Select Committee on Treasury Minutes of Evidence

Examination of Wintesses (Questions 20-39)


1 MAY 2007

  Q20  Mr Breed: When you did your review, did you cover these rather more informal schemes that some shops, butchers and others have themselves in a local context? I have no idea how widespread they are but when the Farepak situation came up, one suddenly became more aware of an awful lot more of these smaller, informal schemes.

  Mr Pomeroy: I noted their existence but I concentrated my review on firms which were in the business of Christmas savings schemes as opposed to those which ran them as an ancillary activity. I do not have good information about that. I am not sure, frankly, that it exists at the moment. You are absolutely right to say that up and down the country there are butchers, grocers, toyshops, dairies and probably others running informal schemes where contributions are probably recorded in a very informal way. As to the extent of that, I suspect that numerically it is large but I cannot tell you what amount of money is involved.

  Q21  Mr Breed: This is terribly important. The effect is that whatever that money is, it must be held in some sort of trust status, no matter how large or small a business, but of course it is not.

  Mr Pomeroy: That would be the ideal but I would be very surprised if you pay £1 a week to a butcher for a turkey at Christmas if there was a trust status.

  Q22  Mr Breed: This is a more general question about credit unions, which are slow to get off the ground in many places. Do you think that is partly due to the fact that they are called credit unions, which does not mean an awful lot to most people? Would it be much more sensible to call them community banks?

  Mr Pomeroy: I have a personal view, which is not necessarily the Taskforce view or shared by others in the Taskforce, that it would be useful to look at some kind of re-branding.

  Q23  Mr Breed: You can ask relatively sophisticated people to explain what a credit union is and they will look blank. If it was a community bank, the idea of saving in a community bank would be a much more logical concept.

  Mr Pomeroy: It would and, progressing that one level further, I visited the USA with a team from the Treasury about two years ago and did see community banks. They are called community banks there; they are full service institutions that serve local communities. They do run the whole range of products. Of course the credit unions at that time did not offer a banking service but now do, which is a very important development in credit unions. In a sense, they are now and probably could call themselves community banks. That is a personal view and I think some re-branding would be useful. That is not necessarily a view held by the Taskforce.

  Q24  Mr Breed: In previous times, until about 20 years ago, we used to have licensed deposit takers, which of course provided that measure of protection for people who saved in a licensed deposit taker. There is no reason why that could not be resurrected under the term of the community bank operations?

  Mr Pomeroy: I quite agree.

  Chairman: We have the Credit Unions Act on the stocks at the moment ready to be legislated on, hopefully at some time, and ABCUL are coming to the next presentation here, so that is a good issue to take up. It may be the basis for another inquiry.

  Q25  Peter Viggers: Almost half of the adult population have no savings at all and Citizens' Advice and the Association of British Credit Unions, both of which have specialist experience in this field, believe that it is enormously advantageous if people can be encouraged to save, even a modest amount, and even if they are in debt. Do you think that the Government's strategy of financial inclusion takes sufficient account of the importance of promoting savings by those who are in debt?

  Mr Pomeroy: The strategy document which was published at the end of 2004, when the Taskforce was set up, tended to give that a second priority; it prioritised banking, advice and affordable credit. The latest strategy document does I think give saving more emphasis and certainly I think it is right to give saving emphasis because having saved even small amounts of savings provides a buffer. Very often it might avoid the need for borrowing expensively. You can fund small purchases from savings rather than to borrow at very high rates. It starts to connect people to the financial services system and get them used to the way financial service work and the mechanics of financial services. I think savings has an important role to play, particularly in financial inclusion. I welcome the fact that the Government is giving it more prominence, and indeed if they ask us to look at it as a Taskforce, as I have already said, we will be happy to do that.

  Q26  Peter Viggers: Looking at the choices available to a person who is likely to have both hire purchase debts and credit card debts, how would you categorise the payment off of those debts, which has a clear financial advantage, as against encouraging savings? Just to follow that point through, if the Government were to take positive steps to encourage savings, it would need to change the rules of expense through the credit industry, would it not, so the credit industry would need to say to an individual, "Yes, we accept that you will not be able to pay off your obligations at the moment because you are saving".

  Mr Pomeroy: I am afraid my answer is probably going to be rather unhelpful because since the Taskforce has not looked at savings in the general sense, and therefore I have not myself looked generally at them, it is not a question, frankly, at the moment I would feel competent to answer. I have no doubt if and when we look at savings, we will look at those issues.

  Q27  Peter Viggers: It seems a worth subject for a study?

  Mr Pomeroy: I completely agree. It is simply not in my field of competence at the moment.

  Q28  Mr Fallon: You have drawn quite a sharp distinction in your Review between Christmas savings schemes and the Saving Gateway. I just want to press you here on the principle of matched funding from the Exchequer which has been piloted for private saving. Why could that not be applied to Christmas saving?

  Mr Pomeroy: It probably could. The reason I drew a distinction was that I felt that a Christmas saving scheme is aimed at a very different kind of saving with very different objectives for saving from the Saving Gateway. It has a very specific short-term purpose and, for example, the lock-ins would be very important. The Saving Gateway, as I understand it, is a longer term, more general saving mechanism. Lock-ins for example would probably be less appropriate. That is the sort of thing I meant. They really are serving different savings purposes and therefore it is probable that you need different vehicles. I have not considered very specifically the point you make, that is to say a matching scheme for Christmas savings. Going to the point I made earlier about the need to have incentives for saving, it may well be such a scheme could work. When I drew that distinction, what I really meant to say was that I could not really see the Saving Gateway and Christmas savings schemes coming together and serving both purposes, but it may well be that matching schemes that you describe could well be useful.

  Q29  Mr Fallon: I understand that. I am not asking you whether it would work. Of course they are different vehicles. I am asking you whether the principle of matched funding could not or should not be applied to Christmas savings schemes.

  Mr Pomeroy: My understanding is that the Saving Gateway has indicated a positive response to matched funding and therefore, yes, it could be.

  Q30  Mr Fallon: Do you think it should be?

  Mr Pomeroy: That is a matter for the Government.

  Q31  Mr Fallon: Do you not have a view on this?

  Mr Pomeroy: It is very hard for me to say how public expenditure should be used. What I can say is that the more incentives that can be given to people for Christmas savings to be matching, the more that will be saved. Looking purely from the point of view of wanting to promote savings, yes, I would say it would be a good idea. Clearly, I am not in a position to prioritise the Government's expenditure.

  Q32  Mr Fallon: Do you have views on this?

  Mr Pomeroy: I have a view that if it is to promote Christmas saving, it would certainly be valuable if it was matching but that is different from me saying if I were the Government, would put money towards matching for that purpose.

  Q33  Mr Fallon: On the Saving Gateway more generally, have you been consulted on the next stage after the second pilots?

  Mr Pomeroy: No, the Taskforce has not yet looked at savers at all and therefore we have had no contact, and I have had no contact personally, with the Saving Gateway.

  Q34  Mr Fallon: You have not been asked how they should be taken forward. Do you expect to be?

  Mr Pomeroy: My understanding is that if we are asked to look at savings, it will be once decisions have been made about the Saving Gateway, but I would hope that if we are to be asked to look at it, that we would be given some kind of monitoring and advisory role, as we have been over the advice on the credit schemes in the past.

  Q35  Mr Fallon: Do you have any evidence yourself about the success or otherwise of the second pilots?

  Mr Pomeroy: Personally, I have no evidence. I have not had any personal connection with it at all.

  Q36  Mr Fallon: Does the Taskforce have any?

  Mr Pomeroy: Because we have not yet looked at savings, the Taskforce has had no contact with that issue.

  Q37  Mr Fallon: Could I now turn to Child Trust Funds. The Children's Mutual estimates that now around a quarter of children from low-income families who are having their Child Trust Funds topped up. Are you aware through the Taskforce of any other evidence to suggest that the Child Trust Fund itself is strengthening the savings habit?

  Mr Pomeroy: No, and again because the Taskforce has not looked at savings, we simply have not addressed that issue at all.

  Q38  Chairman: On the issue of the shorter-term savings, I note that in the Treasury document mention is made of a number of building societies—Skipton, Scarborough and Furness—which are launching Christmas saver accounts. How would you like to see that market develop further, particularly in the light of Christmas 2007 coming up?

  Mr Pomeroy: I would like to see a development of those products, whether by building societies or by credit unions, or indeed the Post Office which does not yet have such a product, but I think it could be a very valuable provider of such a product and it has said that it is interested, and indeed by supermarkets that I think could also develop their product. I would like to see, and indeed this has happened to an extent in response to Farepak but it happened for the wrong reasons almost, those developed and a greater range of choices available and communicated to savers so that they know there are alternatives to the hamper market and how to use them.

  Q39  Chairman: Will we be too late to miss the Christmas 2007 market?

  Mr Pomeroy: Probably not but it is getting on in the year.

  Chairman: Brian, may I thank you for your evidence but also for the work you are doing in the Taskforce. I wish you well. I return to the first question I asked about savings. I hope you knock on a few doors about that and that that it is included in your remit.

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