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The Economic Secretary to the Treasury (Kitty Ussher): It is a privilege to serve under your chairmanship, Mr. Bercow. It would be even more of a privilege if you were also a Labour member of the Speakers Panel, but we have not yet given up hope. [Interruption.] I note that you shake your head.
I congratulate the Treasury Committee on the volume and helpfulness of the work that it has been doing in this area over the years. The Committee has been shining a bright spotlight on us and this policy area. I say sincerely, as a Minister, that its work is useful and I hope that it will guide us towards making the right decisions in due course.
I congratulate my hon. Friend the Member for Leeds, East (Mr. Mudie) on his contribution in opening this debate, particularly for filling at short notice the big shoes of my right hon. Friend the Member for West Dunbartonshire (John McFall), who has played a significant role in leading the Committee and has led in this policy area. I put on the record my thanks to him for contacting my office to explain why he is not here today, for reasons that I understand. I do not know that he should have a reward in having the network of free ATMs named after him as a result of his sterling work, but I shall always bear that in mind when I use a free ATM in my constituency.
My hon. Friend the Member for Leeds, East ended his remarks by urging that financial inclusion should be at the heart of our work at the Treasury and, certainly, in my work as Economic Secretary. I should like to start where he left off by saying that that is absolutely at the heart of my work. It is an important area and there is more that we can do. I hope that we will be able to demonstrate that in the weeks and months that follow.
This has been a useful debate. Many hon. Members have raised similar issues, so I shall address some of the main ones that have emerged during the last couple of hours, starting, as my hon. Friend suggested I should, with financial inclusion. In the comprehensive spending review a couple of weeks ago it was announced that the financial inclusion fund would be raised to £130 million in the next spending period. We have not yet decided exactly how that should be spent, but we will decide in the next few weeks and we are committed to publishing the financial inclusion action plan by the end of this year. I can say that it will have at least two important
components. The first will be the continuation of the growth fund for credit unions and the second will be a continuation of the programme providing debt advice throughout the country, including the important work carried out through citizens advice bureaux. I share the view of the hon. Member for South-East Cornwall (Mr. Breed), who said that he would not be able effectively to perform his advice surgeries without the back-up of the citizens advice bureaux, which do fantastic work.
In response to the question about how often the financial inclusion ministerial working group has met, there has been one full meeting since I became Economic Secretary about four months ago. We have also discussed issues by correspondence during that time, and I expect another meeting shortly.
On financial inclusion and the un-banked, as many Members know, we have with the banking sector a shared target of halving the number of un-banked people. We are already 60 per cent. of the way towards meeting that shared target. We are encouraged by that and believe that further progress can be made without the need for legislation. Indeed, a mystery shopping exercise by the Banking Code Standards Board recently showed that banks are making progress in reducing the very real barriers that have existed, so we are confident that we will be able to make further progress in the months and years ahead. We do not see the need for a dramatic change in policy at this stage.
My hon. Friend the Member for Edmonton (Mr. Love) mentioned the social fund, which is administered in conjunction with my colleagues at the Department for Work and Pensions. We completely accept that social fund budgeting loans play an important part in providing affordable credit to the most vulnerable people in society, which is why in April 2006 we provided a further £210 million for the scheme, alongside an important reform package to help make it simpler and more accessible. I am perfectly aware that there is a debate about whether further reform is required, and I am happy to discuss with Committee members and others whether it would be appropriate in the context of the Governments financial inclusion plans generally.
I turn to general policies on savings and assets. I agree with my hon. Friend the Member for Leeds, East and others about the importance of promoting safe savings, and various savings gateway pilots were mentioned. It was essential to pilot different ways of working. I welcome the Committees emphasis on that policy, which is helping us to come to the right conclusions. The savings gateway pilots have explored the idea of incentivising people on lower incomes to save by matching saving with a Government contribution, and I agree with the comments that we should focus our efforts on people on lower rather than middle incomes so far as that policy is concerned. The results have been positive, and the pilots have shown that matching works as a targeted incentive for people on low incomes to save, that it kick-starts a savings habit, with people choosing to continue to save even after their savings gateway accounts have closed, and that such an approach can help to tackle financial exclusion by bringing people into contact with financial institutions for the first time. Ideally, having obtained the savings habit, people should move into more mainstream saving products, and there is evidence that that is a realistic prospect.
For those reasons, last month we announced that we are conducting feasibility work to enable the national roll-out of a savings gateway and assessing how it could operate in practice. Further announcements have spending implications, so it is appropriate that they should be made in the Budget, but that is only a few months away, so I encourage Committee members to be a little more patient.
I agree with all the comments about credit unions. They play a crucial role in encouraging not only access to affordable credit, but the savings habit within communities. I accept what some Opposition Members have said about the importance of offering standard financial lending products in a community. Personally, I would much rather an individual borrowed through a credit union at an affordable rate than through the admittedly regulated alternative doorstep-lending sector. That is why there is a social imperative, if no other, to enable credit unions to expand.
When I visited a credit union in east Manchester a couple of weeks ago, I announced that we could do some things without legislation. For example, the FSA has the power to reform the common bond, and we are also trying to ensure that credit unions, along with other parts of the co-operative sector, can undertake electronic transactions, which should reduce their operating expenses. We are also considering the responses to a consultation document about the future of the co-operative and credit union sector. We will make our deliberations known before the Christmas recess, and we are considering the need for legislation as a part of that. Rather obviously, legislation will not be included in this Session because, unfortunately, it was not included in the Queens Speech, and we do not know what we are going to do or how and when we are going to do it. However, we are considering what is required and whether it will require legislation. Again, I ask for a few weeks patience, then all will become clear.
My hon. Friend the Member for Edmonton asked whether community investment tax relief needed to be extended to enable banks to invest more in communities and credit unions. The honest truth is that we have considered it and we are not totally convinced that it is the best way to support the sector. However, I am happy to engage in further dialogue, and if more information becomes available we can revisit the matter, if appropriate.
We have had a few comments about the savings ratio, and it is honestly my view that there is a sense of consumer confidence, which means that people are not undertaking precautionary saving throughout the macro-economy. At lower income levels, the best way to avoid financial distress is to save for that eventuality, and we heard that everyone should have a months salary stashed away, but if we consider the macro-economic indicator, in recent years the household savings ratio has been at about 1960s levels. Since 1997 the ratio has been lower than it was in the early 1990s, but it was inflated during that time as households retrenched and saved for precautionary reasons; they believed that unemployment was more likely.
Mr. Hoban: In the pre-Budget report, the Treasury suggested that the savings ratio for this year, 2007, is only 3.5 per cent. Is the Economic Secretary saying that she is entirely happy with that number?
Kitty Ussher: I am not unhappy with that numberlet me put it like that. That is my view. We have a stable economy, people feel that there is no need to tuck all their money away, they are confident and they are spending. Overall net wealth has risen hugely and total household assets are now worth £7.5 trillion. It has increased by more than 70 per cent. in real terms since 1997.
Several Members mentioned Farepak, and particularly the consumer awareness campaign that the Office of Fair Trading has been given funds to undertake. It was launched this summer and very much aimed at affecting decisions in the run-up to this Christmas. It aims to give consumers an informed choice about where they save their money for Christmas. We have launched the campaign through the media in Scotland, Northern Ireland, and north-east and north-west England, with Wales and the midlands to come. There will be a national advertising campaign highlighting the issue through the media in the coming months. The sessions are under way and I am told that the results are encouraging, so in response to the question about whether the campaign has started, it absolutely has.
On the wider response to the Farepak issue, we are pleased that the new trade body, the Christmas Pre-payments Association, is monitoring the initiative of companies in improving security for consumers money, which is held in trust accounts under the control of individual trustees. The Companies Act 1985 investigation is expected to be completed by the end of this year. Depending on the findings, it could lead to prosecution or disqualification, or indeed both. However, we do not know, because the work has not concluded, and often it is not published. However, appropriate action is always taken as a result of such work. Once we have the outcome of the Companies Act investigation, we will consider whether further regulation is needed.
On financial capability and education, I too have seen the benefit of an IFS course on financial literacy in my constituency. I have listened to 15 and 16-year-olds at Burnley college explaining with great maturity how they would decide what type of credit card to have, if any, and how they would make various judgments about what savings and pension schemes they would put their investments into. I found listening to them an empowering and liberating experience, and I commend the IFS for its work and the Personal Finance Education Group, which has a huge impact up and down the country.
My colleague the Secretary of State for Children, Schools and Families recently made an announcement about entrenching financial education in the curriculum. Some £11.5 million has been earmarked for that. It is exciting that the first cohort of children with child trust funds are now entering the school system, because that provides a peg on which to hang the discussion of financial issues. They may not be able to go into what an APR is at the age of seven but, as they migrate through the school system, having their own child trust fund will help them to understand the real choices that they will face, regardless of gender, background or anything else.
Julia Goldsworthy: The Ministers predecessor made a great deal of the fact that seven-year-olds would be standing in the playground talking about the relative benefits that their parents investments in their child trust funds had brought. Perhaps her predecessor might have done that, but does she really think that seven-year-olds will be doing it?
Kitty Ussher: No, of course I do not, but I visited a primary school in a deprived part of north London with my predecessor and we saw the innovative curriculum that teachers had developed to start to teach basic awareness of financial literacy. Yes, at that age it is just about counting up money, how much an omelette costs and so on, but I could see that children of all ability streams were able to engage with it. When translated across the board and at all levels, such imagination will make a real difference.
We need to do more to encourage additional top-up contributions to child trust funds, but we are definitely making progress. Members of Parliament can make a difference through how they talk about the matter in their constituencies, and every single child will have a trust fund opened for them. It is certainly not the case that some will and some will not. The challenge is to ensure that, as early as possible, family members and friends engage with the process so that the asset can be as high as possible. Small contributions made at an early stage can have a huge effect when a child reaches 16 or 18.
The Committee is well aware that we commissioned Otto Thoresen to provide advice to the Government on the prospect and implementation of a generic financial advice service. I do not have answers to the specific questions that have been asked, because we are still waiting for the final version of that report, which will be received in the spring. We hope to incorporate our response to it in the financial capability action plan, which a separate cross-governmental ministerial group is currently putting together. I was asked about funding. We have always said that any generic financial advice service should be jointly funded by Government and industry. We do not yet know how or by how much, because we have not yet had the final report. We hope to have the answers for the Budget timetable because, again, there are spending implications.
On post offices, I am conscious that I may need to bid to be a Minister in another Department to answer
in great detail. I congratulate the hon. Member for Ludlow (Mr. Dunne) on becoming secretary of the all-party group on post offices. He made some important points on the rural economy and I share his view. All that can be said at the moment is that the current Post Office card account contract does not end until March 2010, and we have decided that there will be a new service after that. It will be available nationally and customers will receive a set of services similar to those currently provided. We must tender competitively for it, and Members will have seen the Official Journal of the European Union notice that was placed a while back, a copy of which is in the Library.
It is important to say that existing customers do not need to take any action at the moment. They can continue to be paid, and new Post Office card accounts can still be opened. The contract has not yet been awarded, and I take on board all the points that have been made about the functionality that it should have. That matter is currently part of the negotiations with the various potential consortiums that have tendered, so I am not in a position at this stage to say what the precise arrangements will be. We hope to announce the conclusion of the procurement process in the summer of 2008, so I need to appeal again for a little patience.
Mr. Love: I assume that Ministers are well aware of both the sensitivity of the client group of the Post Office card account and their worries about what is coming. May I make a plea to her and her colleagues in other Departments that, at the earliest possible opportunity, time be taken to explain what is coming and consult on it? Otherwise, we will further exclude a group that is already partially excluded.
Kitty Ussher: I am grateful for that contribution, and I certainly agree with my hon. Friend. We are currently in contractual negotiations, which will come to a conclusion shortly. That will leave a huge amount of time to explain things and make transitional arrangements in so far as they are required. I do not even know at this stage what major differences there will be, but I thank my hon. Friend for his advice and contribution.
The Government are absolutely committed to ensuring that financial inclusion concerns are at the heart of our policy and our policy making process. We want to make it easier for people to manage their money more effectively, plan for the future and deal with financial difficulties as they arise, and we completely accept that the best way to deal with financial difficulties is to have some savings tucked away. It is an exciting time for those of us involved in this area of policy. A number of decisions will be made imminently, in the next few weeks and months, so the debate is timely. I am grateful to the Committee for the work that it has put into the matter, and I look forward to its continuing advice and scrutiny in the weeks and months ahead.