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Mr. Hoban: But the Bill gives the Minister the power to double the monthly contribution by means of the negative procedure. We do not know how much people will save, but that could have the same financial impact as doubling the match rate and leaving unchanged the amount that can be saved.
Ian Pearson: That is true; that is how the legislation is worded. If a future Government decided to double the match rate without consultation and without agreement, I am sure that people would pray against the regulations. Our clear policy intention is to update the monthly deposit limit, but we do not at the moment foresee making a fundamental change, such as a change to the match rate. That should be debated, and be subject to the affirmative procedure.
Dr. Ladyman: For the life of me, I have never understood why the Opposition always make that point. If the Government cannot afford something, they will not lay the regulations before the House, and if the Opposition do not like a measure, they can pray against it; it will then be debated in the same way as regulations introduced under the affirmative procedure. Will my hon. Friend confirm that Cabinet Office guidelines require a public consultation before regulations are laid before the House? That means that interested parties would have their say even before the regulations were laid before the House.
Ian Pearson: My hon. Friend makes a very good point. It is perfectly possible for people to pray against regulations introduced under the negative procedure; indeed, that happens quite frequently. I am simply making the point that a change to the match rate would be a fundamental change to the design of the scheme. As to updating the monthly deposit limit in the light of changes to inflation, inflation is low now, and under this Government, it will continue to be low and sustainable, but we need the ability to update that. A minor, technical amendment that updates the scheme in the light of inflation is more appropriately handled through the negative procedure. The hon. Member for Fareham and I will have to differ on the issue, but I hope that on reflection, he will not see it as a major issue that he wants to press to a Division.
The hon. Gentleman also raised the issue of tax relief. I understand his concern about the possibility of a future Government taking away the tax-relieved status of the saving gateway using the negative procedure. We have been very clear that the saving gateway will be free of income tax and capital gains tax, as is provided for in the draft regulations. I am happy to confirm that we have no intention of reversing our position. Of course, if a future Government were to choose to do so, it would be open to Members to pray against the relevant regulations, but it is not sensible to require all regulations relating to tax relief for the saving gateway to be subject to the affirmative procedure. Some of the regulations may be simple, technical provisions to reflect changes in the tax system more widely. We need to differentiate the policy intention from any fundamental change in policy; that is why the legislation is framed as it is.
The hon. Gentleman mentioned the length of the saving gateway account maturity period. I can see where he is coming from. He is saying that if we increase that
length and increase the monthly limits by the negative procedure, it could have as significant a cost impact as a change to the match rate. We agree, but the policy intention is to keep the match rate as it is. On the length, the intention is to evaluate the scheme properly once it has run for a period. If it is right to make changes in future, we will want to do so. Allowing the flexibility to make changes of that kind, so that we can ensure that the scheme continues to meet its objectives, is sensible contingency planning on the part of any Government. It is right that the measures should be subject to the negative procedure.
That brings me to amendment 2, which relates to the number of saving gateway accounts that a person can have in their lifetime. As I said on Second Reading and in Committee, our intention is that people should be able to have only one saving gateway account in their lifetime. That is reflected in the draft regulations. The saving gateway aims to kick-start the saving habit, as we know. It is therefore right that it should be a one-off account. Brian Pomeroy, the chair of the Financial Inclusion Taskforce, said during the Committee’s evidence sessions:
“it is right that they get only one shot, because the basis of the scheme is that it should be a kick-start.” ——[ Official Report, Saving Gateway Accounts Public Bill Committee, 27 January 2009; c. 18, Q38.]
I think that the hon. Member for Fareham agrees with us on that point. However, we believe that it is right, and sensible contingency planning, to maintain some flexibility on the issue and to give this and future Governments the freedom to allow people more than one account per lifetime, if that is thought reasonable at a later date.
Amendment 2 would restrict that flexibility by requiring the Government to consult interested parties and to lay a report of that consultation before Parliament. That would be an unusual requirement for legislation to impose, and it is not necessary. If we wanted to consider a change to the number of accounts that a person could hold in their lifetime, I am sure that we would want to consult on the idea. As my hon. Friend the Member for South Thanet (Dr. Ladyman) says, under the normal procedure and the guidelines followed in such cases, we would consult. We would want to make sure that any change was effectively targeted, which would mean consulting and talking to various bodies. We have shown in recent years that we are keen to take the views of interested parties into account, when it comes to the design of the saving gateway. Indeed, it has been pointed out that we have hardly rushed into introducing saving gateway accounts. There has been extensive consultation and dialogue, and we are continuing to discuss with various providers how the accounts will be implemented, as the House will be aware.
I do not believe that the Government’s flexibility should be restricted in the way proposed in amendment 2. Nor do I think that the changes proposed in amendments 7 to 10 strike the right balance when it comes to what should be covered by the affirmative procedure, and what by the negative procedure, so I hope that the hon. Member for Fareham will seek leave to withdraw his amendment.
2.30 pm
Mr. Hoban: The hon. Member for South Thanet (Dr. Ladyman) asked why Opposition Members argue for the affirmative procedure; it is because we want increased parliamentary scrutiny. We know that it is more convenient for the Government to get their business through with as little grit in the process as possible. That is why Governments tend to prefer the negative procedure.
Mr. Jeremy Browne: Perhaps the hon. Member for South Thanet (Dr. Ladyman) should have asked the Minister why the Government are so unkeen for the affirmative procedure to be used; he might then have got the answer to his question.
Mr. Hoban: Given the ministerial experience of the hon. Member for South Thanet, I suspect that he knows exactly why Governments prefer the negative procedure. Of course, we will treasure his remarks, just in case roles are reversed in the next couple of years and he then argues in favour of applying the affirmative procedure.
Dr. Ladyman: I have noticed that the frequency with which the Opposition ask for the positive procedure to be used seems to be in inverse proportion to their lead in the opinion polls.
Mr. Hoban: Well, I do not think that the two are in any way correlated. There is a debate to be had about what the level of parliamentary scrutiny should be. The Minister’s explanation of why he rejects the amendments indicates that there is a fine line to be drawn, because there are areas where technical changes could be subject to the negative procedure. Part of the issue is that there are some instances where the Government could make a minor, technical change, such as a change to some detail in the tax treatment of saving gateway accounts, or a fundamental change.
What we lack in the Bill and in the procedure of the House is a way of distinguishing between a significant change and a technical change. As the Minister said, there could be a change to the monthly contribution limit just to index-link it. We would all agree that that would be a relatively minor change, which could go through on the negative procedure. However, the Government could make a significant change to double or halve the monthly contribution, which would be far from a technical change. It would be a substantive change, and the Opposition would have to go through the negative procedure by praying against the regulation.
The Minister commented that he viewed my amendments more charitably than did the hon. Member for South Thanet. Perhaps I view the powers that the Government have under the Bill less charitably than I should; perhaps I see the opportunity to make significant changes and emphasise that opportunity rather than the possibility of making minor technical changes. On balance, I would prefer more parliamentary scrutiny with the capacity to make a significant change that could have an impact on the account, and I would prefer to err on the side of caution, rather than make it easier for Governments to get business through. However, I appreciate the points that the Minister made, and I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Mr. Hoban: I beg to move amendment 1, in page 7, line 9 , at end insert—
‘(1A) Subject to subsection (1B), funds in the account will be transferred into an account which pays interest at a rate which is equal to or greater than the rate paid on funds held in an Individual Savings Account as set out in the Finance Act 1998 (c. 36) operated by the Savings Gateway Account provider in question.
(1B) Where an account provider does not operate an Individual Savings Account, the amounts will be transferred into an account that it provides which—
(a) has no penalty for the withdrawal of funds without notice; and
(b) offers a rate equal to or higher than the highest interest rate offered on other accounts operated by the provider.’.
The final amendment covers an important point that we discussed in Committee. Clause 16 deals with the transfer of funds when an account ceases to be a saving gateway account. It is a significant element of the Bill because it creates a clear expectation of what should happen when an account comes to an end, and should be seen in the context of ensuring that people are given as much incentive as possible to continue the savings habit which they will hopefully have developed over the two-year period.
In the pilot programme, the default option was a savings account with a very low interest rate. That is a better option than defaulting into a current account, not only in terms of the interest that someone might earn, but because a savings account might discourage them from withdrawing the money, whereas if it is lumped together with their existing current account balance, there might be a greater incentive to spend it.
The amendment seeks to reflect some of the concerns expressed about the default option. The intention behind the Bill is to ensure that when the account comes to the end of its two-year period, there is a roll-over into an individual savings account. I sought in Committee to make that mandatory. A number of objections were raised, which I try to reflect in the amendment.
In the evidence-taking session there was some debate about whether an ISA was the appropriate default option. Teresa Perchard from “Which?” expressed a preference for a plain vanilla savings account because of some of the complexities attached to ISAs. Matthew Wakefield from the Institute for Fiscal Studies was more open to the idea that the account should default into an ISA. One of the other arguments made in the evidence session—by Adrian Coles of the Building Societies Association, I think—was that some providers might wish to default a customer into an account with a much higher rate of interest than an ISA. That would be a positive move, but in most cases the ISA rate is higher than the rates generally offered on instant access savings accounts.
Others made the point that some potential account providers did not offer an ISA. One can imagine a credit union, for example, not offering an ISA, and I would not want credit unions to be excluded from the provisions of the Bill, so my alternative suggestion is that where a
provider does not operate an ISA, the amount should be transferred into an account where there is no penalty for instant withdrawal without notice, and which offers a rate equal to or higher than the best rate offered on another savings account.
If somebody is rolled into an account that offers the best possible rate for that saver, it is meant to be an attractive option and to ensure that rather than the money being lost to a current account at the end of the two-year period, it rolls into a savings account and that we get the best possible deal for the saver by mandating that it should be an ISA or, where that is not offered, an account with a rate equivalent to the best rate that the provider offers.
What happens when the account matures is, as Alan Cook from the Post Office said, a critical issue. It will help to influence the way in which people manage their money in the future. The more we can do to ensure that the default option is an account such as an ISA which offers a good rate of return and a sense that the money is set aside, the more likely it is that we will encourage people to continue to save in the future.
Dr. Ladyman: I agree with the hon. Member for Fareham (Mr. Hoban) to this extent: all the accounts must have a default option. People should be told what that is when they go into an account. They should be told that at the end of the two-year period, they will have choices. It should be made explicit that there is not one option, but a range of choices that they can make. They should be told that if they do not exercise that option, the provider has a default option, which should be explained.
I agree with the hon. Gentleman that there are many people for whom the best default option will be an ISA, from which they will get the best rate of return. Equally, many of the people at whom the scheme is aimed will not be payers of income tax. We won today a kind concession from the Minister that carers, for example, will be entitled to saving gateway accounts. Those people may envisage a very long period of being a carer; if so, they will therefore not be income tax payers in the near future. For them, a different type of account may be preferable to an ISA. For example, a national savings and investments account, where payments are made without income tax being removed from the account, might be the best and most convenient option for them.
I hope that people will decide for themselves when they go into saving gateway accounts whether they are likely to benefit from an account that defaults to an ISA or an account that defaults in some other direction. It is even possible, as we discussed in Committee, that the Post Office will act in partnership with other organisations to provide saving gateway accounts. The Post Office might be able to offer a plurality of choices into national savings and investments accounts or into ISAs as a result of such partnerships.
To the extent that the hon. Gentleman intends to ensure clarity about offering choices at the end of the saving gateway accounts, and to the extent that there will have to be a default option, I agree with him. Where we part company is on his belief that for everybody an ISA will be the best option. For many of the people on very low incomes whom we are discussing, that will not be the case. I want to see a range of providers who cater for that market, as well as for those people who would benefit from an ISA.
Mr. Jeremy Browne: There are three broad areas of consideration in respect of this issue, and we touched on them during our early deliberations; I think that we broadly agree on all three. The first is that people who take out the accounts should be able to access their money in full whenever they wish to. We agree on that, but the principle is important. Although we do not want them to access the money as that would rather undermine the purpose of the scheme, many of them would be unlikely to participate in it unless they felt able to access their money if they chose. We have to be extremely cautious about sending out the message that barriers—even if only procedural, rather than absolute—are being put in their way.
The second point is that the accounts should resemble a normal savings account as much as possible. In Committee, we discussed whether the accounts should attract any interest, as well as statements and all the features with which people with normal bank savings accounts will be familiar. If we wish people to take up the savings habit and the transition into conventional savings accounts once the two-year period has elapsed, we should want the characteristics of the gateway account to represent a normal account; that is desirable in so far as it can be achieved.
The third area relates to the purpose of the entire Bill. Even if the people who take up the option of having one of the accounts decide on occasions to use the money that they have saved on short-term expenditure, the scheme will still succeed if it makes them more likely to be longer-term savers. For me, that is the purpose of the legislation. A significant group of people in society—perhaps, 10, 15 or 20 per cent. of people—have an insufficient stake in their country and society as a whole; I am thinking of their participation in the democratic process and civic society, but the issue is most keenly felt in their lack of stake in the financial future of the country. Even quite modest savings will give such people a feeling that they have something to gain—and even something to lose—according to the fortunes of the country in which they live. It is important that those people do not feel isolated from the mainstream. Any amendments or progress that we can make that encourage people to regard the account as the start of a longer-term trend for their finances, and inclines them to save beyond the two-year period, is to be welcomed—with the caveat that they should not be compelled.
I am sympathetic to the motivation behind amendment 1, but I fear that it is too inflexible. The motivation is good, because it accords with the principles that I have sought to outline. Perhaps, however, there is a means of reaching that point that is superior to going down this rather narrow path. If the Minister knows of such means, I would welcome it. However, I urge him to take seriously the inspiration behind amendment 1, because that will govern whether the legislation is deemed a success in five or 10 years’ time.
John Howell:
The debate about amendment 1 has been helpful because it gets to the heart of what the Bill is about. The ultimate success of the Bill would be achieved if people changed their behaviour and were encouraged to save, so it would be unfortunate if we left the post-savings gateway account period in any degree of uncertainty. That would affect two of the Bill’s long-term-success criteria, outlined in Committee by
my hon. Friend the Member for Fareham (Mr. Hoban). One was about persistency—about whether the Bill will make the culture change happen. The second was about the increase in net wealth that ought to come with it. Brian Pomeroy added the criterion of wider entry into financial inclusion.
One of the most telling remarks in the evidence sittings came from Teresa Perchard of Citizens Advice, who talked about how we all feel an inertia about banking—even those of us who are experienced at banking. She said:
“Everybody hates their bank but will not shift accounts.” ——[ Official Report, Saving Gateway Accounts Public Bill Committee, 27 January 2009; c. 16, Q33.]
That inbuilt inertia is also a good reason for the sentiment behind the Bill and for making the post-account period clearer in relation to what we expect to happen as a result of it.
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