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Mr. Browne:
For a lot of people their biggest and, at the moment, most rapidly depreciating asset is indeed their home, and home ownership increased substantially in the 1980s, although to be fair to the Government, home ownership has increased substantially again during this decade as well. The problem for some people is that if they bought their homes for close to the maximum mortgage that they were permitted to take out a year or two ago, they are probably now in negative equity, but I
do not doubt that for millions of our fellow citizens their house is their biggest asset and they are very pleased to own a house, or at least part of a house, and to have a mortgage on the rest. However, with regard to the Bill, we are in many cases talking about people who would not realistically be able to afford a house, although they may use the scheme as an opportunity to try to put together a sum of capital that could conceivably be used as a deposit on a property.
Society is strengthened if savings and assets are widely spread. People may have views about whether the state should continue to own utilities, particularly monopoly-providing utilities, but leaving that to one side, the benefit was that people who previously did not have assets in society and a financial stake in society then did so. My party and I support the Bill because it extends those advantages, in a modest way, to perhaps the 10 or 15 per cent. of people at the lower end of the scale who would not have felt that they could participate in the savings culture in the past and may now see it as being attractive.
We should all welcome that, because savings give people greater security and independence. I venture to suggest that most of us in this Chamber have the flexibility to be able to afford a one-off surprise cost. The Minister gave the example of a fridge or a washing machine breaking down and needing replacing, or there could be a school trip where the parents wish for their son or daughter to go with the rest of their classmates but are expected to make a contribution to the cost. Enough leeway should be built in to ensure that they do not get to a day or two before pay-day and have to say, “I’m afraid we can’t do that because we’ve run out of cash and are just trying to keep the machine running on empty until the next payment comes our way.” They should not have to operate in that hand-to-mouth way in their personal finances. People on bigger incomes with some savings have the security of not having to do so. Inasmuch as this scheme helps people on lower incomes, it will be widely welcomed.
Rob Marris: Does the hon. Gentleman agree that another reason for welcoming such a scheme is that, in a small way, it redresses the balance as regards pensions? I imagine that almost all those who will be eligible have little or no pension provision. The state currently subsidises pensions to the tune of £18 billion a year through tax relief, which is available to an awful lot of people, but not to those who will be incentivised under the Bill. Those people will get a different kind of incentive from the state to save for the future.
Mr. Browne: The hon. Gentleman slightly diverts me from the path that I was taking, but he makes a good point. People such as Members of Parliament who qualify for tax relief at the higher rate get a large subsidy from the state to save for their retirement. Obviously, someone who does not have that level of income in the first place cannot qualify for that level of subsidy. That means that a lot of people reach retirement and have to be wholly or almost wholly reliant on the state pension, which makes it difficult for them to achieve a standard of living that they would wish to achieve having worked for perhaps 50 years up until that point.
Inasmuch as people can be encouraged to save, the scheme is clearly beneficial. As the hon. Member for Fareham suggested, we can try to encourage people not necessarily to say to themselves, when the scheme reaches maturity, “Oh, here is an opportunity to buy an item”—a new car, a new fridge, or whatever—so that money is still left over after they have dealt with the emergency contingencies. They may then continue saving and put the money into different schemes or initiatives. That will mean that they have a savings culture—a point touched on by the hon. Member for Weston-super-Mare (John Penrose)—instead of seeing the scheme merely as an opportunity to qualify for an enticing state-run, taxpayer-financed, one-off way of accruing a capital lump sum without acquiring a savings habit at the end because all the eligibility for taxpayer support has been exhausted. That would be a shame. The Economic Secretary will assist us if he gives a sense of how much the Government think that the scheme is going to stimulate a wider savings culture and whether he is satisfied that the pilot studies will achieve a multiplier effect in terms of the initial taxpayer subsidy encouraging beneficial behaviour many years down the line.
It is important for people to have a stake in society. This morning, I was in a debate in Westminster Hall initiated by the hon. Member for Nottingham, North (Mr. Allen) in which the right hon. Member for Chingford and Woodford Green (Mr. Duncan Smith) also spoke. They have both worked hard—one Labour Member and one Conservative Member—on early intervention and social exclusion. In all of our constituencies, even in those that might be regarded as being reasonably affluent overall, there are pockets of social exclusion and deprivation where people live on very low incomes with no sense of a wider time scale than beyond the end of the week or the end of the month. There is not a culture of people planning their finances for the longer term, or for their retirement, in that way. Many people who live in those circumstances have very modest incomes, so their scope for saving is curtailed, but we should welcome the opportunity for those people to embrace a culture of saving and seek to save as much as they reasonably can within the modest means available to them, and for the Government to incentivise and encourage them to do so, particularly if it leads to the longer-term change in outlook that I have touched on.
I would like to deal with a few related issues. It will be a problem for the scheme, and also for taxpayers, if those who are already saving transfer their funds into this initiative in order to qualify for the generous taxpayer assistance that it brings. The difficulty is trying to target those who would not save while not penalising those who have a slightly higher income or a slightly greater propensity to save. That is a difficult balancing act because we are creating a new kind of poverty trap where people are regarded as slightly too wealthy—even though, compared with most people, they are quite poor—or even too responsible to qualify for the scheme. There may be people on low incomes who nevertheless manage to find some scope for saving, and I would not want them to be in any way discouraged or penalised because they were already saving. We have to walk that tightrope to get best value for the taxpayer, while encouraging the maximum number of people who would not otherwise save. That requires a little second-guessing
of how people might behave in the future. We can investigate and discuss those issues at greater length in Committee.
I am also concerned that the scheme should not be abused. In the case of a number of Government initiatives, parents can, with some creative accounting, ensure that one side of the couple holds all the assets and income, and that the other side of the couple—particularly if they are divorced, or not married in the first place—holds none of the assets. People who are effectively one financial unit may be able to qualify through one person’s status and not the other’s. I am not saying that anyone is perpetrating that abuse, but it is important that the scheme, and the taxpayers’ money going into it, is targeted at people who will genuinely benefit from it, rather than at those who see it as an opportunity to qualify through spurious criteria. That means it is important that we ensure, when scrutinising the legislation, that any loopholes are ironed out in Committee.
Rob Marris: I say in passing that a member of the hon. Gentleman’s Front Bench team was claiming tax credits a little while ago, but on his point, clause 3(2)(c) refers to someone on jobseeker’s allowance. Does he agree that a more felicitous wording would be “income-based jobseeker’s allowance”, because millionaires can get jobseeker’s allowance if they lose their job, for up to six months afterwards?
Mr. Browne: Not for the first time in one of these debates, the hon. Gentleman makes a precise, targeted point of exactly the type that I hope he will make more of if he sits on the Committee that considers the Bill. That is precisely what I was driving at. People in those circumstances—not committing fraud, or doing anything improper—could qualify for support in a way that most of us would regard as an inappropriate use of taxpayers’ money. He alluded to my hon. Friend the Member for Northavon (Steve Webb); I do not know the details of the case, but that was another example of someone who was doing nothing improper, and all it did was serve to underline the fact that the basis on which tax credits were available to British citizens were too loosely drawn by the Government, and went too high up the income scale. He underlined the failings in the Treasury’s initiative. That was precisely what I was driving at, and I am grateful for the intervention.
Earlier today, I showed a delegation of members of the Taunton Royal British Legion around the House. I told them that I was hoping to participate in the debate, and I told them about the nature of the Bill. Not all of them are of working age any longer, so some of the legislation will not apply to them directly, but they made the good point that they thought it unreasonable that the minimum starting point for premium bond saving was £100. I confess that I was not aware of that. I know that it is not directly related to the Bill, but it is indirectly related to it. They said that they would like to encourage saving—for example, by giving their grandchildren some premium bonds as a Christmas or birthday present—but were not in a position to give £100 of premium bonds. While considering the Bill, the Government need to examine other ways in which people on lower incomes may be prevented from saving or from participating in savings initiatives.
Finally, and directly related to the Bill, I wish to raise a small, procedural point. There is cross-party support for the Bill from the three largest parties and from the nationalist and Northern Ireland parties, but that does not mean that the Government should hope to pass a Bill that is so loosely drawn that it leaves questions unanswered and leaves things too open to interpretation. A number of matters are to be left to regulations, with 29 separate delegated powers in a Bill of only 32 clauses. I have a list of them, which is not exhaustive, and I might not even read to the end of it depending on how I judge the mood of other Members present.
If the Bill is passed unamended, the Government will be able, by regulation, to change the rules governing the issuance of a notice of eligibility; change the rules governing the approved institution criteria used by Her Majesty’s Revenue and Customs; impose infinite compliance requirements on accounts in order for them to be saving gateway accounts; limit the size of monthly deposits; give HMRC unlimited powers to impose conditions or withdraw approval; design a true declaration to be included with each account application; decide on procedure and eligibility for account transfers; decide the level of the maturity payment; decide how long the account provider has to pay the account holder at the end of the maturity period; impose requirements relating to statements; decide when an account is no longer a savings gateway account; require account holders to submit returns to HMRC and decide on the time frame and content of those returns; force repayment if HMRC has overpaid to the saver; set a level of interest on payments to and by HMRC and the circumstances in which that will occur; exempt savings and payments from capital gains tax and income tax, and so on.
I am already getting bored of reading those out, but my point is that a lot of us will be uneasy about passing legislation if we are just assured by Treasury Ministers that everything will be okay, as we are all reasonable people who agree on a sensible way to go forward. That would be a recipe for problems down the line and our getting letters from constituents a few years hence asking why certain matters were not examined in greater detail during the passing of the Bill. The onus is on us to ensure in Committee that, although we share the Government’s laudable objectives, the savings system is as practical, efficient and workable as possible, and the best possible value for taxpayers’ money.
4.39 pm
Mr. John Redwood (Wokingham) (Con): I am a company director and have declared my interest in the register, but I am not a director of a deposit-taking institution that could be affected by the Bill. I have in the past been a director of a bank, so I have some banking experience to draw on.
It is a great pity that the Chief Secretary to the Treasury did not go into the fundamental issue involved with savings, which is what kind of return the saver will be able to make on their savings. My party and I entirely agree with the aim of the legislation. It is an excellent idea to spread a savings culture more widely, and it is good that taxpayers should make a contribution to try to trigger savings interest for those who have little income and manage their daily budgets largely on benefits. However, if the Government want to inculcate the virtues and values of saving, they must demonstrate
that the art, and task, of saving is to put aside some money every month to earn a modest return. One reason why there has been so little saving in recent years is that people believe that the returns have not been good, but the Government’s answer to the problem, through their monetary authorities, is to depress interest rates more and more so that the returns become ever smaller.
The worked examples that the Government have provided show that they are working on the assumption of an interest rate of less than 1 per cent. for saving gateway accounts. Even by the standards of modern accounts, that is a pretty poor return. My hon. Friend the Member for Fareham (Mr. Hoban) may have stumbled across the point when he said that the accounts will be expensive to operate, and that perhaps the Government are assuming that the banks will not be prepared to pay any interest, or will pay only very low interest because the accounts will be complicated to run for the amount of money in them. I hope that that is not so, but now that the Government are such a huge owner of banks, I look to Ministers to come to the House properly briefed with the answers to these issues. They are no longer theoretical, and the Government need not go to the market to obtain the answers. Ministers, on behalf of taxpayers, should be grappling with them daily because they now hold such an important position in banks on our behalf.
Everyone in the House and our constituents are involuntary shareholders of the Royal Bank of Scotland, in which taxpayers have a majority share. We are involuntary shareholders in Northern Rock, which is wholly owned by taxpayers. We are substantial minority shareholders in the Lloyds TSB group following the private sector shareholders’ decision not to take up the rights issue. In that capacity as shareholder representatives in the House, surely we are entitled to some answers today from the Government on what the attitude of those leading banks will be to such accounts and what rate of interest they would pay if the accounts were up and running today.
That is not a difficult question. One would have thought that any sensible, intelligent Minister—the Chief Secretary is clearly intelligent—would ask that question during the preparation of the Bill, which has had a long gestation, and would be able to tell us today. If Ministers want to generate enthusiasm for a savings culture in this country, surely they should come to the House proud of the rate of return that they can offer through their state-sponsored banks and the Post Office and in other ways.
John Penrose: Does my right hon. Friend agree that the reason for Ministers being unable to provide the answers that he seeks is that so many powers will be dealt with by regulation that the detailed design of the accounts is unclear? The cost to the banks of running them is difficult to project, and they do not know whether they want to be involved because of that uncertainty.
Mr. Redwood:
I fear that I am coming to that conclusion, but it is difficult to believe that that is true. Treasury Minsters are not stupid, and they have had a long time to prepare the legislation, so one would have thought that they would have fitted in a few meetings, talked to private sector and nationalised banks, and come up with some answers. If they want to enthuse people to
save, they must do better than just suggesting that if people put money away for 24 months they will receive a special taxpayers’ subsidy to welcome them to the savings community. If Ministers are serious about people becoming long-term savers, what matters is the total package on offer, so that those concerned will want to roll their savings over when they have received the increment from the taxpayer and really adopt the savings habit.
I am glad that the Government have run some pilots, as pilots can be very instructive. The Government have learned something from them, but the most important thing for me is what the rate of continued saving by the people who participated in the pilot will be after one, two or three years. Will they simply take all the money out and spend it once they have the Government cash, thereby ceasing to be savers, or will the process do something important? Will it trigger the idea in those individuals that saving is a good idea and that they can save a deposit for a property, save the money for a training course that can give them the skills to get a better job or save for some other capital purpose from which savers can reap the benefit when they genuinely gain the saving habit?
The taxpayer’s interest is being protected by Ministers limiting the amount that can be paid in. We are told that the maximum will be £25 a month for any individual over the two-year term of the proposed package. I can see the common sense of that, because a high bonus is being offered relative to the amount put in. One thing that the Government might need to explain in more detail to the Committee is why they chose that balance. Why not have a lower bonus rate, but allow a longer and bigger build-up of savings? Did the pilots really prove that we need such a big bonus element relative to the amount of money being put in to make the account attractive? Is that not rather more in the spirit of a lottery and rather less in the spirit of savings than we perhaps need if we are to get the savings habit going?
I am delighted that the hon. Member for Taunton (Mr. Browne) said that he and his party are now very much in favour of wider ownership. As an adviser who tried to lead the charge for wider ownership in the ’80s for the then Government, I do not recall the Liberal Democrats being enthusiastic in those days. Nor do I accept his charge that people who were on lower incomes were excluded from the process. They were not excluded at all. I remember the lorry drivers of National Freight buying shares in their company on favourable terms and making a lot of money, and good luck to them.
Mr. Jeremy Browne: I do not wish to be disagreeable, but I was not saying that there were not people on relatively low incomes who bought shares, including sometimes shares in the company that they worked for, in the 1980s. I was simply making the point that the current legislation deals with people on very low incomes. I was not saying that it was undesirable for people who would not consider buying shares, but who may have been slightly higher up the income scale, to own shares; I was merely saying that the Bill perhaps deals with a slightly separate section of society.
Mr. Redwood:
I am relieved by that clarification, but that was not the position of the hon. Gentleman’s party at the time. One of the exciting things about that
process was the granting of free shares in companies that people worked for, so that they could get the habit of share ownership and make something on capital account out of the businesses that they worked for. That supplements the scheme proposed in the Bill, which largely targets people who do not have jobs and who therefore do not have the opportunity to get some capital out of working for a company.
We hope that people in the scheme will go on to do that and that it will be part of a comprehensive package to address exclusion from wealth ownership. Like most hon. Members, I think that one of the worst features of Britain over the past 50 or 60 years has been that not enough people have enough wealth of their own—they might not own a property in which they live, own shares in the company that they work for or have a savings account. I welcome very strongly anything that can be drawn into legislation or put into operation in the market that can change that.
My hon. Friend the Member for Fareham rightly raised the issue of whether there is enough saving in this country and whether the legislation, on its own or with help from one or two other measures that the Government may have in mind, is bold and strong enough to turn that around. I fear that it will not be. The sums are rather small and it appears that the number of eligible people likely to take up the scheme will also be quite constrained, for good reasons as well as bad. One thing that we need to do to get out of the current economic crisis is to encourage and promote more saving. There has been far too much borrowing in recent years. In many cases, individuals’ balance sheets are as stretched as bank balance sheets have been and as the Government’s balance sheet is becoming. Savings play an important part in trying to put that right.
For the groups of people identified in the Bill, we need rather more detail from the Government than we have enjoyed so far about who will be eligible and what the restrictions are, in order to avoid people playing the system in a way that the Government did not intend.
As I understand it, under the legislation as drafted it would be perfectly legitimate for someone living on one of the qualifying benefits mentioned in the Bill to have savings somewhere else and to transfer them into an account under the scheme in order to get the bonus element. However, that would not increase savings in the economy in the way that the Government envisage. On the other hand, if the legislation were to introduce a further restriction preventing people who already had savings from taking out one of these accounts, that would knock out a sub-group within the group who were most likely to take up the scheme. It would also encourage people to find ways of hiding, spending or concealing money so that they could qualify for the scheme. It might be an incentive for people to put their money into their mattresses, or to spend inappropriately before starting to save again in order to qualify. That would not be a very clever way to proceed.
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