to explain to potential investors why their product, although its annual charge may perhaps be higher than that for a CAT standard ISA, may none the less be more appropriate for a particular investor. That is precisely what we mean by empowering consumers, making the market more transparent and enhancing competition.
Mr. Douglas Hogg (Sleaford and North Hykeham):
How does the hon. Lady respond to the suggestion that the CAT standard will prevent smaller and more recently established providers from coming into the market?
Ms Hewitt:
I do not accept that there is any evidence for that proposition. It is obvious that the CAT standards that we have set--although they are challenging, and deliberately so, to the market--are sustainable. New providers are already coming into the market. On cash ISAs, National Savings--which was debarred from the market by the previous Government--has announced its intention to offer a CAT standard ISA.
On access, the important point about a CAT standard ISA is that access will be easy and that people can have confidence that they will be able to get their money out if they need it. With an insurance ISA, for example, people will be able to get at least their premiums back after three years or more. There will also be no discovering--as currently happens all too often--that one's money has vanished if one has to cash in a policy early.
The third element of the CAT standards is that terms will be fair. Nothing will be hidden, and there will be no nasty surprises in the small print. There will be no restructuring of accounts once customers have signed up or interest rates cut after deposits are made.
There are those in the savings industry who have been concerned about the CAT standards and claim that the limit set for charges is too challenging. We shall certainly be monitoring the impact of the CAT standards once the system goes live, and we shall make changes if they are needed.
I should stress that the CAT standards are voluntary. Firms will offer CAT standard products if they want to, and some have already said publicly that they intend to do so. Other firms have said that they will offer products that do not meet the CAT standard but that--as the hon. Member for Bournemouth, West (Mr. Butterfill) suggested--may be more appropriate for certain consumers, perhaps covering riskier investments, and therefore requiring more management and higher fees but offering the potential for higher returns. That is precisely the type of choice that we want in a competitive marketplace for savings.
If firms decide not to offer a CAT standard ISA, their marketing will have to show that the ISA does not meet the CAT standards.
The other main criticism of CAT standards has been that they will be seen as a form of guarantee. As I said, CAT standards give no guarantee--because nobody can--about the performance of an investment. CAT standards themselves require providers to make the investment risk
clear in marketing information on the product, just as the Government's publicity will make it clear that a CAT standard is not a Government guarantee.
CAT standards will address features of savings that we know worry the small saver or put off entirely the potential saver. They will help to remove the worry of getting ripped off, help savers get fair and decent treatment and give savers greater confidence.
There is now less than six months to go before the launch of ISAs, and a great deal of work has been done by ISA managers to prepare products for launch in April. The Government still have their part to play. The Inland Revenue will shortly be tendering for the publicity campaign that will increase awareness of ISAs and ensure that they get off to a good start next April. As part of that awareness campaign, a leaflet will be produced later in the year to provide details of the ISA and how it can be used.
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