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Session 2008 - 09
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The Committee consisted of the following Members:

Chairman: David Taylor
Abbott, Ms Diane (Hackney, North and Stoke Newington) (Lab)
Barlow, Ms Celia (Hove) (Lab)
Brown, Lyn (West Ham) (Lab)
Browne, Mr. Jeremy (Taunton) (LD)
Cable, Dr. Vincent (Twickenham) (LD)
Campbell, Mr. Ronnie (Blyth Valley) (Lab)
Duddridge, James (Rochford and Southend, East) (Con)
Gummer, Mr. John (Suffolk, Coastal) (Con)
Hill, Keith (Streatham) (Lab)
Hoban, Mr. Mark (Fareham) (Con)
Howell, John (Henley) (Con)
McCarthy-Fry, Sarah (Exchequer Secretary to the Treasury)
Shepherd, Mr. Richard (Aldridge-Brownhills) (Con)
Soulsby, Sir Peter (Leicester, South) (Lab)
Southworth, Helen (Warrington, South) (Lab)
Stuart, Ms Gisela (Birmingham, Edgbaston) (Lab)
Mark Oxborough, Committee Clerk
† attended the Committee

Sixth Delegated Legislation Committee

Tuesday 3 November 2009

[Mr. David Taylor in the Chair]

Draft Saving Gateway Accounts Regulations 2009
4.30 pm
The Exchequer Secretary to the Treasury (Sarah McCarthy-Fry): I beg to move,
That the Committee has considered the draft Saving Gateway Accounts Regulations 2009.
The Chairman: With this it will be convenient to discuss the draft Saving Gateway Accounts (No. 2) Regulations 2009.
Sarah McCarthy-Fry: Thank you very much, Mr. Taylor; it is a pleasure to serve under your chairmanship this afternoon. I am very pleased to open the debate on two linked sets of regulations relating to the saving gateway. The Saving Gateway Accounts Regulations 2009, which set out the main requirements, features and processes for saving gateway accounts, and the Saving Gateway Accounts (No. 2) Regulations 2009 concern the tax treatment of these accounts. Alongside the Saving Gateway Accounts Act 2009, which received Royal Assent earlier this year, these regulations will allow for the establishment of the national saving gateway scheme next year.
We intend that the saving gateway will be a two-year cash saving account aimed at working-age people with lower incomes. That group has tended to have lower savings and to suffer from higher levels of financial exclusion than other parts of the population. They also benefit less from existing incentives to save that rely on tax relief, such as individual savings accounts.
The saving gateway will provide eligible people with a new incentive to save, in the form of a Government contribution that will be paid at the rate of 50p for each £1 saved. We estimate that about 8 million people will be eligible to open a saving gateway account. The objectives of the saving gateway are to kick-start a saving habit and to promote financial inclusion among our target group, which, as I have said, is made up of working-age people with lower incomes. During the passage of the 2009 Act, there was support from all parts of the House for those objectives, as well as recognition of the potential for the saving gateway to achieve them.
I turn first to the Saving Gateway Accounts Regulations 2009. These are the principal regulations for the saving gateway, in that they set out some of the major account rules and features. They also detail processes and requirements for account providers and account holders, as well as for Her Majesty’s Revenue and Customs, which will administer the scheme. The regulations cover the approval of financial institutions to offer accounts and they set out rules and requirements for all stages of the saving gateway, from HMRC advising a person that they are eligible to apply for an account, through account opening and operation, to the crediting of a maturity payment at the end of the account.
One of the areas covered in these regulations is eligibility. The 2009 Act provides that eligibility will be “passported” from an entitlement to certain benefits and tax credits. These regulations provide additional eligibility conditions, which are designed to secure effective targeting of the scheme. Such conditions include, at regulation 3, an income threshold and other requirements that must be met before a person can be eligible through an entitlement to tax credits; and a requirement, at regulation 4, that a person must be ordinarily resident in the UK to open an account.
Applying an income threshold for tax benefit recipients allows the saving gateway to be better targeted at people with lower incomes than would be the case if all tax credit recipients were to be eligible automatically. We propose to align that annual income threshold with the one for child tax credit, which is currently £16,040. The condition that a person must be ordinarily resident in the UK to open an account would, in broad terms, restrict the scheme to people who live or work in the UK. Again, we believe that that requirement will contribute to effective targeting of the saving gateway.
These regulations also provide that each eligible person will be able to have only one saving gateway account during their lifetime, reflecting the fact that the scheme is designed as a kick-start to saving rather than as an ongoing incentive.
These regulations also set out some of the main features that we are proposing for saving gateway accounts. Under regulation 7, a saving gateway account will last for 24 months. We believe that that will allow account holders time to develop a saving habit and to build up a decent maturity payment, while also ensuring that that maturity payment can be accessed within a reasonable period of time. Under regulation 11, the monthly deposit limit for saving gateway accounts will be £25. Our saving gateway pilot showed that lower-income savers found that an affordable amount to save, and that £25 could be a realistic saving target for many.
Regulation 9 sets the match rate—that is, the amount that the Government will pay for each £1 saved in the account—at 50p. We tried a variety of match rates during the second pilot, which demonstrated that the rate does not have to be as high as £1 to work as an effective incentive to save. We believe that a rate of 50p for every £1 will secure value for money for the Exchequer while providing a strong incentive to savers.
Under the regulations, account holders will be able to save up to £600 in their accounts over two years and earn a contribution of up to £300 from the Government. The contribution will be paid to them within 21 days of their account maturing. The regulations also provide detailed rules about the account-opening process, make provision for the issue of six-monthly account statements to savers and require that account holders be able to access their savings.
Although the regulations set down some features that must be uniform for all saving gateway accounts, such as account duration, maximum deposits and access to savings, they also allow scope for account providers to develop and offer their own account terms and conditions in other areas. We are in detailed discussions with a range of potential account providers and anticipate that accounts will be available from banks, building societies and credit unions, as well as through the Post Office.
We want to secure a wide range of suitable providers and believe that it is important that the scheme rules and requirements are not prohibitive for them. We have therefore discussed the rules and requirements carefully with potential account providers and have modified a number of our earlier proposals: for example, in relation to the payment of interest on accounts and the availability of account transfers. In such cases, we accept that it is right to give account providers flexibility and believe that that should help secure a wider provision of accounts, therefore increasing the choice available to eligible people.
I assure hon. Members that the requirements on account providers set out in the regulations, including in relation to record keeping and the electronic submission of a monthly return to Her Majesty’s Revenue and Customs, go no further than we believe necessary for the effective operation and assurance of the saving gateway.
Mr. Mark Hoban (Fareham) (Con): Does the Minister believe that credit unions will be able to comply with the submission of monthly electronic returns?
Sarah McCarthy-Fry: We believe that the majority of the institutions that I have mentioned, including credit unions, will be able to comply. The larger ones will certainly have no difficulty in complying, and I would hope that the smaller ones will be able to as well.
Mr. Hoban: I am grateful for that response, but the Minister said “the majority”. What proportion of those with which the Government have had conversations could not comply, and what would be the consequences if they could not submit a return electronically?
Sarah McCarthy-Fry: The requirement is that we expect them to submit their returns electronically. Under the regulations as proposed, such institutions would not be able to offer saving gateway accounts. We are still in consultation with all the providers that we are using. They could, of course, use a third party to make an electronic return if they wished. The same applies to HMRC’s information audit and recovery powers as proposed in the regulations, which have been modelled where appropriate on powers already in operation for other schemes such as the child trust fund.
On taxation, there has been general agreement from all parties that saving gateway accounts and maturity payments earned on account should not be subject to tax. That will allow savers the full benefit of their savings and should simplify accounts for savers and providers. The draft Saving Gateway Accounts (No. 2) Regulations 2009 provide for that tax exemption and set out a number of supplementary provisions that apply when tax relief is claimed incorrectly.
We propose to announce an exact start date for the saving gateway and details of approved account providers in due course, but I can confirm that we are confident that there will be sufficient account providers to support a national scheme and enable people to have a choice about where they open an account. The detailed rules set out in the regulations reflect our learning from two separate saving gateway pilots, last year’s detailed consultation and our further and ongoing discussions with a range of groups representing potential account providers and account holders.
I thank the many groups and individuals who have given their views on our proposals, including hon. Members who participated in debates during the passage of the Act. We believe that they have contributed to the design of a scheme that will be attractive to potential account providers and savers as well as consistent with the objectives that we have set. I am pleased to say that, to date, the saving gateway has had widespread support in the House, and I hope that that support will continue today in the Committee.
4.40 pm
Mr. Hoban: It is a pleasure to serve again under your chairmanship, Mr. Taylor.
We welcome the regulations. I shall not rehearse the arguments that we had during the passage through the House of the Saving Gateway Accounts Act 2009, because it was enabling legislation. We discussed many of the issues set out in these regulations when debating that legislation—things such as matching rates and maturity periods. Questions that one might have raised this afternoon were dealt with at some length during the Committee stage, and I do not propose to go over that ground again.
I was surprised that in her opening remarks the Minister did not refer to the fact that the original draft regulations were withdrawn. They were laid before the House on 7 July 2009, and we expected to debate them prior to the summer recess. Will the Minister explain why they were withdrawn and replaced by the ones before us today?
The Minister was confident that a national saving gateway account programme would be rolled out next year, but she did not give much detail about it or much comfort that it would actually happen. Will she be a little more specific about which institutions have signed up to the scheme? Credit unions have limited geographical coverage. Will there be national providers to ensure that wherever one is, one can gain access to a saving gateway account? The Minister referred to the Post Office. At the public evidence sittings, Post Office representatives were most positive that it would be interested in providing saving gateway accounts. As I recollect, that was to be done in conjunction with another provider.
How firm are those commitments, or are they just aspirations with no solid signed-up providers? That would be dreadful; we would have worked on a consensual basis to introduce the legislation for the scheme, but there would be no providers. It would help if the Minister were to put a little more meat on the bones about the state of the discussions that she and her officials are having with the banks, the credit unions, the building societies and the Post Office. That might give us some comfort that our labours had not been in vain.
4.43 pm
Mr. Jeremy Browne (Taunton) (LD): This is a welcome opportunity for me to serve under your chairmanship, Mr. Taylor.
Along with the hon. Member for Fareham and others, I served on the Committee that considered the legislation that became the Saving Gateway Accounts Act 2009. We are familiar with the details. Like the Conservative party, the Liberal Democrats support the objective, which is to encourage people on low incomes to save because it provides them with an element of security and gives them a greater stake in the society in which they live.
The objectives of the 2009 Act are noble, but I have two lines of inquiry for the Minister. First, I have always been uncomfortable with the degree to which the Act was only framework legislation; the hon. Gentleman alluded to it being a skeleton. When the Act first came before the House, it contained 29 delegated powers in only 32 clauses.
What was left out of the legislation that we were invited to support was as significant—arguably more so—than what was in it. We have to sit in Committees such as today’s because the legislation did not include details about a person’s eligibility, the amount that they could save each month, the length of the scheme, the maturity payment, interest payments and the time frame in which payments had to be made to account holders. All that was left out of the original legislation. That is an unsatisfactory precedent; it means that Parliament is invited to take much of the detail on trust. Now the fundamental meat of the proposals is being put on the skeleton and we can get a better sense of what is proposed, but even so—I very much agree with the hon. Member for Fareham about this—there is a worrying lack of detail.
Let me deal with the time scale. The Government initially produced two consultations on a possible scheme in 2001—I think that that might have been a Labour manifesto commitment that year—and there were two pilot schemes between 2002 and 2005. We are talking about a fairly straightforward initiative that does not require huge amounts of public spending, but it will have taken about nine years from its original inception to the point at which it might benefit some of our constituents. Even now, it is unclear quite what the time scales are. There is no commencement order for the Act, even though it received Royal Assent on 2 July—four months ago. The explanatory memorandum states that a commencement order will be made
“when the precise starting date for Saving Gateway Accounts is known”
and the Minister said today that that would be in due course. Again, that sounds rather vague.
The Chairman: Order. I regret having to interrupt the hon. Gentleman, but I would be grateful if he returned to the detail of the regulations, rather than the background information, which he has spelled out in quite some detail.
Mr. Browne: Thank you, Mr. Taylor. I am sorry; I had not intended to stray off course, so let me get straight to the nub of the matter. Will the Minister tell us the date at which my constituents and others will be able to open a saving gateway account? I have not heard a date from her and I think that that is an entirely relevant question. Will she say what organisations or institutions will supply the accounts for my constituents and others? Yet again, that appears to have been deferred.
When we were in Committee discussing the matter, we asked whether post offices or credit unions could provide the accounts, which banks were interested, whether building societies were interested and whether mutual building societies would be treated in different ways. To all that we were told, “Oh, this is all to come down the track. Put the vote through and, as an act of faith, pass the legislation. We’ll fill in all the details afterwards, once we have got the legislation through Parliament.” Well, we have got the legislation through Parliament, and we are sitting in Committee now. Months have passed since Royal Assent and we still do not know when it will start. We still do not know who will provide the accounts.
We do at least now have the information that the Government contribution will be 50p, which is what we were always told it would be in any case. However, there is a serious point, which is that our constituents send us to this place to try to find out what provisions will be made for them. We are still unclear on that point. I hope that the Minister will realise that there is cross-party enthusiasm for the general ideas behind the legislation, but it remains very unsatisfactory to leave so much detail unresolved this far down the line.
4.48 pm
Sarah McCarthy-Fry: I thank both hon. Gentlemen who contributed to the debate this afternoon. I am glad that both accepted that there was widespread support for the saving gateway during the passage of the Act. I shall now try to respond to some of the specific points.
The hon. Member for Fareham mentioned that these were amended regulations and that that was as a result of concerns raised by the Joint Committee on Statutory Instruments. There have been two changes since the draft. The regulations do not now contain any provisions in relation to the validity period or expiry date of a notice of eligibility. Those were in the original regulations, but the Joint Committee felt that that should be under HMRC’s management powers.
Furthermore, the new regulations specify that the money laundering legislation to which an account provider should have regard when considering an application for an account is the Money Laundering Regulations 2007. However, there have been no changes to the details of saving gateway eligibility or to any account features or processes.
The hon. Member for Taunton made several remarks about the length of time that had elapsed since the original consultation. We used the time between the original consultation on the principle of the saving gateway and the introduction of the Bill to pilot different saving gateway models and account features, evaluate the pilots in detail, develop and consult on a national scheme and then review earlier proposals in the light of consultation responses. Given that commercial organisations will be the providers, it is important that they have had the opportunity to shape the detailed regulations.
More than 100 representatives of credit unions have signed up to attend an HMRC event on the saving gateway next week. We shall, of course, announce the names of account providers, but we do not want to do so without their agreement, and they would rather complete further work on account design before we announce who they are.
Mr. Hoban: Before the Minister moves on, may I ask whether anyone has agreed in principle to provide the accounts? Secondly, she did not mention the Post Office.
Sarah McCarthy-Fry: I have not got to the Post Office yet. We also announced that saving gateway accounts will be available through the Post Office, and I think that it was mentioned in Treasury questions this afternoon that the Post Office has 11,500 branches throughout the country.
Mr. Hoban: You did not say that.
Sarah McCarthy-Fry: Did I not say that? I intended to say it in an answer, but perhaps I did not get to it.
The advantage of co-locating credit unions with post offices was also pointed out. All that I am prepared to say at this stage is that we are at the advanced stage of detailed discussions with account providers.
Mr. Browne: If the banks drag their feet and are not willing to offer the accounts, will the Minister require the wholly or partly nationalised banks to offer the service because of its desirable social function, even if those banks regard it as not particularly in their commercial interest to do so?
Sarah McCarthy-Fry: I can tell both hon. Gentlemen that there are institutions that have agreed in principle, but I cannot give details yet. As I said, the providers want to complete their work on the design before the announcement is made. Of course, it has been said from the beginning that the Post Office wants to be part of the scheme, and its network is important.
The regulations will allow for the establishment of the scheme next year. I think that it will give up to 8 million people on lower incomes a strong, easily understandable and targeted incentive to save. Those people have lower levels of savings than the rest of the population, and much lower levels of financial inclusion. We think that the saving gateway can achieve its aims of kick-starting a saving habit and promoting financial inclusion.
Question put and agreed to.

Draft Saving Gateway Accounts (No. 2) Regulations 2009

Resolved,
That the Committee has considered the draft Saving Gateway Accounts (No. 2) Regulations 2009.—(Sarah McCarthy-Fry.)
4.54 pm
Committee rose.
 
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