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Sir Sydney Chapman (Chipping Barnet): I have been listening to the hon. Lady with great interest. One thing that unites all parts of the House is that we should encourage our constituents to save. Given what the hon. Lady has said about promoting ISAs, not in opposition to PEPs and TESSAs but as a complement to them, how much does she think her proposals will increase the amount that our constituents save in net terms next year?
Ms Hewitt: As I said, half the people in this country have savings of less than £200 and some have no savings at all. One of the biggest barriers to saving for people who could afford to save a bit and who know that they ought to be saving is the danger that they will not be able to get their money back when they want it. The cash ISA, especially the CAT standard cash ISA, removes that and other barriers that my constituents have outlined to me. We are confident that new savers, as well as existing small savers, will take advantage of the new ISAs next April and in the months and years that follow.
We now need to let the savings industry get on with the work that it has in hand. With the Government Departments involved and with, I hope, the support of the Opposition, the savings industry will then be able to make ISAs a success for all our constituents. We should reject the prayers, and I am sure that the House will support me in doing just that.
10.46 pm
Mr. Tim Loughton (East Worthing and Shoreham):
I am grateful for having caught your eye, Mr. Deputy Speaker. I must declare an interest, as set out in the Register of Members' Interests, in that I am guilty of professionally managing personal equity plans since their inception in 1987 and have owned some for many years.
The independents savings account debacle is a textbook example--
Mr. Christopher Leslie (Shipley):
On a point of order, Mr. Deputy Speaker. My memory was jogged by talk of Members' interests. The right hon. Member for Horsham (Mr. Maude), the shadow Chancellor, is a director of Gartmore Shared Equity Trust plc, which manages PEPs and from which the right hon. Gentleman receives £8,500 a year. Is it in order for him to fail to draw attention to that fact when he is a signatory to one of the motions that deals with PEPs?
Mr. Deputy Speaker (Mr. Michael J. Martin):
That is not a matter for the Chair. Any complaint of that nature should be made to Sir Gordon Downey.
Mr. Loughton:
Labour Members become very anxious when a Conservative Member who knows something about the subject being debated rises to speak. When we debate financial affairs, it is only a matter of nanoseconds before a Labour Back Bencher comes up with that well-worn phrase "pensions mis-selling", whatever the subject we are debating, because that is the sum total of Labour's knowledge of the financial industry in general.
The episode started on 2 December last year with the publication of the ill-fated Green Paper by the Paymaster General, who I regret is not here to see through the fruits of his work, which has not yet ended. The regulations that we are now debating eventually crept out during the recess at the beginning of October after numerous delays and, whatever the Economic Secretary says, after numerous U-turns and double U-turns. The main document was entitled "Making Savings Easy", but it actually made saving rather more difficult and met with widespread outcry or outrage from the professional investment community. It was all in aid of a vastly inferior product to the highly successful PEPs and TESSAs, as my hon. Friend the Member for Bognor Regis and Littlehampton (Mr. Gibb) said, because of the Chancellor's need to produce a new-labelled product for savings with his own name on it.
The whole debacle has not been helped by the last-minute regulations, directive and instructions that have sneaked out. There are now just 146 days to go until ISAs supposedly go live. It has been estimated that it will cost the financial community more than £100 million just to set up the computer systems. Inevitably, those costs will be passed on to the users and consumers of ISAs. A survey has found that probably at least one third of potential ISA fund managers will not be ready to go live with ISAs on 6 April next year and that is almost exclusively down to the dilly-dallying, delay and obfuscation of Ministers and Treasury officials.
However the Economic Secretary may dress it up,Mr. Deputy Speaker, ISAs will cost you, me and all our constituents more. The Treasury has estimated that ISAs will be between 30 and 40 per cent. more expensive to run
than PEPs and TESSAs. In August, the Inland Revenue estimated that the cost of setting up and running ISAs for the first year would be about £250 million--a sum that has increased because of the Government's delay and dilly-dallying. ISA fund managers will also have the added computer costs of dealing with the year 2000, the single pricing that will come in with open-ended investment companies--OIECs--and a whole raft of other new financial measures.
As for the Economic Secretary saying that it has been absolutely clear what the charges would include, that only crept out about a week ago. Until the end of October, the national financial press was still raising questions about that matter. This evening provides the first record of a Minister making it clear--if, indeed, it is clear--what the charges will include, only 146 days before ISAs start.
Standard Life, one of the largest mutual societies in Europe, has condemned ISAs as being generally seen as substandard replacements for PEPs and TESSAs. Whatever gloss the Economic Secretary puts on it, ISAs are inferior to PEPs and TESSAs because the amount that people will be able to invest in them after the first year will be £5,000 per annum. Under the PEPs and TESSAs regime, the annual amount was £10,800 per annum--more than double. It is an inferior product that will encourage less savings into the tax-advantageous environment. ISAs will also be inferior because the tax credit goes down to 10 per cent. For the average taxpayer, that means a saving on the income by being in ISAs of just £15 a year at most before charges. In reality, charges will rub out the whole tax saving that they may have gained.
Mr. Butterfill:
Does my hon. Friend agree that the view of Standard Life is all the more pertinent since the Government recently invited the chief executive of Standard Life to be a deputy governor of the Bank of England?
Mr. Loughton:
My hon. Friend makes a fair point, but it is yet another inconsistency in the way in which the Government work.
When the Paymaster General deigned to come to the House after announcing the whole ISA scheme outside, he reminded us that simplicity, flexibility, accessibility and fairness were the hallmarks of that great new product, but as time went on certain of those terms disappeared.
Let me dwell on the accessibility argument and the new providers, or rather their absence. I am sorry that the Economic Secretary declined the challenge made by my hon. Friend the Member for Bognor Regis and Littlehampton to name some of the new providers. As he succinctly put it, the supermarkets have given it a serious thumbs down. Tesco, Sainsbury's and Marks and Spencer are unlikely to be offering the products at the checkout, as was specifically encouraged in the preface to the Green Paper on 2 December.
Some of the larger providers in the financial community have also given the plan the thumbs down. Pearl Assurance is concerned that the charges will be set so low that it will not be able to produce a CAT standard ISA. Standard Life has decided not to sell mortgages backed by ISAs, claiming that they offer no advantages over traditional endowment policies. It has also decided not to sell the life assurance element of the ISA. Its chief
executive said that the company did not expect that the tax treatment of ISAs would make it any more attractive to invest for mortgage repayment through them than through an endowment. It has decided to withdraw its PEP mortgage product from sale.
That has implications for those who have regular PEP savings plans--1.5 million people choose to save in PEPs in that way--particularly those who use them to fund their mortgages. If new ISA providers do not appear and if their existing PEP mortgage provider decides not to provide ISAs, how will they save every month against their mortgages using a tax-advantageous scheme? It has been claimed that the drop-out rate will be as high as 20 per cent. for those whose firms do not roll over into ISA schemes. That is a damaging possibility for those who fund their mortgages in that way.
At the press conference that launched ISAs, the Paymaster General said that marketing was key. We seemed to be promised that a duff product would yet again be dressed up in Labour spin doctors' best clothes and flogged to an unwary public. Yet the princely sum of £1.2 million has been set aside as the promotion budget for ISAs. That includes nothing for television or major media coverage and compares with the £25 million that was set aside to promote Hector the friendly tax man. It will need a lot more than hope and £1.2 million of flimsy marketing budgets to explain the complexities of the ISA scheme to savers, particularly the ubiquitous 6 million virgin savers, if I may call them that. Whatever the Economic Secretary may say and however she may try to wriggle out of the target of 6 million savers that was bashed at us time and again, the Prime Minister said on 3 December:
"The announcement . . . is good news for middle Britain. There will be 6 million extra savers as a result--6 million who will be able to save but at present cannot."--[Official Report, 3 December 1997; Vol. 302, c. 349.]
That sounds to me like a target. I should like to know when, on the long road between 2 December last year and tonight, that ceased to be a target. It sounds like one of those early pledges that are not, in fact, early.
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