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Session 2008 - 09
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General Committee Debates
Saving Gateway Accounts

Saving Gateway Accounts Bill



The Committee consisted of the following Members:

Chairmen: John Bercow, † David Taylor
Ainger, Nick (Carmarthen, West and South Pembrokeshire) (Lab)
Barlow, Ms Celia (Hove) (Lab)
Blizzard, Mr. Bob (Lord Commissioner of Her Majesty's Treasury)
Breed, Mr. Colin (South-East Cornwall) (LD)
Browne, Mr. Jeremy (Taunton) (LD)
Devine, Mr. Jim (Livingston) (Lab)
Duddridge, James (Rochford and Southend, East) (Con)
Hoban, Mr. Mark (Fareham) (Con)
Howell, John (Henley) (Con)
James, Mrs. Siân C. (Swansea, East) (Lab)
Ladyman, Dr. Stephen (South Thanet) (Lab)
Mudie, Mr. George (Leeds, East) (Lab)
Pearson, Ian (Economic Secretary to the Treasury)
Stoate, Dr. Howard (Dartford) (Lab)
Timpson, Mr. Edward (Crewe and Nantwich) (Con)
Walker, Mr. Charles (Broxbourne) (Con)
Chris Stanton, Sarah Hartwell-Naguib, Committee Clerks
† attended the Committee

Witnesses

Helen Banks, Policy Director, Retail Division, British Bankers Association
Adrian Coles, Director General, Building Societies Association
Alan Cook, Managing Director, Post Office Ltd
Mark Lyonette, Chief Executive, Association of British Credit Unions Ltd
Kevin Seller, Head of Government Services, Post Office Ltd

Public Bill Committee

Tuesday 27 January 2009

(Afternoon)

[David Taylor in the Chair]

Saving Gateway Accounts Bill

4.31 pm
The Committee deliberated in private.
4.37 pm
On resuming
The Chairman: I remind Members and witnesses that we are bound by the deadline that we agreed this morning, which means that today’s sitting must end by 6.30 pm at the latest. If necessary, I shall interrupt Members or witnesses in mid-sentence.
We shall now hear evidence from Helen Banks of the British Bankers Association; Adrian Coles of the Building Societies Association; Mark Lyonette of the Association of British Credit Unions Ltd, Alan Cook of Post Office Ltd; and Kevin Seller, head of Government services for Post Office Ltd. You are most welcome. We are grateful that you have given us your time and experience this afternoon. We look forward to hearing your evidence.
First, I ask you all to say a couple of sentences about yourselves, so that we know what your involvement with the legislation might be.
Helen Banks: Good afternoon, Mr. Chairman. I am Helen Banks from the British Bankers Association. I am a director on its retail team, with specific responsibility for financial inclusion and financial capability matters among others. I have seen the Bill through its consultation stages.
Adrian Coles: I am Adrian Coles, director general of the Building Societies Association. We represent the mutual building societies in the UK. They have a good record in promoting the individual savings account and the Child Trust Fund. We therefore have a natural interest in the legislation.
Mark Lyonette: I am Mark Lyonette, chief executive of ABCUL, the credit union trade association. The 500 credit unions have just over £600 million in savings, some of which will obviously be for people in exactly this target audience.
Alan Cook: I am Alan Cook, managing director of Post Office Ltd. As you may well know, we have 11,500 branches and a growing aspiration to be a key player in the financial services market and, in particular, to make a worthwhile contribution to the financial inclusion agenda for this country, in which this account appears to play a part.
Kevin Seller: I am Kevin Seller, head of Government services for the Post Office, so I have been engaged in conversations with the Treasury so far in terms of the role that I hope the Post Office will play in developing these accounts and offering them to citizens.
The Chairman: We shall open with questions. First, we shall ask about provision of services, sales and interest. It will help our witnesses and me as your Chairman if you indicate whether the question is aimed at a specific person or is open to the whole panel. I shall ask Mark Hoban to start.
Q49 Mr. Mark Hoban (Fareham) (Con): This question is for all of you. We heard this morning about why the saving gateway product is attractive to potential savers. There may be demand out there, but will there be supply? I think that so far only the Post Office has indicated that it intends to provide a saving gateway account. Can you say, from your various organisational perspectives, where you see the costs arising on the gateway accounts and how attractive they are for the bodies that you represent? Perhaps we can start with Helen and then work our way along the panel.
Helen Banks: First, there is a fundamental objective of providing a savings facility to people on a low income, and the banks have certainly supported that as part of our overall financial inclusion agenda. You are talking about the specifics and how the product might work in terms of cost of provision. It is fair to say that it will come at a cost. A lot of the work that we have been doing has been about trying to make it as economically viable a product as possible. The benefits to the banking members who decided to provide it would be around reputation, rather than a commercial product earning a particular return for the banks.
Adrian Coles: Certainly some building societies will offer this product, but not all of them. Those who are inclined not to offer the product—of course, we do not know until we have seen the full set of regulations—tend to say that the market will be small and the costs will be high. We know that the maximum estimated size of the market is £260 million. That is about 0.6 per cent. of the flow of new deposits in 2007, yet some aspects—the requirement to give statements, the transfer of accounts between different types of institution during the two-year period, the requirement to provide information to Her Majesty’s Revenue and Customs and so on—could lead to significant costs on fairly low-balance products, so for many societies, the jury is out.
I am certain that some societies are sympathetic to the product and will want to offer it, but others, in the current environment of low profitability, low margins, difficulties in the mortgage market and very low interest rates, may decide to stay out of the market.
Mark Lyonette: Many of our members would be very keen to offer the account. We may not have some of the same systems costs as banks and building societies in terms of development of banking platforms, but we see the cost of collection as quite significant, in so far as our members would want to encourage take-up, we would try to move away from cash collection and make use of the more cost-efficient ways that we have of collecting money from people on low incomes. We will look to make have payroll deduction agreements with employers of people on low wages. Similarly, for people who are paying their benefit into the credit union, we would look to have deductions from benefit, because even with our cost structure, which obviously is very different from that of Adrian’s and Helen’s members, we cannot look to make this work on cash collection. The cost of collection is not sustainable, in our view.
We also think that the mechanisms for deducting from people’s wages and benefits have another advantage, which is that they are incredibly convenient. One of the things that the credit unions have learned over the years is that savings are not just about return. Convenience also encourages saving. It is also about—this is particularly important in current times—perception of safety. To get people to part with their savings, you need those three things. Convenience is key, not just the 50p match, so we will look to partner more with larger employers—in fact, with all ranges of employers. We want to see if we can collect savings in a way that is very easy for people—like falling off a log, is how we like to describe it—and to make it as cheap as possible for the providers and credit unions.
Alan Cook: The Post Office has been very clear that we would be keen to participate in this initiative. As I said in my introductory remarks, this goes to the heart of the Post Office’s role in terms of financial inclusion. We have the best part of 4 million customers still collecting benefits in cash from post offices. We think that 1.5 million of those are probably eligible for a saving gateway product in their own right. We are actually paying the benefit in cash over the counter.
I would not, though, want to trivialise the cost issue. I might lie somewhere between ABCUL and the banks. I would need to find a partner to provide the administrative capability and would pay that partner to do the work. That partner might well belong to one of the other associations at this table. The economics are there and need to be tackled. The Post Office believes that it would be a good thing to do, and that we need to find a way to make it work. We would expect, probably, to take a significant market share of the accounts, which would of course make it easier.
Q 50Mr. Hoban: I want to follow up on a couple of points that have been made. First, Helen, you talked about some of the things that you would like to happen to reduce the cost. Could you go into a bit more detail about what you would like to see in legislation to reduce the cost to banks in providing the accounts? I guess that that question applies to all of you.
Helen Banks: Yes, of course. The Bill has already taken into account a number of the views that we expressed on the early proposals. It is important to say that we have been working with the Treasury for some time on this. We had some issues with the complexity of matching or maturity payments, for example.
In terms of where we sit now, our members remain concerned about one or two key issues. At the top of the list is transferability and the complexity that it will add to systems developments. The transfer process will probably have to be a manual workaround, and, of course, those are always more costly than automated systems. That angle is slightly complicated by the need to provide the history of an account in order for the new provider to do the maturity calculations at the correct time and to include such information in statements and so on, which would be passed from one provider to another. That is one of our key concerns about complexity.
Other questions remain about the regularity of statements and the information required in them, for example. At the moment, we are talking about a six-monthly statement, which I think is fairly widely accepted. However, if prescription of information required in the statement is particularly onerous, an additional systems build, and therefore more cost, would result. Anything where we have to develop systems comes at a cost, frankly.
Adrian Coles: I agree with all of that, but is there a requirement for six-monthly statements? Let us suppose that you offer a passbook account, in which customers have in their hand, any time that they want to look at it, a statement recording all their payments. Why then force the savings provider to go to the trouble of posting an additional statement? Again, that would be too prescriptive. One or two things can be left to the discretion of the customer and the institution, without being in the regulations.
Q 51Mr. Hoban: Alan, it sounds like you have gone the furthest in looking at this, and yours is the only body to have expressed an interest. What share of the market do you think that the Post Office would need to make the operation economically viable?
Alan Cook: That is a tricky question to answer, because it is not yet clear to me how it can be economically viable—full stop. If we obtain a larger market share, it is easier to produce a justification for doing it. I can only really look at this in the context of broader financial inclusion, of which this is a component. If I ask it to stand up in its own right, what you are hearing from the other witnesses is that it is quite tough. There is quite a lot of administration running off very small average balances, which makes it difficult to make the thing pay.
Q 52Mr. Hoban: Are we in danger of repeating the mistake made with Santa products, which were low-cost, simple products that were not attractive to providers to retail?
Alan Cook: That is the potential risk. If there is over-prescription, you will introduce extra costs. We do business in different ways with our customers, and we should allow the organisations to play to their strengths. Our strength is face to face, for example, as Mr. Lyonette’s would be, although he may be working for employers, from what I hear. Mr. Coles already made the point that there is a tendency to have a passbook, for instance, for building society accounts and other assets. If we are very prescriptive, we will force everyone to do things in exactly the same way, and it will rise to the highest average cost if we are not careful. The fundamental problem with all financial inclusion initiatives is that the average amount of money handled will be quite small, and the cost is not really any less just because it is a small amount of money.
Mark Lyonette: Even we are looking, to some extent, for hidden subsidies, although not Government cash. We have worked a lot with the social landlord sector, and they are very keen on it. The Chartered Institute of Housing did a big report on savings with rent, a point at which people are parting with money anyway; a small amount can be added if they agree to do so. We may be looking for social landlords to do some of that collection business for us. They are doing that not because the Government or the customer will pay them but because they have an interest—presumably often a strong business interest—in the wider financial inclusion agenda.
Kevin Seller: I would only add that, as Alan said, our advantage is that we have a lot of face-to-face contact with those customers, so I do not think that attracting them will be an issue for us. Our concern is that we might get an awfully large number of them and exceed the Treasury’s wildest expectations in terms of take-up.
 
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