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Perhaps the Government need to make the best of a bad job and accept that their scheme will allow people who have already saved to get a bonus simply because they have done so. That makes it even more important to look at the categories of people who will be eligible, to see how many that might apply to, and to get a feel
for what the impact might be. Certainly, some protection against that will be provided if the scheme makes people put money in only up to a modest limit each month, because individuals will have to organise their affairs in such a way that they transfer the money monthly, rather than being able to put in a big lump sum at the beginning. If the detail of the legislation were to allow bigger lump sums, however, that would make it more likely that people who had already partially saved would be able to play the system rather well.
As so often happens with legislation from this Government, the Bill feels like work in progress or something that they are making up as they go along. I suspect that those who serve on the Committee will work diligently on it, only to discover that a large number of amendments are suddenly tabled on Report or Third Reading, as people out there, realising that the Bill might apply to them or their client groups, either as potential providers of the accounts or as people who might establish such accounts, and realising the pitfalls and problems in the current drafting, come forward with their proposals.
So far, Ministers have not been able to sell the Bill to us in a positive way that makes it really attractive, or in a way that deals with the details that colleagues have already unearthed in this rather general Second Reading debate on the order powers, the eligibility criteria, the interest rates and all the other important issues. I would feel much more confident about the Bill if Ministers intervened a bit more, and if there were rather more substance in what they said to the House about who is to benefit from the scheme, what kind of savings we are talking about, and what other providers might be involved.
I want to make one last effort to get the Minister engaged in the debate. Will he intervene and tell me what the Post Office is minded to offer savers in this account, so that we can have a basis of fact on which to make our arguments and discussions today? Once again, I am afraid that he remains seated. The Government have had meetings with the Post Office. Either they forgot to ask the Post Office what kind of a deal the savers were going to be offered, or they are so ashamed of the deal that they and the Post Office have cooked up that they are not prepared to share it with the House and the wider public. This is not a good starting point for a project that is meant to generate good will around the country and that certainly has, in principle, multi-party support in the House because it is trying to do a good thing.
I look to Ministers quickly to clarify a number of things. First, who is really going to be eligible? Secondly, what are the Government going to do about the issue of rewarding people who have already saved, as opposed to rewarding people who might start saving because of the scheme? Have they looked into how much dead weight—as the Treasury used to say—might apply to this proposal? Thirdly, have the Government optimised the spending of this amount of taxpayers’ money in terms of making the right judgment on how big a bonus element is needed, how that relates to the normal interest rate return, and how much money people should be allowed to put into the accounts and in what time period? I am not sure that the Government have come up with the optimal solution.
Can Ministers quickly find out at least what the Post Office, RBS and Lloyds—organisations that the Government either directly own on behalf of taxpayers
or have a very big share in—are going to offer? We presume that those three big institutions will be required to offer this kind of package and they must soon be able to tell us what it will look like. Without our being able to go out and tell our constituents who might be eligible that this is a good scheme because of its underlying savings rate as well as its bonus element, it loses a great deal. I am surprised that Ministers are not more full of the joys of this proposal and not more up to speed about how it might work.
4.55 pm
John Penrose (Weston-super-Mare) (Con): Like everyone else, I am delighted to support the principle of this legislation. We have heard a series of speeches today echoing the principle that it is absolutely the right thing for Britain at this time to broaden the savings habit and culture, to try to establish a culture of putting something by for a rainy day or for retirement and to spread that culture more widely throughout all levels of society. I was particularly pleased to hear from my right hon. Friend the Member for Wokingham (Mr. Redwood) who, having been involved back in the 1980s in the original moves to spread a share-owning democracy, has personal experience to draw on. Many of the principles espoused at that time apply equally strongly to the Bill now.
This is a great idea and a thoroughly good principle that we all espouse and support. In fact, it is so good that it appeared in the Conservative party’s 2005 election manifesto, which said that in order for a Conservative Government to
“get more people into the saving habit, we will create a Lifetime Savings Account in which government contributions top up the money that people save themselves.”
I am not sure, but I suspect that during the hurly-burly of the election campaign, all sorts of vigorous opposition came from the Government. I suspect that people in Labour party HQ were churning out all sorts of awful reasons why it was a bad idea.
Mr. Jeremy Browne: Was that in the same section of the Conservative manifesto as the incentive for people to leave the national health service and take their state health payments so that they could receive private treatment?
Mr. Deputy Speaker (Sir Alan Haselhurst): Order. That is a mischievous intervention, wholly outside the scope of the Bill.
John Penrose: As it is outside the scope of the Bill, I shall gloss over that one, but it perhaps illustrates a wider principle that this is part of a long and glorious tradition of the Conservative party proposing ideas that are rubbished as absolutely useless by the Labour Government, who after a decent period of time proceed to swipe the idea and relaunch it, suitably renamed—and here we are today. It would be churlish, however, particularly given that the Minister mentioned that the idea appeared in the Labour manifesto of 2001, to carp or cavil too much about its origins. It is clearly a good one and I am pleased to say that everyone has now got around to supporting it at the same time and in the same way. Everyone is now on side in saying that this is a good Bill that is worth supporting.
The Bill is so good that I would urge Ministers to go a little further. As my hon. Friend the Member for Fareham (Mr. Hoban) pointed out, it is good as far as it goes, but there is much more to be done to improve the habit of saving in British society. My hon. Friend provided some fairly dreadful examples of how the savings rate has fallen dramatically and precipitously over the last 10 years. Clearly, that needs to be turned around as fast as possible.
The difficulty is that this measure should have been introduced many years ago. The problems have been happening for 10 years and now we are at the bottom of the cycle—at least we hope we are—and we are talking about increasing the savings rate when we should be seeking to improve demand in the economy. We are talking about a measure that, at this precise moment in time, would be pro-cyclical rather than counter-cyclical, so the right point to introduce the Bill would have been almost any time during the last 10 years, apart from today. At almost any time during the last 10 years apart from today, we have had a Government presiding over an economy that has been overheating, largely on the basis of a debt-fuelled consumer-led bubble. The result has been rapidly expanding asset prices, particularly house prices—the impact on them has already been mentioned—and an economy that has increasingly lacked the sound economic fiscal foundations, in terms of both Government and consumer debt, that we see in other economies that are better prepared for such downturns. It would have been far better to encourage the savings rate, or even prevent its decline, at any point in the last 10 years.
According to the Government’s projections, the current recession will end in the third quarter of this year, starting in July. I venture to suggest that if those projections are in any way over-optimistic—I have to tell the Minister that almost everyone outside this place agrees that they are far too rose-tinted—and if, perish the thought, the recession continues after July and into the early part of next year, there will be a danger of our starting to create the right savings culture at a time when the economy is only just starting to climb out of the recession. Although I do not believe that the measures in this particular Bill will be macro-economically large-scale enough to make a impact on the savings rate, it will nevertheless be important for the Government to introduce a series of measures that increase the savings rate both substantially and at the right time, which I fear will arrive not this year but once the recovery of the economy is firmly under way, which may not be as soon as the Government would like.
Mr. Redwood: My hon. Friend should bear in mind that the savings rate is a net figure, relating not just to the amount that people save but to the amount that they borrow. This year there will be a big increase—perhaps an inadvertent one—in the savings rate, because there will not be any borrowing.
John Penrose: Would it not be absolutely marvellous if that happened? We will watch with great care.
Let me point out in passing that the decline in the savings rate is not something that everyone has noticed just recently. It has been going on for some time, and Conservative Members have been identifying its dangers and calling for it to stop for a great many years. On
18 November 2002, my right hon. and learned Friend the Member for Folkestone and Hythe (Mr. Howard) said:
“The savings ratio is forecast to fall this year to the lowest level ever recorded.”
That comment is obviously out of date, as the ratio has become even lower since then. He went on to say:
“Meanwhile, borrowing has risen, with household debt at record levels. Far from alleviating this problem and encouraging people to save, the Chancellor has done precisely the opposite.”—[ Official Report, 18 November 2002; Vol. 394, c. 406-7.]
On 19 April 2004, my right hon. Friend the Member for West Dorset (Mr. Letwin) said:
“On current trends, household debt will break though the £1 trillion barrier this autumn. For increasing numbers of people, debt is becoming a serious problem”.
In other words, this is not news; it has been going on for a great many years.
The Government have ignored the problem for far too long. Now we are now at the very bottom of a recession, and if anything, demand rather than saving needs to be stimulated at this point in the economic cycle; but now—too late—we have been given savings measures. They are welcome, but my goodness, we could have done with them five years ago, seven years ago, or perhaps even before that.
It should also be pointed out that these measures are comparatively narrow. They will help an important group of people and, we hope, will broaden the savings culture, but whole groups of people will not be helped. I am thinking particularly of a whole generation of pensioners who may have done the right thing during their working lives by putting something by for a rainy day or to ensure that they are financially independent and can stand on their own two feet in retirement, rather than relying on political whims or the largesse of Ministers of whichever party.
Those people have seen the income from their savings drop like a stone, for obvious reasons. We have all seen the rates of interest that are being offered falling very rapidly over the past few months. The danger is that those people who have saved and done the right thing throughout their working lives and now have little income to show for it see that other people who have not behaved as well are getting benefits from the benefits system to a fairly large degree that help to bail them out, even though they did not save during the previous 20 or 30 years.
For those people who have saved, the comparison is very stark. They have tried to put something by and have scaled back and reined in their spending, during their entire working life in some cases. The people who live next door who did not put something by and enjoyed the fruits of their labours, spending all the money as it came in, are getting more in benefits than those who have saved. The implication is that the only logical thing for people who have saved to do is ask themselves what on earth the benefit was of spending 20, 30 or 40 years of their working lives scrimping and saving.
Kelvin Hopkins (Luton, North) (Lab):
I hope that hon. Members will forgive me for not being in the Chamber earlier. I am very interested in what the hon.
Gentleman is saying. Is there not a strong case for substantially raising the basic state pension and getting rid of all the means tests so that all savings are additional to the basic state pension, overcoming some of the problems that he is talking about?
John Penrose: If the hon. Gentleman will forgive me, I will forgo the opportunity to make such a major spending commitment on the hoof. However, I was going to suggest an alternative way of dealing with the problem.
First, let me finish the point that I was trying to make. The conclusion that people who have saved will reach, which is that they have not benefited anything like how they hoped to do from saving over 20, 30 or 40 years of their working lives, is an acid dripping at the foundations of the savings culture. It is undermining the savings instinct for a great many people. The danger is not just that pensioners are affected but that they are tremendously influential on younger generations. If people say, “We saved and it didn’t pay, so you shouldn’t,” to their children and to their grandchildren, that is an incredibly powerful negative marketing ploy further to erode the savings culture in this country. I urge the Government to say that the measures in the Bill are fine as far as they go, but are limited and do not go far enough to achieve the Government’s stated aims.
I want to offer a potential solution, different from the one suggested to me just now by the hon. Member for Luton, North (Kelvin Hopkins). The Government might like to consider some of my party’s fairly recent suggestions about trying to remove the tax burden for basic rate taxpayers on interest income. That would have the effect of achieving many of the Government’s stated aims but would have a much broader impact than the Bill, which will have a relatively narrow impact.
Given the amount of money that the Government are willing to spend on a temporary cut in the VAT rate—I believe it is £12 billion—if they did not carry out that measure they could probably afford not only to introduce the measures in the Bill but those that I have just suggested. They would still have plenty of money left over to do other things to stimulate savings elsewhere in the economy.
On the assumption that the Economic Secretary does not want publicly to commit his party to that measure right this second—although I would be delighted if he did—may I ask a couple of small but technical questions that I hope he will be able to answer in summing up? In particular, I would like him to give us a bit more detail about what discussions he or his Department have had with representatives of the credit unions movement.
I am sure that we all have pockets of comparatively high deprivation in our constituencies. Weston-super-Mare South ward in my constituency is a classic example of a deprived area that, according to the Government’s figures, is in parts in the bottom 2 or 3 per cent. of indices of multiple deprivation. When I visit the credit union that has an office there and the money advice centre that is dedicated to trying to provide better financial advice and improved financial literacy in the area, one of the things that comes across tremendously starkly is that the area is largely unbanked. It does not have a great number of different bank branches and, as my hon. Friend the Member for Fareham noted, that is especially important if we are to have a vibrant and highly competitive
market for these saving gateway accounts. When an area has only one provider or even none at all, there is no incentive to offer competitive rates of interest. Although a one-off bonus from the tax man might be welcome, we need the competition that will spur a vibrant savings culture where people get genuine interest. Such a culture is much less likely to be established in places where there is only one local bank branch, or none at all, than in places where there are many.
An alternative way to produce that vibrant, competitive culture is to use credit unions as additional providers of the saving gateway accounts. Credit unions tend to be very local and closely rooted in their communities, and they have very good contacts—what might be called a good footfall or footprint—in the most deprived parts of the communities that we all separately serve. I hope that the Minister will give us more details about the discussions that he has had with representatives of the credit union movement. Are credit unions willing to become providers of these accounts? If so, do the Government consider them to be satisfactory providers of the accounts? Are the Government willing to give approval for credit unions to start providing the service, on a large or even small scale?
This is a tremendously useful and welcome Bill. It clearly espouses a principle that has the agreement and approval of hon. Members in all parts of the House, but it is very limited. The Government could have done more in the past, and I hope that they will take the opportunity to do a great deal more in the future. The foundations of our nation’s economy and the equally vital need to spread the notions of a savings culture and an asset-owning democracy require that they do.
5.12 pm
Adam Price (Carmarthen, East and Dinefwr) (PC): When I hear agreement breaking out on both sides of the House, I always feel that there is a faint echo of the 1931 national Government in the air. Perhaps that is appropriate at this time, and my party supports the Bill’s fundamental aims, which are to regenerate a savings culture in the UK and to provide additional assistance for people on very low incomes.
Those aims always deserve support, but, although I am in favour of evidence-based policy making, I think that this Bill has had a long gestation. It certainly predates the Conservative policy that was referred to earlier, as I think that the first announcement was made in 2001. Later that year, it was announced that there would be only a pilot project, of the sort that is much beloved of this Government. Pilots, pathfinders and so on can be valuable tools for learning lessons, but there will have been nine years between the first announcement of the policy and its full national roll-out. The hon. Member for Weston-super-Mare (John Penrose) was right to say that this measure, and others like it, is long overdue, as we in the UK have seen the decimation—literally so, almost to nothing—of the propensity to save.
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