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Mr. Nick St. Aubyn (Guildford): Does my hon. Friend agree that, whereas last week we were treated to Peter Pan economics, this is a case of Tinkerbell targeting?
Mr. Loughton: That is a soundbite worthy of Labour's best spin doctors, if I may compliment my hon. Friend.
The 6 million virgin investors are the great mystery of our times. Where is the great queue of people clamouring outside the doors of the Treasury to hurl their money into the new ISA schemes? Who are these people? In the final list, the Economic Secretary may even be able to name them, because there will be very few. The mystery of the 6 million is a mystery greater than the Loch Ness monster, large cats in Norfolk and anything that could be thrown at us from "The X files".
All the inferior considerations of the ISA scheme that I have listed might just imaginably be worth while if the Government could prove that it really would encourage a greater saving mentality among the supposed 6 million people. There is no evidence whatever--there has been no evidence since 3 December--that the scheme will encourage a single virgin investor to become a saver. I challenge the Government again: who are the 6 million people?
I was not comforted by the Economic Secretary's disclosure that Paula Diggle helped her in the research. It has been plain all along that, before the Treasury produced the Green Paper, it had done no research into the savings mentality and regime. It is now patently clear that, since then, it has still conducted no such proper research. The finance industry has been left to do its own research.
A MORI poll, commissioned by the Midland bank and the Financial Mail on Sunday in the summer, found the following. Only 47 per cent. of the public are aware that PEPs and TESSAs are to be replaced by ISAs in April--quite a challenge for the £1.25 million promotion budget--but 51 per cent. of them are unlikely to take out an ISA. Only 3 per cent. of adults earning less than £11,500 per annum said that they were very likely to invest in an ISA, and 32 per cent. said that PEPs offered greater tax efficiency--against only 12 per cent. who said that ISAs did.
A similar poll, carried out at the same time by the Association of Unit Trusts and Investment Funds, found that only 18 per cent. of PEP holders plan to invest a similar amount or more in ISAs when they are introduced next year. That is the research that the Treasury failed to do when it embarked on this lamentable scheme. If such research is correct, the start for ISAs next year and the subsequent few years will not be attractive.
I shall touch on the many other complications in the ISA scheme. The Inland Revenue will have one hell of a job monitoring maxi and mini ISAs, all the different providers that one ISA investor can employ, and the scale of withdrawals and subsequent reinvestment. The news that there is a substantial logjam in many Inland Revenue offices, such that sacks of mail from as early as April lay unopened and tagged with the date, and are being opened in chronological order only now; the fact that an estimated 1 million people were last year sent incorrect tax bills during the first year of self-assessment; and the future challenge of corporate self-assessment later this year do not instil confidence in me that the Inland Revenue will be able to cope with the complexities of the scheme.
I will not touch on CAT standards--my hon. Friend the Member for Bognor Regis and Littlehampton covered that issue satisfactorily. Suffice it to say that, right from the start, it was clear that the cat had used up its nine lives before it was born. The ultimate absurdity of CAT standards, as the Economic Secretary almost admitted, is the fact that savings and investment accounts backed by the Government at the moment fail signally to meet such standards--even though the Government envisage national savings playing an important role in the development of ISAs.
I shall skim through several other minor details. Cheap capital protective funds have been excluded from ISAs, yet futures and options funds can reduce the risk for cautious new investors. Until the Financial Services Authority assumes full control of ISAs--if such a Bill proves to be part of the Queen's Speech--a dissatisfied ISA holder may have to deal with three separate regulators. The Government could have amended PEPs and TESSAs--an already successful savings culture. If it ain't bust, don't fix it.
How many providers have registered an interest in providing ISAs from 6 April next year, and is the financial press right to say that, far from the target of 500 to
600 which appeared in the Economic Secretary's answer to one of my parliamentary questions, little more than a dozen have so far signalled their intent?
The ISA programme represents a major lost opportunity to update and streamline the existing PEPs and TESSAs and to encourage savings. The system could perhaps have been linked with benefits system, to provide a kickstart incentive for the less well off to save.
Mr. Nick St. Aubyn (Guildford):
I follow on from what my hon. Friend the Member for East Worthing and Shoreham (Mr. Loughton) has said by observing how clear it is that the Government's decision to change the savings schemes was simply an attempt to rebrand a Conservative success story. Only someone who lived in wonderland would believe that changing the name from "PEP" to "ISA" would increase the number of people who want to subscribe to savings schemes.
The almost 8 million people who had either a PEP or a TESSA before the Labour party came to power had saved a total of more than £60 billion between them--a sum greater than the pension savings in the entire German economy. Such an achievement in the 10 years since PEPs were launched by the Conservative Chancellor of the day is a measure of the success of the previous Government in targeting and promoting genuine long-term savings.
The Minister complained that under the Conservative scheme there was a five-year lock-in. However, as everyone knows, if one invests in the share market there may be ups and downs in the short term, and only if one is prepared to invest in the longer term do the benefits show through.
Ms Hewitt:
Will the hon. Gentleman correct that statement? TESSAs, which had a lock-in period, were cash accounts.
Mr. St. Aubyn:
That is correct, but PEPs were not.
Ms Hewitt:
But as the hon. Gentleman, I am sure, was about to say, there was no lock-in period for PEPs.
Mr. St. Aubyn:
There was a penalty for withdrawing from PEPs in the early years, as the hon. Lady well knows. The point is that long-term incentives coupled with a tax incentive are part of the winning formula that the previous Government developed.
That follows on from the principle of pension savings. Those have a much longer lock-in period, and let us consider how successful they have been. Pension savings, with the tax incentives that the Conservative Government promoted, have given us in this country the best savings rate for our retirement of almost any country in the world. Our pension savings are greater, cumulatively, than those of the rest of the European Union put together.
Long-term savings with long-term tax breaks and a long-term lock-in are a successful formula for savings in our country. Does the Economic Secretary believe that the level of national savings matters? There are left-wing economists who maintain that in the new global economy, the level of savings in one individual country is not especially significant.
Perhaps the hon. Lady has that sophisticated point of view, and does not worry about the fact that the savings level in this country has declined so disastrously since her party came to power. Does the Economic Secretary care about that, and what, in practical terms, will she do? The evidence from my hon. Friend the Member for Bognor Regis and Littlehampton (Mr. Gibb) is that ISAs are not part of the solution to the fall in the savings rate that has occurred since Labour came to power.
Mr. Nick Hawkins (Surrey Heath):
Does my hon. Friend agree that part of the disaster of the Government's plans has been that, when they were announced, they included the particularly unattractive ceiling of £50,000, and it was only because the feelings of so many constituents of all Members of Parliament were that that was a completely disastrous policy that the Government were forced to change their mind? Does he agree that that completely undermined the City's faith in what the Government were originally setting out to do, which was to change PEPs and TESSAs?
Mr. St. Aubyn:
My hon. Friend makes a valid point, which I was about to make myself. The implication is that, without the stout opposition of Conservative Members of Parliament, the Government would have got away with a mis-selling that would have put any other mis-selling in the shade. The Government promised in their manifesto that they would not jeopardise PEPs and TESSAs; yet, until we piled on the pressure, that is exactly what they proposed doing.
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