Select Committee on Treasury Minutes of Evidence

Examination of Witnesses (Questions 80-87)


1 MAY 2007

  Q80  Mr Breed: I saw that one of the banks is doing something where if you use your credit card, for each transaction they round it up and put that little bit into savings. I assume that they are still going to charge some extortionate rate for the amount on the credit card and give you a minuscule amount on the savings. You end up borrowing the loan amount that you have got at a vastly differential rate. There does not seem to be quite the incentive.

  Professor Kempson: No, there isn't.

  Q81  Chairman: We visited the Republic of Ireland in relation to this inquiry, amongst others, and we were introduced to the Special Savings Incentive Accounts, which are very important in Ireland. They do go up the income scale too much and it is very costly for government. Some of the data we received indicated that 28% of account holders were on an income of less than £14,000 sterling per year, so they seem to have been successful in that initiative.

  Professor Kempson: I think you will probably find that ISAs have got a similar level of take-up. I think that people in Ireland were very envious of our Saving Gateway. People who work with low-income households were deeply envious of our Saving Gateway and felt that the Irish response to it was a rather watered down version and would favour something more targeted, much more like the Saving Gateway. But, of course, there will be always be some take-up because amongst people on low incomes there are people who dip in and out, whose circumstances may be fairly stable. They are the ones who have traditionally joined the credit unions, saved with a building society. It is the people with more volatile incomes that need assistance with saving.

  Q82  Chairman: So, if there is one issue that we should focus on from your point of view, it is the Saving Gateway and the simplicity in getting that message across to government?

  Professor Kempson: Personally I think it is one of the most successful schemes.

  Q83  Chairman: On the issue of basic bank accounts, you mentioned earlier on it is not profitable for institutions. How important a source is that for people to get into the mainstream community and what more should we be recommending that the institutions do to encourage people?

  Professor Kempson: I think it is important, not just as an entry point to financial services, but because increasingly it is really difficult to run your finances without a bank account and it is very costly to do it. There are all sorts of advantages to using a bank account, and that is why I would advocate it. What more do we need to do? I think we do need a method that is secure for the user for paying regular commitments. Direct debits are not that; you do get penalty charges if there is not the money in the account. What I would love to see, but the banks are very resistant to go back to, is something like the old budget accounts that used to exist about 50 years ago where you had a linked account to your bank account into which you made a regular payment and from which all your regular payments to your creditors, which could include savings, was made. And sometimes that account was in credit, sometimes it was in debit but it all ironed out over the course of the year. That is the kind of facility that people want if they are on a low income—which solved the problem of paying too much for fuel, it solved the problem of paying too much for credit and it would enable regular savings because it could all be done quite automatically. You could decide at the beginning of the year how much you needed to put into your account. I do not think we are going to see the banks provide it. I think we have to find some other way of doing that. The banks have moved down the electronic route of direct debits and it is much more secure for them, much cheaper for them; why would they go back to something that is very complicated for them to operate? That is the challenge, I think, for those of us whose want to solve these problems.

  Q84  Peter Viggers: It occurs to me that with computer techniques it would not be complicated; it might be a little expensive.

  Professor Kempson: Maybe complicated was the wrong word for me to choose. What they do not want to do is offer an account which can be in credit sometimes and in debit at others. What they want is an account that you have to keep in credit in order to pay out. They will offer a second linked basic bank account, but not this facility that will smooth it out over the course of a year for you, and it is that smoothing that people want.

  Q85  Chairman: I think I share Peter's point of view that it should be simple technologically to do that.

  Professor Kempson: But there is not the will to do it, John, that is the problem. We will keep trying, but I cannot detect any will to do it.

  Q86  Chairman: What you are saying is we should keep the focus on basic bank accounts because there is a lot to do there.

  Professor Kempson: There is actually a lot more to be done on bank payment, for sure.

  Q87  Chairman: Can I thank you for your evidence but also for the work that you have been doing and continue to do with every success now.

  Professor Kempson: Thank you.

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