Clause
8Maturity
payments Mr.
Hoban: I beg to move amendment 32, in
clause 8, page 4, line 31, leave
out from ‘is’ to end and insert ‘50
pence’.
Clause 8
deals with the maturity payments that will be available to people who
have opened savings gateway accounts and the payment that would be made
at the end of two years. The familiar theme over the course of
today’s scrutiny is to insert one of the key features of this,
which is the amount of the maturity payment which, we are all clear, is
50p in the pound. Rather than repeat the debate about why the
Government want flexibility and why it is appropriate to specify the
rate in regulations, rather than in the Bill, it might help the
Committee to reflect on last week’s evidence sittings, in which
witnesses gave their justifications as to why the amount should be 50p.
That rate appeared to be sufficiently attractive to encourage people to
save, although one witness suggested that it was extremely
generous. It would help
if the Minister put on record the Government’s rationale behind
the 50p rate. He was not a witness last Tuesday, so this is the first
chance since Second Reading that the Committee has had to probe his
rationale. I sensed from last week’s witnesses, with the
exception of those comments about 50p being extremely generous, that
they thought it a sufficiently attractive rate to encourage people to
save and to keep their money in the accounts for as long as possible.
It would help if the Minister set out clearly the Treasury’s
thinking behind that
amount.
Mr.
Browne: I rise to give my wholehearted support to the
amendment for both reasons that the hon. Gentleman touched on. First,
it is unacceptable to invite the Committee to endorse a Bill with all
the numbers and details stripped out, leaving them able to be adjusted
at any point by the Minister. That makes a mockery of the entire
process of parliamentary scrutiny that we are sent here by our
constituents to undertake. If the rate is to be 50p, and that is the
amount of public money that the Government are committing, it seems
reasonable that we should be able explicitly to endorse that.
I should also
be interested to know how much the Economic Secretary thinks the
overall scheme will cost. I appreciate that that will be an estimate,
but it is necessary for us to be able to tell our constituents, and
others who are interested, what the implications are for public
spending, so that they can make a judgment, if they are interested in
these matters, about whether the 50p rate is appropriate, not only as
an incentive to savers, but in terms of cost to the taxpayer.
The hon.
Gentleman’s second point about the 50p rate is whether it is the
minimum level at which we can maximise incentive. Is it providing value
for money, or could we persuade as many people to save if it were 40p,
therefore doing so at lower cost? Would there be a noticeable bounce in
the number of people who would save if it were increased to 60p? If so,
the scheme could be made much more attractive without reaching much
further. That territory has not been explored
sufficiently. My
final point, which I shall address in more detail when we discuss my
amendments to this clause, is about how the 50p is triggered. That 50p,
when put against a pound in the 24th of the 24 months, provides a good
return in comparison with the 50p matched against a pound in the first
of the 24 months. It might be possible for the Government to devise a
scheme, which would admittedly be more complicated, whereby a pound
that stayed in an account for the duration of the 24 months attracted
the 50p, whereas a pound that was there for a shorter period would
accrue at a monthly rate and therefore would not make up the full 50p.
That system
might or might not have merit, but we are currently being invited to
endorse a measure that contains no figure whatever. We therefore cannot
discuss the merits of the Government’s proposal because they
have not deemed it suitable to give us a proposal to support or vote
on. Ian
Pearson: At the risk of starting a competition on how many
music titles one can get into a speech, let me say that the song
remains the same when it comes to whether matters are put into the Bill
or are contained in secondary legislation. We think as a matter of
principle that the match rate is more appropriately dealt with in
secondary legislation, because in the light of events, as we evaluate
how the saving gateway programme develops, we might want to increase or
reduce
it.
Mr.
Browne: The Economic Secretary said that he might wish at
some point to increase or decrease the 50p match rate. Just to be
clear, would that apply to new account holders, or would it be possible
for someone to embark on a saving gateway account with a 50p match rate
and then, at some point during that two-year period, for the Government
to decide that it was wise to reduce it, for example, to
25p?
Ian
Pearson: Again, the song remains the same. We do not want
to speculate on what a future Government might want to do. I am just
saying that as part of sensible contingency planning, any Government
would want to include the match rate issue in secondary rather than
primary legislation so that if circumstances and evidence indicated
that the match rate was not generous enough or too generous, they could
alter it without the need for primary legislation. We want to be clear
that that would not be done retrospectively, particularly if a lower
match rate was being
introduced. To
return to the basic question about the 50p match rate—whether it
is too high or too low, and why the Government came up with that
figure—the first point to make is that our overall policy
objective is to kick-start the savings habit. Then it must be asked
what the most effective way is to do that. What level of incentive is
required to encourage people to save? As the Committee will be aware,
we gained information on that matter from the pilots. The second pilot
showed that savers found a match rate of 50p for every pound to be a
strong incentive to save. A lower match rate would clearly provide less
of an incentive to save and would be likely to lead to lower take-up of
saving gateway accounts.
The second
pilot appears to show that a match rate of 50p for each pound saved
made people 10 to 15 percentage points more likely to open an account
than a match rate of 20p. Again, in designing saving gateway accounts,
as a matter of policy, we had to make judgments about what level would
be most likely to get people to participate. As hon. Members will be
aware, one pilot looked at a pound-for-pound match rate. I do not think
that the evidence suggested that the more generous match rate would
produce significantly more savings. We thought that it was poorer value
for money for the taxpayer in terms of encouraging our policy
objective. We
are at the 50p rate, we believe that that is attractive and we want to
continue on that basis. It will be in secondary legislation, which we
will debate in due course.
Undoubtedly we can rehearse the arguments again, but on the best
evidence available from the pilots, our judgment is that 50p is the
rate most likely to help kick-start the savings
habit. The
hon. Member for Taunton finally asked how much it is likely to cost.
That will clearly depend on take-up rates, but we currently score the
cost of making the match payments at £130 million in 2012-13,
£110 million in 2013-14 and £100 million in
2014-15. I hope that that provides him with the information he
requested and that I have been able to clarify some of the
Government’s thinking behind our decision to have a 50p match
rate. We continue to believe that that will be attractive to the target
group, which is people of working age on low incomes. We want them to
save and we believe that this will help them to do
so. 6
pm
Mr.
Hoban: I thank the Economic Secretary for his response. It
is interesting to understand how the match rate incentivises people and
the point at which the level of the match rate ceases to act as an
incentive to people to save more. The fact that the pilots have
confirmed that 50p is as effective in encouraging saving as £1
is useful evidence. That means that the cost to the Exchequer of
introducing the measure will be less, and demonstrates that even at
that lower cost, we still hope to have an effective
result.
Mr.
Browne: I would be grateful if I could draw on the hon.
Gentleman’s greater experience as a Member of Parliament. His
amendment asks the Government to put the 50p figure in the Bill and the
Minister says that that will be dealt with by regulations and has
justified the 50p level to the Committee. However, after the Bill has
gone through all its stages in Parliament, will anything stop the
Minister turning around and changing that figure to something else with
a waft of his pen? If that is the case, why are we bothering to have
this conversation about 50p, because we have been completely bypassed
and the Minister need not pay any heed whatsoever to anything we
say?
Mr.
Hoban: The hon. Gentleman makes an important point. Having
raised the issue earlier about the difference between the first and
second use of power in respect of an earlier debate, I have checked the
matter. Each time the Government change the match rate they will have
to bring forward a statutory instrument under the affirmative
resolution procedure, so at least there is some parliamentary scrutiny
in that way.
As the hon.
Gentleman knows, we will not be in a position to amend the statutory
instrument if we have different views about the level of the match
rate, whereas if the measure were introduced through primary
legislation, we could seek to make such an amendment. However, there is
at least some parliamentary scrutiny through the affirmative procedure,
which will ensure that the Minister cannot change the rate without
having to come back to the House and explain his motives. A fail-safe
is in place and we can take reassurance from that. I beg to ask leave
to withdraw amendment
32. Amendment,
by leave, withdrawn.
Mr.
Browne: I beg to move amendment 8, in
clause 8, page 4, line 32, leave
out from second ‘the’ to ‘the’ in line 33
and insert ‘final
account balance at the end
of’. My
amendments have been grouped so as to have a discussion on amendment 8,
a separate discussion on 9 and 11 and a separate discussion
on 10. I certainly wish to deal with amendment 10 separately because
that is very much a different issue, but there is a degree of overlap
between amendments 8, 9 and 11. I will try not to test your patience,
Mr. Taylor, but if I touch upon those, I may not require to
speak specifically to them when that moment
comes. The
amendments are probing because what I am really seeking to explore is
the incentive for people to save and feel that they are participating
in a scheme that is “fair” in terms of their
expectations. People should also feel that the scheme is fair when they
make comparisons with other people in their community who they know are
also participating, and it should offer the best value for money to the
taxpayer.
Amendment 8
deals with the point at which the balance is calculated for the
purposes of the 50p matching figure. If it is paid on the highest
amount that was ever in the account, one could build up £300 in
the first year, withdraw all of it or leave in a nominal sum of
£1, put nothing in during the second year, and have the money
coming later. However, that money would not be due until the whole two
years have expired and a further unspecified period has lapsed, which
is what we talked about in amendment
10. However,
if someone put £1 a month in for the first 18 months, for
example, and then £25 a month in for the last six months, they
would come up with a total of £168, which would provide an
extremely generous return, given that the vast majority of the money
had been tied up in the account for a limited period of time. That
would not be a 50 per cent. annual return; it would be far more
generous. That does not compare with how normal accounts reward people,
because the £25 put in at the end of the last month would come
up with a return of £12.50 within days of being deposited. The
purpose of the amendment is to find the thinking behind how the
Government calculate a reasonable means by which to calculate the 50p
rate. Amendments
9 and 11 look at a slightly different aspect. On Second Reading and at
other points during our deliberations, we have said that the
legislation has two related, if different, purposes. It tries to
encourage people on low incomes to be more enthusiastic about making
savings, even if they are modest. That gives people a stake in society,
and allows them to build up some money to spend in their retirement or
to make some other provision for the future. However, we also say that
it would be inappropriate for that money to be tied down for the
two-year period, not only because people might be disincentivised to
participate, but because the money is meant to provide some sort of
buffer against unexpected events. If a person’s washing machine
breaks down six months into the scheme, they might think,
“Crikey! I haven’t got any money to get this washing
machine mended.” They might then think, “Wait a second.
How fortunate. I’ve got £150 because I’ve saved up
to the maximum for the first six months, and the washing machine repair
man is charging £150 to put it right. Thank goodness
I have that security that I
wouldn’t previously have enjoyed. What’s more, there are
no restrictions on my ability to withdraw that £150
instantly.” In that way, the scheme does not encourage people to
have a long-term savings mentality, but it guards against shocks to the
system in people’s short-term finances. However,
someone could be disadvantaged if they take such an approach because of
how the 50p matching rate is attracted. If the rate could be calculated
on the amount in the account on a monthly basis, or if there was a
halfway point at which people could in effect bank the money that they
had attracted in the first half of the two-year period, the scheme
would be more complicated, but it would have the virtue of being fairer
or less anomalous when people in different circumstances compared how
they are treated by the 50p payout.
Amendments 8,
9 and 11 are all intended to tease out the Minister’s thinking
on that, and to give the Committee an opportunity to discuss the
matter. I do not necessarily think that there is a right or wrong
answer, or that I have arrived at such an answer, but I anticipate that
if we do not explore the matter in some detail, some people may feel
that the scheme is unreasonable when it comes into effect, and others
may feel that they have benefited from it by rather more than the
Government intended when the legislation was
drafted.
The
Chairman: Order. I allowed the hon. Gentleman to refer to
other amendments in the interests of flexibility, but also in the
expectation that when we come to those amendments, his contribution
will be correspondingly reduced.
Mr.
Hoban: At the risk of the harmony between the hon. Member
for Taunton and I, I am not sure that I support the amendment. One
point that I have borne in mind from an evidence session last
week—it crops up time and again from people working in the field
of financial exclusion—is the need for simplicity. People need
to understand what they are signing up to, and the terms. That rubs up
against the issue of fairness and the anomalies that he raised, and we
need to take on board the fact that there may be some unfairness about
the way in which the account might work. At the same time, we want to
ensure that people understand what they are signing up to.
The greater
the complexity about the allocation, matching and such things, the
harder it will be for people to understand and the less willing they
will be to take up the accounts. Someone who, through force of
circumstances, was required to withdraw their funds early might be
encouraged to leave in just £1. The account providers might
remind people of that. At least such people would still qualify for the
matching contribution at the end of the two years, even if they had to
withdraw their money after nine months. There are mechanisms in place
to ensure that they would still benefit from the measure, and one
obligation that runs alongside the Bill is the duty to ensure that the
account provider, or the third-sector organisations that encourage
take-up, explain to people how they can avoid losing all their matching
benefit.
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