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
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
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 incomewhich
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.