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Yvette Cooper:
Our approach is that the Government will match people’s savings with an additional 50p for every pound saved, up to a certain monthly amount of about £25. Over time, people will be able to get a lot of support from the Government in response to the savings that they have put in. In addition— [Interruption.] Hon. Members are asking how that Government support
would translate into an annual interest rate. Account providers may provide additional interest, but that will be a matter for the account holders. I urge those concerned to provide that interest, but the Government’s matched contribution will match the contribution of the saver rather than the interest added by the account provider.
David Taylor (North-West Leicestershire) (Lab/Co-op): My right hon. Friend has been generous in giving way so early in her speech. On the basis of the figures she has given, she is making a very clear case that the Bill is a desirable and significant measure. It is certainly a simple measure, but is she happy that the eligibility criteria are wide enough? The Treasury impact assessment suggested that £130 million in the accounts would be doubled up by the Government to £260 million over a two-year period. That £130 million a year represents about one five-hundredth of the additional retail banking deposits in 2007, for instance. If the scheme is to be commercially viable, should not the criteria be widened beyond the groups that she has described?
Yvette Cooper: We believe that 8 million households will be eligible to set up a saving gateway account. The Bill provides for that eligibility to be widened, narrowed or otherwise changed in accordance with circumstances, but we think it right to begin by making the accounts available to the 8 million people who are on the lowest incomes who need and could depend on such support. Some of the pilots set up to examine different ways of widening eligibility found that those on higher incomes were more likely simply to recycle existing savings into the accounts. The purpose of this programme is to help those without savings to start saving for the first time, and to give them additional support and incentives.
We have wider programmes that support savings more generally. For example, 18 million people—one in three adults—have individual savings accounts, which provide tax-free savings. More than 4 million children have child trust funds, which the Government introduced to encourage and help families to build up assets for the youngest in our society as they grow, and to provide for their future. However, we believe that there is a case for a new incentive for people on lower incomes in addition to those schemes, and that is what the saving gateway is designed to provide.
John Penrose (Weston-super-Mare) (Con): The Chief Secretary is being very generous in giving way. May I pick up her point about eligibility and breadth? Have the Government any views or information on the persistence of the change in behaviour that they are trying to create? In other words, if they can create a saving culture among low-paid workers, how long will their assistance need to continue before that culture is ingrained and state interference—or state help—becomes unnecessary?
Yvette Cooper:
One of the purposes of our pilots was to explore such issues. We concluded that people should be given help with the savings that they made each month for two years, and that at the end of that period they should be able to decide what they wanted to do with the sum, but an account would be available for it. The evidence from the pilots suggested that people continued to save after the expiry of the two-year period, but obviously people will make different decisions.
Some people will decide that they have saved the money for a purpose, in order to buy or do something.
It is right for people to be able to make such decisions themselves, but we believe that the pilots had a significant impact. Those involved in them spoke very positively about the effects. One participant said:
“We now realise the importance of saving for a rainy day or emergency...It’s definitely made a difference.”
A participant in the second pilot said:
“They gave you that push forwards, they gave you that step forward that a lot of people find hard to take into saving. Once that happened, it was easier to carry on from there.”
The outcome of the pilots, between them, was that people saved more than £15 million and earned more than £5 million in Government contributions. People did save more. In the first pilot, which involved a higher matching rate, the number of people saving regularly quadrupled, and the amount being saved each month doubled.
Mr. Gordon Prentice (Pendle) (Lab): Can my right hon. Friend extrapolate from the figures that emerged from the pilots how many of the 8 million eligible people would open a gateway account, and what percentage would move to mainstream financial organisations after two years?
Yvette Cooper: It is difficult to provide precise predictions about what the long-term consequences will be. We think that the results from the pilot were significantly strong, however, to justify introducing the scheme on a national basis. After the first pilot, 41 per cent. of the participants were still saving regularly three months after the first pilot finished, compared with only 16 per cent. who had done any saving before the pilot started. About 88 per cent. of those in the first pilot indicated an intention to continue saving. That was a significant response, but we should be clear that people will make their own decisions and will have different requirements and different needs that they need to fulfil with the money. We think that it is right to provide that support.
The aim of the scheme is not simply to support savings, but in many cases to encourage people to use mainstream financial services, often for the first time, to set up bank accounts. The Post Office, for example, has said that it will run a saving gateway account. People will be able to access mainstream financial advice and support and so on, too.
Mr. Andrew Love (Edmonton) (Lab/Co-op) rose—
Mr. Adrian Bailey (West Bromwich, West) (Lab/Co-op) rose—
Yvette Cooper: I shall give way to my hon. Friend the Member for Edmonton (Mr. Love) first, and I shall then give way again.
Mr. Love:
I congratulate my right hon. Friend on introducing the Bill, which encapsulates the flexibility that she has talked about in how the accounts operate, and on the incentives built into the scheme to get people to save. Of course, one of the things that we have learned from the child trust fund experience is the difficulty of reaching the most difficult-to-serve group in the country. It will be extremely difficult to reach those 9 million people with the benefits that this saving
can allow them to achieve. What efforts will my right hon. Friend make to ensure that the messages about the account are put across to that group?
Yvette Cooper: My hon. Friend makes an important point. To make the scheme as simple as possible to operate, people will be passported across from existing qualifying benefits and tax credits. They will not need to fill in a means-testing form, to complete a means test or to demonstrate in any way that they are eligible. They will not need to contact the Government. They will receive a notice of eligibility automatically from Her Majesty’s Revenue and Customs, which will be operating the scheme. The gateway accounts will be offered by a wide range of providers. We have discussed the scheme with a wide range of institutions, and as I said, I am pleased that the Post Office will be making the accounts available through its branches. The chief executive of the British Bankers Association has said:
“Britain’s banks are committed to helping this vital initiative to work”.
My hon. Friend is right that we will have to keep the subject under review and that some people will need more support than others.
We see the scheme as part of the wider programme of investment in financial inclusion more generally. We have provided support through more than £100 million that has been put into support for people through credit unions, advice services and debt services over the past few years. We have put in additional money as part of the pre-Budget report in order to help people to deal with the often difficult circumstances that they might face as a result of the global credit crunch. On all such occasions in future, we would want people to receive advice on whether they might be eligible for the saving gateway and on how they might be able to use it.
In the context of the wider work that we are taking forward around the Thoresen review, which was about providing people with generic, free advice about how to manage their money not just when they reach financial difficulties or crisis but in planning for the future, the savings gateway might be exactly the right thing for many people who are asking for that more general financial advice. We need to ensure that those schemes work together as well as possible.
Mr. Bailey: Will my right hon. Friend give way?
Sammy Wilson (East Antrim) (DUP): Will the Chief Secretary give way?
Yvette Cooper: I said that I would give way to my hon. Friend the Member for West Bromwich, West (Mr. Bailey). After that, I shall give way to the hon. Member for East Antrim (Sammy Wilson), but then I shall make some progress, as I am conscious that other hon. Members want to speak.
Mr. Bailey:
I thank my right hon. Friend for giving way; she is being most generous. I welcome the Bill. It is vital, in my view, for targeting a section of the community that historically has not saved. We need to get it saving, not just for social reasons but for economic reasons. May I pick up on her point about providers? Given the
fact that the sums of money involved are not terribly significant to the mainstream financial providers, although they are significant to the target clientele, will she confirm that she is talking with organisations such as mutuals, building societies and friendly societies, which have already demonstrated that they can be low-cost providers through the child trust fund, about whether they can deliver this product?
Yvette Cooper: My hon. Friend makes an important point. We are having discussions with a wide range of financial institutions, and we hope that credit unions, building societies and others will be able to offer these types of saving gateway products. He is right to say that that provision may fit with the other services and products that those organisations, especially the credit unions, already offer. We hope that the additional Government support being made available will enable them to offer these products more widely to people.
The provision of these saving gateway products by financial institutions is also a way to help people avoid some of the unregulated products that can cause difficulties. For instance, when Farepak collapsed just over two years ago, there was no protection for people under the financial services compensation scheme. In contrast, people who put money in through the saving gateway will get the additional support that comes with regulation and financial back-up.
Sammy Wilson: This important measure is intended to get people on low incomes to start saving and my party supports it, but in the pilot schemes, what percentage of those eligible actually took advantage of the opportunities being presented? Many of the folks who will be covered by the Bill probably find it hard enough to make ends meet day to day, so what lessons have been learned about what needs to be done to encourage eligible people to take up the opportunities being offered?
Yvette Cooper: I do not have the precise details of the answer to the hon. Gentleman’s question, but we have published the results of the pilot schemes and they covered all these matters, including the level of take-up and how people responded to the measures. About 16 per cent. of those who did save said that they had been saving before the pilot scheme started, so there was a big increase in the number of people who saved who had not done so before, but I shall be happy to provide the hon. Gentleman with further information on that. We wanted the pilot schemes to try different approaches for the people who might be eligible, and to use different types of matching rates so that we could determine which worked best. It was on the basis of those pilots that we decided that the 50p matching rate would be the best, as it would enable us to use Government money to support as many people as possible and have the maximum impact on savings in the longer term.
Rob Marris (Wolverhampton, South-West) (Lab): Will my right hon. Friend give way?
Yvette Cooper: I will give way for a final time, but then I must make some progress.
Rob Marris:
I am grateful to my right hon. Friend, who is always very generous. With reference to the question asked by my hon. Friend the Member for
Edmonton (Mr. Love), may I urge the Government to look at some inventive ways of reaching out to people? We all recognise that the Government have difficulty reaching the sort of people who one hopes will enrol in this scheme, whereas doorstep lenders, some of whom are sharks and charlatans, seem to be able to reach people on the estates. They are able to manage weekly collections and so on, and the Government, with all their resources, should be able to do the same, if they could be a little more inventive. May I therefore urge the Minister to adopt a certain level of inventiveness, and to use mechanisms such as credit unions as well?
Yvette Cooper: My hon. Friend is right that we need to guard against the exploitative approaches often adopted by loan sharks or other types of doorstep lenders. That is why we have taken action to clamp down on such practices, and why we are putting investment and support into providing people with different types of advice; for example, it might be possible to provide such advice through people’s housing association or local council. Other sources of money help and advice at different times of people’s lives might be Sure Start staff, or health visitors. We should not limit ourselves to the traditional services and approaches, because we want to make sure that the savings gateway is linked into our wider approach in respect of financial inclusion and the provision of advice, education and support on money matters.
Clause 8 sets out how the Government contribution will work. The maturity payment will be calculated on the basis of the highest balance reached during the account, which means that as savers build up money in their account they will also build up entitlement to the maturity payment, but they will not be penalised for withdrawing their money at any time. We think that is important to build confidence for those on the lowest incomes, so that if they have savings that they might need—perhaps in 12 or 18 months’ time—they will have access to them and will not find that their money is tied up for the full two years until the maturity payment is made. That is the kind of important flexibility that will benefit people and encourage more of them to take up the scheme.
That approach has been widely supported by organisations working on financial inclusion and money support, by representatives of people on lower incomes and by the financial services industry. It has also had long-standing support, which I welcome, from the Treasury Committee, which said:
“The introduction of a national Saving Gateway would be the most important single step towards achieving the aim of increasing saving among low-income individuals and households.”
Our approach is to build up support for those of working age who need to consider saving for the first time. The Bill comes alongside other measures to look at how we can encourage people to save more for their pensions and for their future. I welcome the support and engagement that we have received from a range of bodies, from community groups to financial institutions.
The saving gateway offers a real incentive to save for working-age people on low incomes—a group with lower savings than the rest of the population and that needs them most. We think it is the right way to approach savings and support, providing help that could make a real difference to the lives of up to 8 million low earners, encouraging them to build a savings habit and helping
to bring them into the financial mainstream. I hope there will be widespread support for those objectives both inside and outside the House, and widespread support for the Bill. I commend it to the House.
3.57 pm
Mr. Mark Hoban (Fareham) (Con): People might ask why, in the middle of a recession, when the Government are encouraging people to spend, they are proposing a Bill that encourages people to save, but I see it as long overdue recognition of the need for savings and the impact of the lack of savings on families today. No one should underestimate the importance of savings for families. Savings provide a cushion against financial uncertainty, especially in times such as these. They help people to take responsibility for their future and enable them to make purchases without relying on credit.
The culture of saving should never be seen as the preserve of the affluent. It is important that, when possible, people are encouraged to save, regardless of income. That message was brought home to me when I visited a credit union a couple of years ago. Staff told me that people were paying their benefit into their account and then withdrawing all of it, bar a few pence. When I asked why, I was told that it was a way for people on benefit to accumulate a small nest egg, to put aside some money for a rainy day or to meet unexpected expenses. People who might otherwise have turned to a loan shark or a pay-day lender could rely on their savings instead.
The Bill is helpful in tackling financial exclusion and encouraging savings, but it comes against a backdrop of low saving in the economy as a whole and an astonishing degree of complacency from the Government, who seem happy to allow the economy to grow on the back of debt rather than build sound foundations with a reasonable level of savings. Ministers challenged about the fall of the savings ratio from 9.6 per cent. in 1997 to 1.8 per cent. today seem to wear it as a badge of honour and as a sign of people’s confidence in the Government’s running of the economy. That hubristic attitude means that households are now badly placed to face the downturn; they do not have savings to act as a cushion against financial uncertainty. With the lowest savings ratio in 30 years and a third of families having no savings in 2006, compared with only one in 10 in 1997, families are ill prepared to cope with the financial shocks that many face today.
There is evidence of families in financial distress turning to their credit cards for short-term help; they are even being encouraged to use credit cards to pay their council tax, because they have no savings to dip into. That is a symptom of an economy built on debt and a culture that depends on debt to fund a lifestyle. What we need to move towards is an economy built on savings—savings that provide investment in industry, as well as a cushion for people’s future and savings that help people to provide for themselves as well as help them to face unexpected challenges in their income and outgoings. We must help people to rebuild their savings in good times to prepare them for bad times.
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