Select Committee on Treasury Minutes of Evidence

Examination of Witnesses (Questions 320-332)


19 JUNE 2007

  Q320  Jim Cousins: Is one of the things that the task force you are setting up is going to look at the various caps and traps we have had in the means-tested benefits for the treatment of savings?

  Ed Balls: The financial inclusion task force which exists or the ministerial group?

  Q321  Jim Cousins: The ministerial group.

  Ed Balls: My understanding was that we have made really quite a lot of progress for both pensioners and for families in taking away many of the most blatant disincentives and caps to saving which existed in the system and which we inherited, but I am very happy to suggest to my ministerial colleagues that this is something which we have a look at in more detail. It is not something which at the first ministerial meeting ministers came to me saying that they wanted to focus on, but I am very happy to go back to them and ask them whether it is something that they think should be focused on.

  Q322  Jim Cousins: I am grateful to you for that because, for example, with pension credit, if somebody receiving pension credit receives a legacy from another relative, that can throw their pension credit status into some confusion and, if they give the money away to younger relatives, for example, to help them buy a house or set themselves up in a house, they can be accused of fraud. That is the sort of thing which has to be looked at, is it not?

  Ed Balls: We need to keep these issues under review all the time. There is clearly a balance to be struck between getting the right incentives to save, but also making sure that the system works in what people perceive to be a fair manner. As I said, it has not been put to me as part of the financial inclusion work that there were particular savings restrictions which were damaging our financial inclusion agenda, but, following this discussion, I will go back to the DWP and talk to them in more detail. As you can see, because it has not been part of my work and it has not been put to me as an issue, I am a bit unsighted of it, but I am very happy to have a further look at it.

  Q323  Jim Cousins: Of course I understand that. Similarly, something like 80% of over-60s are owner-occupiers, very often without mortgages, but they do not necessarily have the capital resources to repair or renew the homes that they live in. Is that the sort of issue that will be looked at?

  Ed Balls: I think that that probably goes wider than the scope of the financial inclusion working group.

  Q324  Jim Cousins: Well, the financial products that people might use to release equity in their property to meet that problem are quite sophisticated and risky for low income people to become involved with.

  Ed Balls: Without wanting to stray too far into the detail, I would hazard the opinion that the kinds of products you are talking about are outside the realm of people on low or even middle incomes and, whilst this is an issue I have been concerned about and looked at carefully, it is not really the financially excluded or even the low income households which are getting involved in these products. Now, that does not mean I am not concerned about them indeed, but you have to be of a considerably higher wealth and income in order for it to be in your interests to start accessing some of these equity-release products.

  Q325  Jim Cousins: Absolutely, and that reinforces the point I am making, that we do not have ready financial devices which low income owner-occupiers who are over 60 can use to sensibly release resources to repair and renew the homes they live in.

  Ed Balls: I understand that and I think the truth is that we do not have easy ways of many middle and even higher income households doing that in a way which is value for money for them because the complexity of the risks which you run in trying to make these products work are very substantial and, I have to say, frustratingly substantial. To me, it seems such a simple proposition, as I am sure it does to you, that, for a household to be able to draw down some of their capital in a sensible way in order to release income in retirement, it should make sense, but it is actually a very difficult thing to pull off because the longevity risks are very substantial and it can end up being very poor value for money for households, but it is an important issue.

  Q326  Jim Cousins: The single most significant financial product that somebody will have contact with is the Post Office card account and the single largest loan book for low income people is operated by the Department for Work and Pensions through the so-called "Social" Fund. If ever something was incorrectly named, I think it was that. Now, will these things be part of the work of the ministerial task force on financial inclusion?

  Ed Balls: I think importance of moving forward effectively on the Post Office card account was very much brought home to me the last time I gave evidence to this Committee as part of your inquiry when I seem to remember a detailed exchange and, as a consequence of those consultations and discussions, alongside the £1.7 billion which is going in in the coming years into subsidising the network, we are now in the early stages of tendering for the successor regime to the Post Office card account to make sure that people who want to access benefits through the Post Office will continue to be able to do so. I said to the Committee, and we had a long discussion about this, that, from a financial inclusion point of view, the Post Office card account is not a satisfactory account and it does not have the kind of functionality which we would like, but at the same time we want people to be able to access electronically the Post Office, and 20% of people currently receiving benefits are receiving them through the card account and realistically that number may come down by some, but not all the way to zero and, therefore, we need a successor regime which strengthens the Post Office network and that is what we have done as a result of our discussions. On the particular point about the Social Fund, that is absolutely one of the things which we discussed at our first meeting of the ministerial group and which I am actively talking to the DWP about and to the Minister, James Plaskitt.

  Chairman: Mindful of the detailed discussions you did have, I will hand over to George Mudie.

  Q327  Mr Mudie: This is not a detailed exchange, this is just a very civilised question.

  Ed Balls: As always!

  Q328  Mr Mudie: Andy has told me I have got to behave! In terms of savings relating to the Saving Gateway, we were in Dublin looking at asset schemes and they very proudly explained to us their five-year savings scheme that had been a tremendous success. Have you looked at it?

  Ed Balls: We have looked at that as part of our thinking about the Saving Gateway as the Treasury and it is actually something which has been raised with me by our Irish colleagues in the margins of other meetings, but I am not an expert. I know rather more about the Irish unclaimed asset scheme than I do about the Irish saving scheme. I also know that the Irish have a very substantially more developed credit union sector than we do, but, if you push me too hard, my Irish knowledge may turn out to have gaps.

  Mr Mudie: I am not one to push a minister too hard, Mr Balls, but I seem to recall that, out of a workforce of 1.5 million, 1.2 had signed up for the scheme and, when we were in Dublin, it was the end of the five-year period and the whole of Dublin was talking about how they were going to spend their £8,000, and the taxi driver taking me to the airport was proudly a member of it, so it seems to have been extremely successful. I am not trying to undercut the pound for a pound, but it seemed to work on a pound for every either £4 or £5 invested, but it had been a tremendous success and the interesting thing was that, as it came to a close, the Government were docking on to a scheme to persuade those without pensions to actually do something in terms of pension entitlement.

  Q329  Chairman: With a population of over four million, 25% had this saving scheme and it released about 15 billion euros. Maybe one advantage, Minister, for the Government in the Republic of Ireland is that it released it two or three months just before the general election, but I am not suggesting you follow that!

  Ed Balls: It is certainly the case that, as you said, the objective was much wider than financial inclusion and it was more akin to a hybrid of the ISA and the TESSA, to be honest. It was partly to encourage savings and it was actually, if I remember, also because at that particular point in time the Irish Government wanted to suck excess liquidity out of the financial system and they could not do that through a rise in interest rates because they were members of the euro and, therefore, this was a sort of fiscal way of proxying a tightening of credit conditions, but by encouraging people to save. That is probably a good example of a rise in savings rather than a bad example, but it had a range of different objectives. Whether it was value for money, I do not know the answer to that, but it sounds like it was popular.

  Mr Mudie: The interesting thing though, or one interesting thing, and again I am not trying to cut across Angela because I would rather you gave the pound for pound, but that was something like 25 pence per pound and it was amazingly successful.

  Q330  Chairman: Minister, as a last question, you have commissioned Otto Thoresen to look at the issue of generic financial advice and have offered a discussion with him on this issue. It is a complex issue, but do you feel that the Thoresen review could help potential consumers decide between informal savings products and regulated financial products?

  Ed Balls: Indirectly, yes is the answer. The challenge for Otto Thoresen is to find a way in which generic advice can be given which does not require that advice to be regulated, so exactly how the protocols work which allow advice to be given about whether to go into the regulated or unregulated advice sector without requiring that advice to be regulated, that is a challenge for him. I say this to the Committee because I have been very clear to him and in public as well and I hesitate to go down this road because Mr Fallon might start to get interested simply by the mention of the word "Olympics", but my message to Otto Thoresen, if you will forgive the analogy, is that we were not asking him to bid for the Olympics, we were asking him to draw up the Olympics delivery plan and we are not simply asking him to look, in principle, at whether a generic advice service would be a good idea, we are asking him to draw up what in practice we need to do in order to make it work, which includes precisely answering in detail the kind of question that you have raised.

  Q331  Chairman: Do you see voluntary organisations, for example, and Citizens' Advice Bureaux having a role in this generic financial advice in terms of a specific location?

  Ed Balls: Clearly, and they do massively at the moment. I think the Citizens' Advice Bureaux have trained over 400 money advisers just in the last year and a half alone as a result of the Financial Inclusion Fund, so they will give, and will continue to do so, face-to-face, local advice which, as I was saying, is particularly for low income consumers and particularly important for people getting into distress. One of the things we would like with unclaimed assets is to further encourage the growth of that kind of face-to-face advice. I think in the case of the Thoresen review, there is an extra thing he is looking at though as well which is for people, the low and middle income savers, whether there is a case, and we believe there is a case, for a first port of call, nationally branded, probably a telephone and Internet in the main advice service which can then help to route you in the right directions, give you some basic information, allow you to understand choices, take you down different routes, including that interface face to face. It has never been the Thoresen national advice service versus face-to-face CAB, they are both parts of the picture, but I think there is a case for something which is additional to the local networks we have at the moment and want to expand.

  Q332  Chairman: Minister, can I thank you for your appearance this morning and also for the seriousness with which the Government is taking our financial inclusion reports and I think there have been strides in that particular area and I look forward to that continuing. Thank you very much.

  Ed Balls: Thank you for having me.

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