Examination of Witnesses (Questions 60-79)|
1 MAY 2007
Q60 Mr Fallon: Did the first pilot
go as far up the income scale?
Professor Kempson: No, it did
not, absolutely not; it was up to tax credits.
Q61 Mr Fallon: So one of the purposes
of the second part was to test how far up the income scale you
might have to go?
Professor Kempson: To test against
whether matched savings would have an incentivising effect further
up the income scale and whether differing match rates would have
equal effects in incentivising saving. The pilot itself is so
complicated that I am not sure that its design would enable you
to answer those questions.
Q62 Mr Fallon: Is there any academic
evidence as to the matching effect as to where that tails off
up the income scale?
Professor Kempson: There is not
on the matching effect and how far up the income scale.
Q63 Mr Fallon: Do you have an instinct
for roughly where that should be, how far up we should go?
Professor Kempson: I do not because
I would approach in a different way. I would say that if we want
to persuade people on low incomes to save, then we need a different
way of presenting the rewards of saving. We talk about incentivising.
The rewards of putting money into a savings account if you are
on a low income are minimal. If you put it into an ISA, you are
probably not paying tax or very little tax and so any rewards
to you are very small indeed. It is people's perceptions of the
benefits of saving. It may be by making it simpler you might have
a greater effect further up the income scale but from my perspective,
it becomes more important the further down you go because the
other route of traditional rewards simply does not operate in
that market. That does not quite answer your question but I have
looked at it rather differently.
Q64 Mr Fallon: You have to have a
cut-off somewhere, do you not?
Professor Kempson: I would put
it probably at the tax credit level for the matched savings, but
I cannot give you empirical evidence to back that up. Maybe the
second pilot will give us that.
Q65 Mr Fallon: One of the criticisms
of the tax credit system is that it goes slightly too far up the
Professor Kempson: Yes, but this
is not child tax credit; it is working tax credit.
Q66 Mr Fallon: What would the average
household income be for that?
Professor Kempson: I am afraid
I cannot remember exactly where that would cut off now. It depends
on the family circumstances. It is something like £25,000.
It is certainly a lot lower than £50,000.
Q67 Mr Fallon: Is there enough evidence
yet from the pilots that the matched funding has a sustained effect
in kick starting the savings habit rather than simply a short-term
Professor Kempson: There is some,
although there would have been greater value in doing more longitudinal
tracking of the original Saving Gateway of participants, although
some of them have re-joined and been allowed to re-join a second
pilot. We did find when we followed people up six months after
the end of the first pilot of Saving Gateway that a significant
proportionand I cannot remember the percentage, I would
need to check it for youwas still saving.
Q68 Mr Fallon: That is half of them?
Professor Kempson: It was about
half; it was a significant number that were still saving. They
were saying that it did become a habit. If you are on a very low
income, you set money aside for different purposes at the beginning
of the week. You put money aside towards the rent, perhaps towards
the Provident loan, towards gas and electricity or charging up
the key meters. What had happened was that saving had joined that
queue. People described it as being addictive, as being a habit
and, once you got into that habit, then you just continue doing
it because you can see the real benefits of having some money
by you. About eight in ten had retained at least some of the money
and about half had retained all of the money from their Saving
Gateway in the account still six months later. If we look to Australia
where they have Saver Plus, which is slightly different but it
is a matched saving scheme for very specific purposes, people
do continue to save at the end of the programme. There is no question
that once you have got into that habit, you have become used to
putting the money away and used to living without it, then why
would you stop? For most people, it makes a lot of sense to continue.
Q69 Mr Fallon: We have been promised
an announcement on the next steps by the Government this summer.
What would you like to see in that announcement?
Professor Kempson: I would like
to see the design of the first pilot rolled out nationally for
people up to tax credit level.
Q70 Mr Fallon: You would keep most
or all the elements of the first pilot?
Professor Kempson: I would. I
think delivering it through community groups is difficult and
that could never be rolled out nationally. I think there would
have to be a slight variation. You may not recall but in the first
pilot some of the accounts were delivered direct from a Halifax
branch; for the rest, people just signed up through community
organisations. I would like to see community organisations playing
a very supportive role in promoting the Saving Gateway but not
being the conduit through which people are recruited because,
quite simply, if you did that, there would be large numbers of
people who could never join the scheme because there would be
no suitable organisation in their neighbourhood.
Q71 Mr Fallon: You would like to
see the Government just go to providers and say
Professor Kempson: They should
go to one or more providers but certainly not to a lot of providers.
I think it needs to be kept much simpler than the Child Trust
Fund was. Maybe there should be two or three key providers to
ensure good national coverage.
Q72 Mr Fallon: Is there anything
else you would like to see in that announcement?
Professor Kempson: On the Saving
Q73 Mr Fallon: Yes.
Professor Kempson: No. I would
keep the matching as it was. It was very simple and incentivising.
I do not think I would even extend the saving period. I would,
however, maybe give people the option of signing up for a second
period, not just for one period of 18 months. I would have said
two years was about as long as people could manage without touching
the money, and the vast majority, I might say, did not withdraw.
That came as a complete surprise to me. I thought there would
be a lot of small withdrawals and there were not. People were
able to keep it on one side for that period of time. They were
beginning to find it a struggle at the end of 18 months, and some
of them did need access to the money for specific purposes.
Q74 Mr Fallon: You think that 18
months is probably about the right time?
Professor Kempson: That is certainly
what we were told by the participants.
Q75 Angela Eagle: This is a quick
question about your observation on the Child Trust Funds and keeping
things simple. Again, it is the interaction, is it not, with the
financial services industry as we have it at the moment, which
is incredibly complex and competitive that creates the complexity.
You are basically saying that you want the Government to pick
one or two providers and ensure that they are the ones that offer
these simpler services to lower income families, be it Saving
Gateway or Child Trust Funds.
Professor Kempson: Can we go back
a little bit? I think the main complexity of the Child Trust Fund
is having three different types of account.
Q76 Angela Eagle: So with a single
Professor Kempson: The stakeholder
account was by far the most sensible thing to do, for any parent
to put the money in there. To have the complexity of the other
two types of account was needless.
Q77 Angela Eagle: So you recommend
a simple, stakeholder style or model with a minimum number of
Professor Kempson: You could have
more providers if the product itself is kept simple.
Q78 Angela Eagle: That would be a
simple product like the scandalous products which the financial
services industry hate because they are a different model to the
one that they make so much money out of, so they throttle them.
Is that not the problem?
Professor Kempson: That is why
I think you may need a small number of providers who are committed
to that style of working, who do want to develop it and will work
with the Government to ensure that the scheme is rolled out nationally.
You are right, across the piece not all Child Trust Fund providers
share an enthusiasm for it. Our report to HMRC shows that. Some
got into the marketplace because they simply feared that they
would lose existing customers and so they are not enthusiastically
embracing it. Others, Children's Mutual has already been mentioned,
have always embraced it wholeheartedly. You will always find two
or three, maybe half a dozen, providers that really want to deliver
a product. That's why I would favour a narrowing because then
you would get the promotion of it.
Q79 Mr Breed: I think you are absolutely
right: it is the ease with which people can undertake the whole
idea of saving to begin with that has to be simple. How important
then is the role perhaps of other helpers in that, like employers
and such like, who encourage their own staff that work for them
through their own schemes? We have payroll giving for charity.
What about payroll saving and in a much more extensive way encouraged
by Government because that is a good relationship. The money is
taken out before you receive your pay. It is nicely joined up
and you do not even know it has gone to a certain extent.
Professor Kempson: I think that
has a lot of mileage in it. I would support employers becoming
involved and setting up savings schemes for their staff, but of
course that will not serve those who are not in work. For those
in low waged employment, yes, I think people will welcome it and
they will save regularly if it is deducted at source.