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Mr. Letwin: Will the right hon. Gentleman give way?
Mr. Letwin: Just to correct the right hon. Gentleman, I am flattered that he thinks me so young, but actually I left the employment of Her Majesty's Government some six years before Lord Lamont entered the Treasury. At that time, I pursued my business in the private sector, so I am very well aware of the problems to which the right hon. Gentleman refers. Is he seriously arguing that the savings ratio was as high as it was between 1979 and 1997 only because people were continuously scared into saving, and is he suggesting that he wishes now again to scare them into saving?
Mr. Boateng: I make no such point, but I do say that households had to save more to make up for the loss in value of their savings due to inflation, and to provide a cushion in the event of being unemployed. The right hon. Gentleman ignores the fact that the asset side of the household balance sheet today remains strong. Household net wealth, taking account of the recent fall in equity prices, is more than 50 per cent. higher than at the beginning of 1997. So this debate has to be placed in the framework of a thriving economy.
Britain's economy, alone among the major industrialised economies, has not only averted recession and continued to grow in every quarter for the past
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seven years; it has also had the longest period of continuous sustained growth for some 200 years. We have the lowest inflation levels for 40 years, interest rates have been at their lowest since the 1950s and we have the highest employment levels in our history. Again, there is no room for complacency, but economic stability, continuing economic growth and sound public finances do provide the best environment for savings, and for ensuring that existing levels of household debt are sustainable.
Mr. Boateng: I give way to the right hon. Gentleman.
Mr. Letwin: I am doubly grateful to the right hon. Gentleman for giving way again. I am glad that he thinks there is no room for complacency. Does he agree that there ought not to be, given that our growth rate is the lowest of the Anglo-Saxon economies, our productivity growth rate has gone down by a third, our savings ratio has halved, we have dropped from fourth to 15th in the international competitiveness league, Ireland now has a higher per capita income than ours, we have the largest trade deficit since the 17th century, and we are facing the very serious problem of over-inflated house prices?
Mr. Boateng: I really am sorry that the right hon. Gentleman adopts that approach. The reality, as he will recognise, is that the economic fundamentals of this country, in comparison with those of our partners and competitors, shine out as an example of what stability can bring and of what needs to be done to create jobs. Some 2 million jobs have been created since 1997, and Members from all parts of the House ought not to forget that it was the Opposition who told us that we would lose 1 million jobs as a result of introducing the minimum wage. That is the reality.
In 1997, we inherited the historical legacies of poor and ineffectual financial regulations, the pension mis-selling scandals of the 1980s and a lack of initiatives to educate and support consumers effectively. The right hon. Gentleman will understand, therefore, why we decline to take from the Opposition lessons on the virtues of saving and on our own supposed failures in that respect. In tackling that inheritance, we have created a world-leading system of financial regulation. That is not just our doing; it is the result of a partnership with the industry and with those who make, and who are responsible for the creation of, the wealth in the City of London and throughout the United Kingdom. The right hon. Gentleman really ought to pay tribute to that partnership.
We have overhauled the regulation of financial services, which led to the Financial Services and Markets Act 2000. We have set up a single regulator, in the form of the Financial Services Authority, to ensure that the market is properly regulated through a risk-based approach. Many other countries have now copied our successful, world-leading approach by establishing their own unified regulators, and we have created a single ombudsman and a single compensation scheme for consumers, ensuring that they have free access to redress and compensation. All of that was necessary to give people a sense of confidence in saving, and to create
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the context in which our strategy for promoting saving and asset accumulation can succeed. It is founded on some important principles. Those principles address opportunity, security and responsibility, and I see no reason why they should divide us across the Floor of the House. We embrace those principles because they underpin the very notion of the welfare state. On the principle of opportunity, assets enable individuals to take advantage of opportunities throughout life and widen choice. On the principle of responsibility, the development of the savings habit promotes independence. On the principle of security, individuals can be assisted to accumulate a stock of financial assets for times of adversity. Those principles should unite us in agreement that they should form the basis of effective policy.
Mr. Hopkins: The right hon. Member for West Dorset (Mr. Letwin) listed the apparent problems of the British economy. He seemed to suggest that we should tighten monetary policy and raise interest rates, but would that not strengthen the pound, depress investment and make our balance of trade position worse, thus damaging the economy? Does my right hon. Friend agree that our policy of lower interest rates is more sensible?
Mr. Boateng: I certainly endorse our policy. Indeed, it would be rather alarming if I did not! I also cast doubt on the remedies proposed by the right hon. Member for West Dorset and some of his right hon. and hon. Friends. We would like to know a little more about those policies, how much they would cost and how they would be paid for. The right hon. Gentleman was remarkably reticent about that. I hope that he has had discussions with the hon. Member for Havant (Mr. Willetts), who has come up with a range of products that apparently are the answer to the problems that the right hon. Gentleman outlined. We look forward in the coming days, weeks and months to seeing the bill for some of the hon. Gentleman's proposals. I hope that the right hon. Gentleman can assure us tonight that those proposals have been costed and that he has approved them. He says, "Of course." In that case, he will no doubt tell us how much they will cost in due course, although the hon. Gentleman was remarkably reticent on the issue in his press release before tonight's debate. We will tease the details out in due course.
We are charged with the responsibility of encouraging people to save for their futures and of working with the industry so that it provides products that people can understand and trust.
Mr. Tynan: The Government should be praised for their economic record over the past seven years. However, one of the issues that we should address is the practice of the banks in sending offers of loans to individuals that make it very easy—especially for young people—to fall into debt. Do the Government intend to deal with that problem, which discourages saving and increases indebtedness?
Mr. Boateng:
I know that my hon. Friend has taken an especial interest in that issue and I shall describe shortly several measures that my right hon. Friend the Secretary of State for Trade and Industry is taking and that he will find of interest.
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We have developed a stakeholder product suite to ensure that consumers have access to simple, good value investment products, with increased incentives to save. The right hon. Member for West Dorset mentioned ISAs, which were introduced in 1999. More than 15 million people now have an ISA, with more than £130 billion subscribed. He should remember in his strictures to us that ISAs are supported by some £1.6 billion of tax relief for saving. The suggestion that we do not back ISAs with tax relief is not fair. ISAs have increased take-up of savings products compared with TESSAs and PEPs, for both low-income earners and the young.
On top of tax-free savings products such as ISAs, a 10p starting rate of income tax has applied to income from savings since April 1999, with a lower rate of 20 per cent.—rather than 22 per cent.—applying up to the basic rate limit. We are also looking at new ways of supporting savings, such as the saving gateway, through which the Government match the savings of low-income families up to a limit of £375. Initial indicators from an interim evaluation are positive.
In last year's Budget, the Government also introduced the child trust fund, which the Conservatives have criticised and the Liberal Democrats would axe. It is a ground-breaking initiative that will strengthen financial education, promote positive attitudes to savings and ensure assets for all children, regardless of family background. All children will receive £250 and children from poorer families will receive £500. The Government will also make further payments when the children reach the age of seven.
We are also taking specific steps to raise the level of consumer financial literacy so that consumers are empowered to make informed choices and manage their finances better. With the support and active involvement of the Financial Services Authority, we seek to ensure that, year on year, the scale, range and topicality of its public awareness work adds to that financial literacy.
We are aware of the need to tackle financial exclusion and we are taking steps to do so. In the Budget this year, we committed to continuing our efforts, working in partnership with the sector and with voluntary and community bodies to achieve dramatic reductions in the number of households without bank accounts and a significant increase in the availability of affordable credit for those on the lowest incomes. The right hon. Member for West Dorset is right to draw attention to the particular dangers of debt for those on low incomes. We all know from constituency experience of the ravages of loan sharks on some of our more deprived housing estates. It remains our ambition to achieve a step change in the availability of free debt advice.
I can tell my hon. Friend the Member for Hamilton, South (Mr. Tynan) in response to his question that my right hon. Friend the Secretary of State for Trade and Industry introduced a consumer credit White Paper in December last year, in which she set out a policy on tackling over-indebtedness, unfair lending practices and loan sharks. The next phase of that work will come later this month, with the publication of the DTI's strategy for low-income, indebted households. Real issues are being addressed with practical policies.
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The issue of pensions is a legitimate one for concern. The issues include longer lifespans, the level of pension saving, the complexity of products, and the number of people leaving employment too early and too suddenly. We are taking action to address those issues. We have introduced a Pensions Bill that sets out our proposals to renew the pensions partnership between the Government, individuals, employers and the financial services industry; introduces the pension protection fund; radically simplifies the taxation of pensions; replaces the eight current regimes with a single lifetime allowance on the amount of pension savings that can benefit from tax relief; and empowers individuals to make informed choices about working and saving for retirement, so that future pensioners receive the income in retirement that they are entitled to expect.
The Pensions Bill is being backed up by practical measures to bring home to people the reality of the situation that they may face. We will issue 1.6 million state pension forecasts to the self-employed by the end of 2003–04. We will be sending out 8 million automated state pension forecasts in 2005–06. By the end of that year, we shall ensure that more than 6 million people receive combined pension forecasts that give details of current private pension arrangements as well as state pension income. All that will contribute to greater awareness and understanding so that people can make informed choices. We believe that confidence in our occupational pension system must be restored and we have taken the necessary steps to restore it.
The right hon. Member for West Dorset made much in his remarks—as he often does—of changes to advance corporation tax. My hon. and learned Friend the Member for Redcar (Vera Baird) highlighted the issue, but unfortunately even after the right hon. Gentleman's responses to her questions we are no clearer as to whether he has any intention of reversing our actions on ACT. He had the opportunity at least to tell us that it features among his priorities, but there was not a word.
That is hardly surprising, however, because the hon. Member for Havant has already told us that the Conservatives have no intention of reversing the change. He made that clear in an interview in the Western Daily Press, in which he said, "I can't promise it". When he was asked about it by The Observer, he apparently said:
"Ah, er, erm, it's a good question."—[Hon. Members] What is the answer? My hon. Friends may laugh, but we have made some progress: we have gone from "I can't promise it" to "Ah, erm, it's a good question" to absolute silence. The right hon. Member for West Dorset is completely stumm—not a word, not a sound emanates from his lips.
We are entitled to know, however. What are the Conservatives' plans to help pension funds and to increase savings? First, apparently, they would let pension credit die—their words—despite the help it gives. Just an inkling that they recognise that it has helped more than 2 million people with modest savings would give some indication that the Conservatives live in the real world, in which practical measures such as the pension credit actually make a real difference to people with modest savings. It helps to create a different culture.
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We know that the Conservatives would scrap the state second pension, with the result that millions of carers, disabled people and low earners would lose £43 a week.
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