My hon. Friend said that he was frustrated at not being able to lash out at the Government on this matter, but that he wanted to serve on the Committee. He may well be frustrated at not being able to lash out at them because he rather likes the Bill, but I suspect that his
application to be a member of the Committee will be viewed sympathetically and will not be a cause of further frustration.
The hon. Member for Carmarthen, East and Dinefwr (Adam Price) spoke about the Bills long gestation and the fact that there was a pilot in 2001. He talked authoritatively about the experience of the pilot schemes, the difficulties in producing statistics that are hugely helpful, and the fact that the focus groups produced a number of quotations that suggest that there is something to be said for these matters. He also gave an historical perspective on the savings culture of the working classes and the poorer sections of society, and talked about how at times, when such measures have been successful, there has been a great evangelism for them. I do not know whether evangelism quite categorises the Governments approach to the Bill, but he made a very interesting contribution.
My hon. Friend the Member for Weston-super-Mare (John Penrose) spoke about the decline in the savings ratio in the past 10 years. He set out the case for how savers are struggling and have been adversely affected by interest rate changes, and made an argument for doing more to support them. It was an excellent speech. I hopealthough he did not put it as explicitly as my hon. Friend the Member for Broxbournethat it can be taken as an application to serve on the Committee.
My right hon. Friend the Member for Wokingham (Mr. Redwood) made an interesting point in his speech and in an intervention on the Chief Secretary when he asked what the interest rate, as opposed to the matching amount, is likely to be on these accounts. He argued that if part of the reason for the Bill is to encourage people to get into the habit of saving, the account should be as much like a normal bank account as possible, including the benefits of achieving interest. When he asked what the Governments expectation was, he did not get an answer. In the course of that exchange, my hon. Friend the Member for Fareham (Mr. Hoban) stated that he suspected that there would be no interest on the accounts. My right hon. Friend suggested that my hon. Friend had stumbled across the point. I think that he probably meant to say that he had homed in with laser-like intensity on a key possible embarrassment for the Government. In any event, it was right to raise the matter and to express more general concerns about the lack of clarity in the Bill.
I think that it would be fair to sayindeed, there is consensus on this across the Housethat the Bills objectives are admirable. The desire to encourage a savings culture, particularly among the poorer sections of society, is absolutely right. We share a desire that people should have assets that provide them with a degree of protection in the event of adverse circumstances. The other aspect, which was touched on by the Chief Secretary, is that that goes some way towards dealing with financial inclusion. If we can encourage people who might be excluded from normal financial products and services to partake in proper accounts and to become part of the wider financial community, that is clearly of benefit.
Conservative Members acknowledge that the Bills objectives are laudable. Indeed, as my hon. Friend the Member for Weston-super-Mare pointed out, in 2005 we advocated a lifetime savings account along very similar lines, and it would therefore be rather odd for us
to object strongly to these proposals. The Government appear to be in the habit of doing that: yesterday, they announced support for employers taking on the long-term unemployed; tomorrow they may announce a national loan guaranteewho knows? Today continues the pattern of yesterday, and we will not knock it. Some might say that we could save time if we were able to announce and then implement policies instead of waiting for the Government to do so some weeks or years later, but there we go.
This country has a problem as regards the low level of savings. As my hon. Friend the Member for Fareham pointed out, in 1997 one in 10 households had no savings; by 2007, the figure was one in three. The savings ratio has fallen from 9.6 to 1.8 per cent. We recognise that that is a dangerous weakness in the economy. A savings culture is valuable. It makes households more resilient and more able to cope with a rainy day. People should use the good times to prepare for the bad, and one could argue that that applies to Governments as well as people. The decline in the savings rate and the savings culture has left this country, our economy and our people more exposed to difficult times than would otherwise be the case. That is our view, and I would be grateful if the Economic Secretary would say whether he recognises it as a problem. Does he accept that the savings rate fell too low? Is it a weakness in the economy? Does it suggest that we are less well placed for difficult times than we might otherwise be?
There are inherent limitations to the Bill and the saving gateway accounts in tackling the problem. That is not to dismiss the proposals or the Bill. Just because it does not address every aspect of savings does not mean that it is not a useful contribution. Notwithstanding the Bills objectives, does the Economic Secretary accept that the Government need to do more to encourage saving in the long term? We need a strong savings culture, and as things stand, we do not have one. Given that this is a week in which the Government are inclined to look sympathetically on our ideas, will he consider abolishing the standard rate of income tax on savings? I know that we announced that only relatively recently, and it usually takes the Government some time to take up our policies, but I urge him to do so.
Although the provisions are limited, they contribute towards tackling a weak savings culture, or at least I hope that they do. One of the issues raised by my hon. Friend the Member for Fareham and the hon. Member for Carmarthen, East and Dinefwr was that the evidence from the pilots is, it is fair to say, a little sketchy. My hon. Friend set out two tests that are useful in assessing whether the pilots demonstrate that the scheme will work. First, are the savings created through the accounts new, or would they have occurred anyway? What is the evidence from the pilots? To the extent that the Economic Secretary is able to address that point, it would be helpful to the House for him to do so. Secondly, what happens at the end of the account period? Will people continue to save at the end of the life of the saving gateway account, or will they just take it as a windfall of £300, which is then spent rapidly? Will there be a real cultural change? That is a key point: what has the experience of the pilot schemes shown?
Another area that I would like to explore was touched on by several hon. Members: the level of interest from potential product providers. In the course of the debate,
the Economic Secretary made it clear from a sedentary position that the Government have been talking to banks and other product providers. My right hon. Friend the Member for Wokingham raised a point about the interest rate that is likely to be provided, in addition to the matching fund. That will depend on the level of commercial interest, and if there is little such interest, the Government will be grateful for whatever they can get and will hope that someone will provide the saving gateway accounts. But if there is more interest, we are likely to see interest payable on the accounts. Where are we on that? What are the Government anticipating?
In the course of her remarks, the Chief Secretary said that the Government will be urging the banks or the product providers to provide interest on saving gateway accounts. The Government spend quite a lot of time urging banks to do one thing or another with interest rates, but several banks are now largely in public control. It will be interesting to know whether the Government or Ministers will put any pressure on state-owned banks to provide the saving gateway accounts or to provide interest on them. It would help the House to know precisely what the Government envisage.
There is quite a lot that we do not really know about how the accounts will work. The point has been made that they are a work in progress and that the details will be in regulations. The hon. Member for Taunton (Mr. Browne) pointed out that there are 29 powers to make regulations in this 32-clause Billand we are grateful to him for not listing all of them.
A point on which I would be grateful for clarification is that as I understand it, the period of time for which a saving gateway account will exist is two years. I do not think that that is specified in the Bill, but I am sure that the Minister will correct me if I am wrong. If it is not specified, why not? Another question to be answered is whether someone could open more than one account. As far as I can see, it is not made clear in the Bill that a participant could not open two accounts at the same time. Perhaps more realistically, once one account had been completed and the two years were over, would it be possible for someone to open a new saving gateway account, and to do the same every two years? The Chief Secretary said that the intention was to encourage people who have not saved before to do so, which suggests that someone could participate only once. Again, however, the precise intention is not entirely clear.
One could ask many more questions about various aspects of the Bill, and those serving on the Committee will be able to do so. I have raised the matters that I have to indicate that the Bill is very short on detail. Its objectives are laudable, although its impact is likely to be limited and should not be overstated. It is thin on detail, which clearly needs to be much greater. It has been in gestation for eight years, and we heard that the announcement of the first pilot scheme was in 2001.
Only one Labour Back Bencher spoke in favour of the Bill, and I therefore fear that there is a sense that the Governments enthusiasm for it is a little limited. One could certainly get that impression. I am sure that the Economic Secretary can address those concerns, and that he will demonstrate much enthusiasm for the Bill and assure the House that the concerns that have been raised will be addressed both today and in Committee. I am sure that the Government are confident of the
effectiveness of the Bill and the saving gateway accounts, and that the House can be assured that we will make a useful contribution to returning to this country the savings culture that it so badly requires.
The Economic Secretary to the Treasury (Ian Pearson): It is a pleasure to close the debate, and I thank the right hon. and hon. Members who have contributed to it. I was pleased to hear that there is broad support for the Bill in all parts of the House, and I am grateful to Members for their support for the aims of kick-starting the saving habit among working-age people on lower incomes and promoting financial inclusion.
The hon. Member for Broxbourne (Mr. Walker) was unexpectedly very enthusiastic about Government policy. He went so far as to say that the scheme was a pretty good idea. Given my experience of him, that is about as good as it gets. The hon. Member for Weston-super-Mare (John Penrose) went further, saying that it was a great idea and a thoroughly good principle. He went on to blot his copy book by seeking to claim that it was a Conservative idea, when it is clear to all concerned that it was originally launched for consultation by the Labour Government in 2001. It was not until after the second pilot was under way that the Conservative manifesto made the statement that he read out.
I do not want to play silly games of who takes the credit for different ideas. The hon. Member for South-West Hertfordshire (Mr. Gauke) tempts me to talk about his partys credit guarantee scheme, which is modelled on the Governments guarantee scheme. People are not interested in party political bickering; they want to know not where ideas come from, but whether they will produce policies that will benefit people and businesses in this country, and that is what the Government want to ensure.
I welcome the support of the official Opposition and the Liberal Democrats for the Bill. The hon. Member for Fareham (Mr. Hoban) was perhaps more measured than most speakers in saying that there is some common ground, but the hon. Member for South-West Hertfordshire went further and said that the Bills objectives are admirable and that it is laudable. As that came from an Opposition Front Bencher, it is a ringing endorsement of our proposals.
The right hon. Member for Wokingham (Mr. Redwood) played a typical cameo role in pretending that he knows what happens in government as a matter of course. As a former Secretary of State, he well knows the process of government, but he tries to pretend that Ministers talk to no one, and do not examine the evidence and or take such matters into account. I shall come to the points that he made, but before doing so and responding to other hon. Members, I want to make two general points.
First, in 2007 net national saving as a percentage of gross domestic product was 3.4 per cent., which was close to the average since 1987 of 3.7 per cent. and much higher than the low of 1.1 per cent. recorded in 1992. That 3.4 per cent. level is close to the national savings ratio of Italy, and much higher than that of the United States.
Secondly, the Bill is not the only means by which the Government are promoting saving. Almost one third of the adult population have individual savings accounts. We successfully launched child trust funds, and we recently welcomed the 4 millionth account. We have a significant financial inclusion agenda on which we made further announcements today, and I acknowledge the points made by the hon. Member for Broxbourne about the importance of financial inclusion and financial literacy.
I welcome the speech made by my hon. Friend the Member for Luton, North (Kelvin Hopkins), who emphasised the importance of saving. We may not agree with all the policy implications of what he said, but he knows that the Government share his aspiration that people save more and that pensioners have a greater income in retirement.
Kelvin Hopkins: The Chief Secretary may have covered this point, but is there a guarantee that additional savings for income in retirement will not be means-tested away from those on low incomes? Will any return be genuinely additional to the basic state pension, whatever that may be?
Ian Pearson: The Bill is targeted at people of working age, and those on lower incomes. We want to kick-start the saving habit and to ensure that people continue to save throughout life. Taxation on savings is part of general Government policy, and that is the best answer that I can give.
Ian Pearson: Yes, they will. I will say more about that in a moment, but I want first to address the points that the hon. Member for Taunton (Mr. Browne) and others made about regulation. First, when formulating legislation there is always a balance to be struck between what should properly be put into primary legislation and what should necessarily be part of secondary legislation, through regulations. We believe that we have got the balance right in this case, in establishing the general principles in the Bill and leaving other matters to regulation, but that is something that we can return to in Committee.
Secondly, regulations relating to eligibility were published yesterday, before Second Reading. The right hon. Member for Wokingham said that the issue of eligibility was not clear, but if he reads clause 3 and the regulations that we published in draft yesterday, he will see that they provide the answers he seeks. We intend to publish additional draft regulations before the Committee stage, which I am sure will help hon. Members who serve on the Committee.
The next issue that I want to cover is eligibility. I want first to respond to my hon. Friend the Member for Northampton, North (Ms Keeble), who raised the issue of carers and suggested that they had been left out of the saving gateway. That is not the case. Carers in low-income households will be able to claim income support, including the carers premium, in addition to carers allowance. As income support is a qualifying benefit for the saving gateway, many carers will be eligible, and we expect around 230,000 to be so.
We have thought carefully about making carers allowance itself a qualifying benefit. However, although all recipients of carers allowance will have low earnings, many may be in higher-earning households; in fact, carers allowance recipients are less likely to be in poverty than the average adult. Extending the scheme to all carers regardless of their level of savings or other financial circumstances would therefore mean that it was poorly targeted.
My hon. Friend the Member for Wolverhampton, South-West (Rob Marris) made a point about income-based jobseekers allowance and questioned whether the legislation was defective. Let me say back to him that the policy intention behind the legislation is for the target population for the saving gateway to be working-age people with lower incomes. We believe that passporting through the benefits and tax credits specified in the Bill, including contributory jobseekers allowance and incapacity benefit, is the most administratively simple and effective way of reaching that section of the population.
If contribution-based JSA were not a qualifying benefit, some people who frequently move in and out of low-paid work may never become eligible for the saving gateway, because they never receive income-based JSA. That is why the legislation is framed in the way that it is. However, my hon. Friend will want to probe us to ensure that some of the people he was talking about, who are clearly from wealthy backgrounds, are not eligible for the saving gateway and the Governments matching contribution. I am pretty convinced that the legislation as it stands achieves that policy objective, but we can explore that further in Committee.
The next issue that I want to cover is the pilots. Both pilots showed that many people saved more during the scheme than they did before it. Among participants in the first pilot, the number of people saving regularly quadrupled. The hon. Member for Carmarthen, East and Dinefwr (Adam Price) rightly said that we ought to be interested in evidence-based policy and that we need to consider closely the implications of both pilots and the variations between them, and we have done that. The second pilot showed that some participants who were higher up the income scale were more likely to recycle existing savings into saving gateway accounts. That provided a useful lesson for the national scheme, which targets those on lower incomes.
In the first pilot, 89 per cent. said that they had saved exclusively from their regular income. The hon. Member for South-West Hertfordshire asked about the dead weight effect, and inquired what would happen after the saving gateway and what lessons had been learned from the pilots in that regard. According to the figures that I have, 16 per cent. of participants in the first pilot said that they had been saving regularly before, but nearly 80 per cent. said that they regularly paid money into their saving gateway. On average, people made deposits in more than 70 per cent. of the months in which their account was open. At least three months after maturity, over 90 per cent. of participants still had a savings account of some kind, and over 40 per cent. were still saving regularly. We take that as reasonable information, and we have taken it into account in the detailed design of the scheme.
The hon. Member for Carmarthen, East and Dinefwr also asked why we had chosen a period of two years, noting that the accounts in the pilot scheme had run for 18 months. He suggested that the period should be
longer. In our view, accounts running for whole years are easier for savers to understand, and more straightforward for account providers to operate. We believe that a duration of two years for an account strikes the right balance between giving people sufficient time to develop a savings habit and build up a reasonable match, and allowing them to access that match within a reasonable time scale. Many participants in the pilot schemes suggested that the accounts should run for two years.
I want to turn now to the discussions that we have had with the banks. As I indicated from a sedentary position earlier, when I got slightly irritated with the right hon. Member for Wokingham, we have been discussing the saving gateway at official and ministerial level for a considerable period of time. We have had meetings with the banks, the building societies and the credit unions, and we expect that the saving gateway will be offered by a range of providers. We will continue to discuss this with them. We particularly welcome the commitment from the Post Office, and the support that we have had from the British Bankers Association. The hon. Member for Weston-super-Mare mentioned credit unions, and we are delighted to have the strong support of the Association of British Credit Unions. Its chief executive, Mark Lyonette, has said: