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In conclusion, let me focus on the key policy issue of tax relief. The Conservative spokesman again brought to our attention the recommendations of the Low Incomes Tax Reform Group, which has for many years been putting in very carefully considered recommendations that have been largely disregarded; I hope that they will now be taken seriously. The hon. Gentleman’s main proposal is for a standard rate of tax relief on interest
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on savings accounts. We should consider that seriously. We are in the run-up to a Budget, it is a thoughtful idea, and we should consider its strengths and weaknesses. I should point out, however, that when interest rates are very low it would be worth very little, for obvious reasons. It would benefit substantially only those with very large savings. A deposit of £100 at current interest rates probably attracts 40p in tax relief, while a deposit of £100,000 would attract £4,000 in savings, and that is where the benefits will go. I am not saying that it is a bad idea, but it operates primarily to the benefit of people in a high interest rate environment. I do not know whether the tax relief would continue when interest rates rose.

Mr. Philip Hammond indicated assent.

Dr. Cable: I get a nod. In the current context, however, it would make very little difference.

It is not entirely clear to me whether the cut-off point for standard rate interest would apply to higher earners. Presumably they would get the tax relief up to the upper earnings limit, if not beyond it. Is that correct?

Mr. Hammond: If the hon. Gentleman is asking whether higher rate taxpayers would benefit from this proposal, the answer is no, because, as I understand it, the basic and lower rate of savings tax is applicable only to basic rate taxpayers, not to higher rate taxpayers.

Dr. Cable: I thank the hon. Gentleman for that clarification. Presumably, then, they would derive no benefit at all. It would certainly be the case that very large savings accounts would benefit proportionately and substantially, but he is not saying that high earners would benefit. That is a helpful clarification.

I do not think that we differ enormously from the hon. Gentleman in our approach to this problem. We believe that there should be a tax cut for people on low incomes, which would apply to pensioners and non-pensioners and to earned and unearned income, but, unlike him, we believe that that should be paid for on a tax-neutral basis by high earners, including those people who currently derive substantial tax relief on upper earnings. I know that he does not agree with that, but we think that it is a more equitable way of doing it; it is certainly preferable to financing tax cuts at the bottom by non-discriminatory cuts in public spending of the kind proposed, which run completely contrary to the needs of an economy in the depths of recession. Because of the two lines at the end of his motion, we will not support it. That is a pity, because it had much good content and rightly attracts our attention to the major losses suffered by savers in the recession.

5.49 pm

Mr. Doug Henderson (Newcastle upon Tyne, North) (Lab): As the hon. Member for Twickenham (Dr. Cable) said, there is a risk in this debate that people might rant about economic policy. I am going to resist that temptation, and instead try to address the issue of how we should deal with savers in the current economic situation. I was disappointed in the hon. Member for Runnymede and Weybridge (Mr. Hammond), because a lot of his speech addressed the economic issues, and asked whether the Government were following the right course of action. I would like to reply to the points that he raised, but I will
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resist the temptation to do so now. However, those arguments have to be made. They have been made from our Front Bench, but I think that they should also be made from our Back Benches. The issue is whether we should do something, or do nothing, in response to the international economic crisis, but perhaps that debate is for another day.

This debate is about saving. I come from a family in which thrift was considered to be the right approach. My mother was no economic expansionist. She put money into a tobacco tin every week. I think she was a bit of a hoarder, and she might well have been encouraged by the present culture of holding funds rather than taking a risk on investments. That approach might have been in her interest, and even in the interest of the family, although I am not sure it would have been in the interest of the economy generally, had it been followed by everyone else in our village.

First, on a point of principle, is it always right to save? The answer is no, it is not. There are times, as the hon. Member for Twickenham said, when it is important to have high levels of spending; at other times, it is important to have high levels of saving. The imbalance in the world economy is because countries such as China have too high a savings ratio, while countries such as the United States and Britain have had too low a savings ratio over a long period of time. We need to get that back into balance.

Like many other Members, I have had letters from constituents saying, “I have been thrifty all my life. I have worked hard and put money away, and I expected it to supplement any pensions that I had when I retired. Now, I look at the return that I am getting, and it is so low that I feel as though I have lost everything. What are you, as a Member of Parliament, going to do about it?” We have to be realistic. We cannot promise what is not possible. The failure of the Conservatives’ proposals today is that, in the present circumstances, they are the wrong ones. They would give a false sense of hope to the people in all our constituencies who are saying that they have lost their life savings. They have not lost capital sums, but they have lost the revenue that was being generated from those capital sums.

The problem with speaking after the hon. Member for Twickenham in a debate is that he steals a lot of the arguments along the way, but he was right in what he said about what would happen if the Conservative proposals were put into practice. I do not know what the average return is on a savings account today—I would be interested to know whether the Treasury has any figures on that—but let us say that it is 2 per cent. Actually, I would say that that was generous. In the opening speech from the hon. Member for Runnymede and Weybridge, a figure of £10,000 a year investment income was mentioned. That is not a lot of money, but to generate that now would require a huge capital sum—possibly £500,000, on the figures that I have given. It could be even more, as I do not think there is an average 2 per cent. return on savings at the moment. Only a very small group of savers has that kind of capital to invest.

The Conservative proposals would not help the poorer pensioners who are suffering from our economic ills at the moment, although they have had assistance from the Government, which is very welcome. The proposals would not address the problems of the poorest 60 per
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cent. of pensioners, or the many savers in our constituencies who have been getting in touch with us. If their savings income is very low, it does not matter how much tax relief we give them; it would be of very little benefit.

The Conservatives’ motion calls for their proposals to be geared to the period in which we are pulling out of the recession. I am not sure that that would be wise either. The only way in which we can get higher levels of economic activity in this country is through higher levels of spending. That could be Government spending, private sector spending or a combination of the two. However, giving additional incentives to savers is not the right course of action at the moment because, on account of low returns on investments, it does not give any benefit to the people we are trying to help. When the economy begins to gather momentum and we begin to look to recovery would not be the time to adopt a policy to encourage saving in this country. The time to encourage saving is when we move back to a higher level of economic activity, whatever that is and whenever that may be. At that point we will need to make changes: for example, we need to reform our savings taxation structure, and it might then be appropriate to adopt some of the other policy changes that have been suggested. I do not know; it depends what the alternatives are, but the provision of additional incentives to savers is certainly not the appropriate policy at the moment.

The Conservatives have made that policy suggestion because they think that there are a lot of votes to be gained from traditional savers who are disillusioned by their current circumstances. That policy will not offer any significant help to those savers, and it is a con-trick and politically dishonest of the Conservatives to suggest otherwise. I do not have any bright ideas about this matter, but we have to look at other ways of giving help to those who have saved over the years and who are now in a difficult position.

Mr. Oliver Heald (North-East Hertfordshire) (Con): Would the hon. Gentleman agree that one of the problems with pension credits is that the assumption is made that there is a 10 per cent. return on a person’s savings? How ludicrous is that in the current climate, and what would he do about it?

Mr. Henderson: That is a valid point and it needs to be addressed by the House, but the Conservatives’ proposal is not an honest proposition to put to people who have real problems in our constituencies. I ask the Conservative party to reconsider its proposition. Let us not lead people down a blind alley on this. We could have a nasty political argument about it, but we have all agreed that we are not going to rant today—I hope that is so. Let us look at real propositions to help those who are suffering.

5.57 pm

Mr. Richard Spring (West Suffolk) (Con): All human beings have a powerful instinct to save—for their families, for themselves and for their retirement. Unfortunately, during the last few years, a disproportionate amount of saving has gone into bricks and mortar. It is as simple as that. The consequence is that people’s reserves of actual saving have declined absolutely and relatively, and now that we are in a grievous economic situation, people cannot easily cope. That is the simple truth about what
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we face today. We are in a debt crisis. There is far too much personal debt, banking debt and Government debt. I would like to touch briefly on the personal debt and savings situation, which is so dire.

According to Credit Action, a national money education charity, during 2008 Britain’s personal debt increased by £1 million every 10 minutes, 124 properties were repossessed every day and one person was declared bankrupt or insolvent every 4.8 minutes as an exact consequence of what I just mentioned. Household debt has grown enormously higher than that of virtually every other country, even the United States, with which we share certain economic similarities. The UK’s overall household debt has now overtaken UK GDP. It currently sits at 109 per cent. of GDP—the highest in the G7. According to the chief economist of Citigroup, not only is it the highest in the G7, but the highest any G7 country has ever seen. That is the background to the current situation. Business interest repayments in personal debt have soared to £92 billion in the past 12 months. It is therefore absolutely essential in the long run that big changes are made. We need to move from an economy that this Government have built entirely on debt to one that is built more in a traditional way on savings. Britain needs to be encouraged to save for the future rather than to get further into debt, with all the consequences that we have seen. Unfortunately, the culture of saving is increasingly being replaced by a culture of dependency.

We have heard the statistics about the level of saving. In 1997 it was 9.9 per cent., and the latest figures suggest that it has now declined to 1.8 per cent. One might ask whether there is anything particularly unusual about that worldwide. OECD figures show that our savings ratios are far worse than those of almost all other industrial countries. The result is that in the current economic climate, many families across Britain are going into the recession without any real savings cushion.

Statistics published by the Alliance & Leicester reveal that 13.5 million Britons—28 per cent.—did not save at all in 2008. The same survey reveals that 18 per cent. of people dipped into their savings more last year to meet extra costs and bills, and the projection of attitudes in the coming year is even worse. The amount saved as a percentage of income has declined every autumn since 2005.

Being able to save money to provide future stability and security should not be exclusive to the affluent. No matter the size of their income, everybody should be encouraged to save. AXA has produced extraordinary figures showing that, amazingly, the only group of people who can save given the current financial and economic pressures are those earning more than £70,000 a year. That reflects the terrible squeeze on middle and lower-income earners, who have suffered grievously as a result of the interest rate reductions on their savings. The debt situation of 18 to 34-year-olds and people with mortgages also shows that the pressure is on.

The importance of families having savings cannot be stressed enough, yet according to research for MoneyExpert, nearly a third of adults would face financial disaster within two months if they lost their jobs. Half of them believe that they would last only a month. Given the tragedy of huge unemployment that is besetting us, we can see the consequences of such frightening statistics.
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We know about the decline in private and company pension scheme contributions, which have plummeted by 53 per cent. in the past 18 months, and people’s fears about their savings and pensions are stronger than ever. In his 2008 Budget, the Chancellor mentioned that the Government were

There is absolutely no evidence that that is the case—quite the reverse.

By 2012, our national debt will be approaching £1 trillion, which means that for years to come there will be a debt burden and an interest rate burden on anyone wishing to save. The Bank of England has stated that deposit accounts now pay average interest of less than 1 per cent., and there is very limited attraction to individual savings accounts and other such accounts in the current circumstances.

I simply wish to make the point that we need to cut taxes for savers in the current economic climate, to help turn Britain from a spend, spend, spend society into a save, save, save society in the long run. As John Varley, the chief executive of Barclays, said last week,

At least the Conservative party is putting forward plans to try to encourage exactly that process.

Many older savers who have acted responsibly during the years of irresponsibility now feel threatened and penalised, as Age Concern has commented. My hon. Friend the shadow Chief Secretary has set out exactly what the incentives should be, and I say simply that this is a matter of urgency. The tax incentives that we are offering to encourage saving should not be delayed. I urge the Government to listen carefully to what my hon. Friend says and adopt those measures in the forthcoming Budget, for all the reasons that I have given. They should not delay, for the sake of the future of this country and the stability and sense of security of millions of savers of all ages and from all groups in Britain.

6.4 pm

Emily Thornberry (Islington, South and Finsbury) (Lab): If we are to discuss savers’ interests at such a time, we must begin by examining the context, which is the international financial turbulence. If nothing had been done in Britain, the banks would have collapsed and most of our savers would have lost everything. If we are to consider the effects of economic policy on savers, we should begin there.

The Government have not only taken action to save the British banking system and to work with others to fight the downturn in the international finance market, but we have recapitalised the banks, which stabilised the banking system when it was on the brink of catastrophic collapse. We are now making further agreements with banks to get them lending again to get us through this period and out of the recession as quickly and with as little pain as possible.

Our taking action last year and ignoring the Conservatives’ pleas to do nothing meant that no individual saver in this country lost any money. The Conservatives now try to make political capital out of the difficulties by waving before us problems that savers may be suffering. We should ignore the Conservatives’ crocodile tears. It is hard to take them seriously when one remembers the
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Leader of the Opposition—the man in the shadows— advising Norman Lamont, who was Chancellor of the Exchequer when interest rates were 17 per cent. What help was that to savers?

It is hard to take Conservatives’ crocodile tears seriously when they talk about helping savers, yet savers on less than £30,000 would benefit from the proposed changes by less than £5 a year. It is hard to take those crocodile tears seriously when 60 per cent. of pensioners would not benefit from the plans because they do not pay taxes. It is hard to take seriously Conservative Members’ crocodile tears as they claim that they want to help savers, when that means that they would cut investment in public services during a downturn. That is economically illiterate.

Whatever help we may wish to give middle-income savers, I hope that we get assurances today that any such help will come when we are able to give it and not be at the expense of slowing public spending. Cutting public spending at such a time means undermining vital services, which help the poorest and those in most need.

The Conservative proposal would offer only limited help to some by cutting support and services for others, including those who need it most. The Leader of the Opposition has said that he would fund his idea by cutting investment in new Departments, but the figure given today was £4.1 billion. Where will that come from? Does it mean cutting the budget of the Department for Work and Pensions, when unemployment is unfortunately likely to increase? Does it mean cutting it to say good-bye to the proposed 220,000 apprenticeships? Does it mean cutting the new homes for social rent, when there are plans for another 10,000? Does it mean cutting investment in infrastructure, such as Crossrail? Surely it is not the time, when unemployment is unfortunately likely to increase, to cut infrastructure projects.

I appreciate that we are speculating about the jobs that Conservatives are contemplating cutting to raise the money, but we get no details from them, so they can hardly blame us for speculating on the effects of restricting Government budgets. We are told that the proposal will cost £4.1 billion, but if we cut back 1 per cent. of all the budgets, we would still be £500 million light. It has not been thought out. If one examines the way in which it was presented to the media, and considers the context in which David Cameron gave his answer—

Mr. Deputy Speaker: Order. The hon. Lady must remember that we do not refer to a Member of the House in that way. She must use the correct parliamentary language.

Emily Thornberry: On 5 January, the Leader of the Opposition, the right hon. Member for Witney (Mr. Cameron), stated:

If that is how economic policy is developed in the Conservative party, one can understand the difficulties of those on the Opposition Front Bench in giving us the details today.

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The spirit of the day is to quote the new American President. There can be no surer repudiation of the do nothing policy than that which he gave on 8 January, when he said of his plan:

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