Dr.
Ladyman: I take the hon. Gentleman’s point that the
evidence given to us was that there would be a significant cost in
transferring these accounts and this is one of the simplicities that
the bankers were looking for. Equally, I wonder whether it occurred to
the hon. Gentleman that doing so would be anti-competitive since, if
one of the banks decided to offer a more
generous rate of interest on one of these accounts because it wanted to
nurture a client base for the future, not allowing people to transfer
would prevent them from taking their money out of a provider that was
not providing that generous rate of
interest.
Mr.
Hoban: I agree. The argument against transferability is
quite strong on the grounds of competition. One could argue that the
best way for banks and other providers to compete is on the sign-up
process. Before someone takes out a saving gateway account, they could
shop around among a range of providers to find out what the conditions
are, what is offered in these accounts, whether or not they offer
interest and what it is, and what is the default option when the
account matures in two years. In that way, we could have all
competition taking place up front before someone signs up to an
account. However, as the hon. Member for South Thanet rightly pointed
out, that means that once someone has been enticed into saving in that
account they are locked in for two years, and it also prevents people
switching to take advantage of a better
rate.
5.30
pm
There is a
debate to be had on the extent to which people will transfer from one
account to another and whether we are prepared to accept the trade-off
between reducing the cost base of operating the accounts on the one
hand, thereby potentially increasing their availability and the number
of people prepared to offer them, and the anti-competitive element that
that includes on the other. I am mindful of that debate, and those were
the two arguments I considered when writing my
notes. As
one who fervently believes in the importance of competition, I want to
see as many account providers as possible. Indeed, I would like people
to be able to switch between accounts, but if the costs of the transfer
option are such that that restricts the number of providers, are
consumers best served by that smaller number of providers even though
they have the option of transferability? There is a tension between the
number of providers and the question of whether they will be attracted
to a system that will leave them to incur additional costs if people
transfer from account to account, and it is important to explore
that. When
potential account providers look at whether to enter the market, they
will need to understand the cost base—we will talk about
statements later—and clearly they will have to bear in mind some
of those parameters and whether it is economically viable for them to
run the account. We need to have that on one side and the consumer
interest on the other. I have tabled the new clause to stimulate that
debate: we heard the view of potential account providers and it would
be helpful to hear the Minster’s view.
I have
included one proviso, because the one case in which we need to be able
to transfer accounts from provider to provider occurs when a bank
becomes insolvent. It could be forced into administration or the
Government could take it over and transfer the accounts to another
bank, as was the case with Bradford & Bingley. I am very conscious
that next week Members will consider Lords amendments to the Banking
Bill, but in lieu of that Bill being on the statute book, I have
incorporated in new clause 1 a provision relating to the Banking
(Special Provisions) Act 2008. As the Minister will
know, many of the actions that have been taken to solve the banking
crisis over the past few months have been taken under the ambit of
powers in that Act, so it seemed a convenient reference to include for
the purpose of the
debate. The
new clause is intended to be probing and to tease out the issues
relating to transferability and to how it could help consumer interests
once someone has taken on an account by encouraging or enabling
transferability. Equally, however, transferability might reduce the
number of providers who come forward to provide the saving gateway
accounts if it leads to additional costs. If there are fewer providers,
that might impair the competition in the marketplace and make the
accounts less attractive.
Ian
Pearson: As nearly always, the hon. Gentleman has a point.
The Government have to make judgments on what the best action to take
is if we are to ensure a plurality of provision of saving gateway
accounts on the one hand and the ability to ensure that transfers can
take place when they are in the interests of individual savers on the
other. Clause 7 addresses that, and new clause 1, which the hon.
Gentleman has tabled in a probing manner, would place severe
restrictions on the opportunity for transfers to take place and would
clearly be defective within a couple of weeks when the Banking (Special
Provisions) Act is superseded. However, this is an opportunity to show
the Government’s current intentions and underlying thinking,
much of which is set out in the draft
regulations. We
would not expect transfers to be frequent. Unlike child trust funds,
these are short accounts lasting two years and, unlike ISAs, it is not
likely that account holders will want to change providers regularly to
obtain a better interest rate—the match payment will be the same
with any provider and will be significantly larger than any return paid
by the provider. However, we are attracted to saving gateway account
holders having the option of transferring their accounts between
providers. For example, an account holder may move and find that their
current provider is no longer accessible. That is potentially the case
for people moving within rural areas. However, we do recognise that
this remains a concern for potential account providers, as the
Committee heard in the evidence
session. The
hon. Gentleman is right to say that there are, potentially,
administrative costs involved in paper-based transactions, if transfers
were to take place. That is one reason why we need to continue to
discuss this matter in detail, as we mentioned in the explanatory notes
to the draft regulations that we published. However, clause 7 would be
required, whatever the outcome of those discussions. Even if
transferability were not a requirement of offering saving gateway
accounts, a mechanism for transfers would be necessary to cater for
cases where the transfer is triggered by the account provider, rather
than the account holder. For example, if an account provider were to
choose to withdraw from offering saving gateway accounts, their
accounts would need to be transferred. The same would be true if a
provider had their approval withdrawn by Her Majesty’s Revenue
and Customs or ceased to qualify as an account provider for any reason.
In such cases, transferring the accounts to another provider would be
the only way of ensuring that they could continue to account maturity,
so that the account holders could receive their maturity
payments.
The new clause
would permit transfers to another provider, only in the circumstance
that the saving gateway provider with which the account is held is
subject to the Banking (Special Provisions) Act 2008. Our intention, as
set out in the regulations, is broadly that a transfer may be made
where an account holder wishes to move from one provider to another and
that there should be no charge when an account holder wishes to do
this. We understand that the complexity and potential costs involved
remain a concern. I assure the hon. Gentleman that we will continue to
discuss this matter in detail, as I have already
said. Let
me explain why the new clause, although intended to probe, is limited
in scope. It is subject to the Banking (Special Provisions) Act 2008,
which, as Committee members know, gives the Government power to take a
failing UK deposit taker into public ownership or to transfer its
assets to another private sector body to maintain the stability of the
UK financial system or to protect the public interest. That is a narrow
set of circumstances and a provider could be subject to the Bill only
in the specific circumstances that it sets out. The new clause would
not permit transfers where, as I have said, a provider chose to
withdraw from offering saving gateway accounts, and it would not permit
transfers if a provider were to have its approved status removed, so it
is defective as a piece of prospective
legislation.
John
Howell: If the Economic Secretary is saying that it is the
Government’s intention to facilitate transfers, I am a little
surprised by regulation 19(3), which, since we do not know what the
“any necessary modifications” mentioned in it are going
to be, effectively means that a transfer account has to start again in
going through the banks procedures, because those push it straight back
into the regulation 13 requirements that we have already discussed,
particularly in relation to my earlier amendment. I am surprised that
the Economic Secretary is doing that. Does he accept that that also
produces a potential conflict for a transferred account? It would be
coming from a bank with one set of regulation 13 compliance for its own
purposes to another that may have a completely different set and may
not be willing to accept the
account?
Ian
Pearson: I do not have the particular regulation to hand,
but I want to say in response to the hon. Gentleman that, as a
Government, we currently intend that transfers should be allowed to
take place, at no charge, where an account holder wishes to do that. It
would clearly be up to the account provider to ensure that, if the
transfer is taking place, the account holder is aware of the particular
requirements operated as part of the provider’s saving gateway
account and in undertaking the necessary checks. I shall look in detail
at the regulation, but our current view is, clearly, that we want to
see transfers, but that we are conscious of the potential costs
involved. As I indicated, we are open to further discussions with the
industry, because we want to make sure that the saving gateway scheme
does not impose burdens on providers such that they might be put off
from offering saving gateway
accounts.
Dr.
Ladyman: I understand where my hon. Friend is coming from,
but I am worried about providing the banks with an opportunity to cop
out. If they can build
cost into the process of transferring between accounts, they will do
that. We require electricity, gas, water and telephone companies to
have procedures in place automatically to transfer accounts between
customers at as a low a cost as possible and as quickly as possible.
They are required to do that for competition purposes, so they keep the
costs down. Admittedly, in my experience, they almost always screw it
up when they do it, but nevertheless they are required to have those
procedures in place. I do not see why it would be any different to
require the banks to be able to transfer accounts between each other at
as low a cost as possible. If the banks are expected to do that, they
will make sure that the procedures are in place for it not to cost them
too much
money.
Ian
Pearson: I understand my hon. Friend’s point, but I
ask him to understand the situation with the banks. They will be
offering accounts that, hopefully, will be taken up in significant
volumes, but have relatively small sums of money deposited in them and
are likely to involve procedures that would probably have to be
paper-based and—if there are significant transfers taking
place—could well be expensive. That will affect their judgment
as to whether they think it is worthwhile participating in the saving
gateway programme. We are keen for them to do so, and we want to have
discussions with
them. Clearly,
it is in the best interests of savers if they can move around. We would
like to see saving gateway accounts offering rates of interest,
although there is no such requirement in the legislation. That is
something that we shall probably discuss later on in the
Committee’s deliberations. At the moment, we do not think that
there will be significant drivers for accounts to be transferred,
because as I have indicated it is the match that is clearly the most
important thing here. We shall continue to have dialogue with the
industry about that. We want to get to the bottom of how much cost
really is involved, and whether it is a major problem, because it is
something that we would like to see
done. Mr.
Edward Timpson (Crewe and Nantwich) (Con): To try to piece
all this together, is the Minister saying as he did few moments ago
that there should be no charge for transfer, under any circumstances?
Or is he envisaging that, depending on the circumstances under which
transfer took place, there will potentially be some charge to the
account holder as opposed to the
provider?
Ian
Pearson: We have said that we want to see transfer at no
charge to the account holder. Inevitably, if transfers are going to
take place, there will be some costs to the account provider. The
debate we are having with the industry is about how significant those
costs are and whether they are likely to deter it from wanting to offer
savings gateway products. We will continue to have that debate with the
industry.
5.45
pm It
is our firm view that it is desirable for transfers to take place. We
do not expect them to be in any great numbers because of the nature of
these accounts and because they are relatively short term, but we would
like to have the flexibility so that consumers can undertake these
transfers. That is why we want to continue to have dialogue with the
industry—it is important that we do
so. As I indicated earlier, clause 7 is still necessary, whatever view
one takes on transfers. It is an important part of the
Bill. Mr.
Hoban: I am grateful to the Economic Secretary for
responding and in particular for pointing out that, notwithstanding the
comments I have made about transferability, there would still be a need
for clause 7 to be part of the Bill, given that there would need to be
some regulations around transfers.
We have had a
helpful debate about the costs. We talked about the benefits of the
account to account holders and why it is important in terms of
delivering a culture of savings to people who do not, currently, save
much. This short debate has highlighted the importance of making sure
that there are providers in place to provide those accounts and provide
those opportunities for saving. While I focused on the area around
transferability, hon. Members who took part in last Tuesday’s
evidence session will recollect that it was not just the banks who were
concerned about the costs of operating these accounts; Adrian Coles of
the Building Societies Association made a similar point, as did Mark
Lyonette of ABCUL, about the cost of collection and cash handling. If
we are to make sure that these accounts are available, it is important
that the providers themselves see a purpose for providing these
accounts and feel that it is beneficial to them to do so.
One of the
issues that bedevils financial inclusion can be that often people come
up with some good ideas for products that might meet the needs of
consumers, but they do not come up with products that providers want to
provide for a whole range of reasons. Ron Sandler, the chairman of
Northern Rock, did a good report on some basic products, but
unfortunately the design of those products means that no one is
prepared to provide them. We need to think of both sides of the
equation, which is part of the purpose of raising the issue around
transferability this afternoon. We need to make sure that there are
people out there who are prepared to provide these accounts.
The hon.
Member for South Thanet spoke about perhaps encouraging the Post Office
to be the sole provider. My concern would be that we would get a
monopoly provider by default rather than design, if we do not get the
product design right and make sure that the conditions are in place to
encourage as many people as possible to provide those. That is the
purpose around tabling new clause 1 and I am grateful that we have had
the opportunity to have that debate this afternoon.
Question
put and agreed to.
Clause 7
ordered to stand part of the
Bill
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