Mr.
Browne: I seek clarity about the hon. Gentleman’s
understanding of the Bill, because I have some sympathy with what he
says about complexity being a disincentive to participation. If a
person saved up £325 in the first 13 months, and then
withdrew £324, it would not, as I understand it, be worth their
putting in £25 a month for the subsequent 11 months, because
they would never get up to a high enough figure to qualify for any
additional money. So, they might as well leave the pound and, for the
last 11 months, put the £25 a month into an interest-bearing
account elsewhere. Am I correct in thinking that once one has reached
one’s maximum limit and withdrawn money, it is not worth
engaging in the scheme again?
Mr.
Hoban: The hon. Gentleman encapsulates the point neatly.
We might say that the situation is a disincentive, but it is a
possibility: someone might max out at 13 months, choose to
withdraw all their money and recognise that there is no point in paying
any more money into the account, because they will not receive any
further matching contribution. That is one of the consequences of how
the account is determined, because the matching is based on the
maximum—the highest—balance on the account. If the hon.
Gentleman had tabled an amendment stating that the match would be based
on the amount deposited over the lifetime of the account, he would have
got round the problem, but he has not.
Mr.
Browne: This is where I sought to provoke debate. One
could, for example, rather match 2p at the end of month, but that
certainly would not sound like a big incentive, even though it would
come to largely the same amount for the pound deposited in month one;
or, as a simpler half-way house, introduce a 25p matching at the end of
years one and two. That would reduce the total benefits, because the
money in year two would attract only half the funds of year one, but it
might iron out the potential anomalies that I have mentioned. I am not
saying that the idea is necessarily superior to the Government’s
proposal, but it is worthy of consideration.
Mr.
Hoban: I shall not attempt the maths on the hon.
Gentleman’s proposals, but all parts of the House agree that the
50p match would be effective in maximising take-up. If that were
converted into a monthly amount, or into a higher amount for one year
than for another, it would take us back to the problem of increased
complexity. There is a trade-off between fairness and simplicity. We
could have a much fairer way of matching but make the scheme much more
difficult for people taking out the accounts to
understand. 6.15
pm There
is some power in terms of attracting savers by having a match of 50p at
the end of two years rather than 2p a month, which does not sound worth
the effort, whereas 50p at the end of two years does sound worth the
sacrifice that saving £25 a month will involve for some
households. As I said, there is a trade-off between fairness and
simplicity, but if we make the products simple we are much more likely
to get take-up. We should try to focus on that when designing the
system.
Ian
Pearson: I fully understand the points that the hon.
Member for Taunton made. However, amendment 8, and 9 and 11, which I
shall refer to briefly—I guarantee, Mr. Taylor, that
my contribution to a subsequent debate on them will be vanishingly
small—are simultaneously less generous and more complicated than
the Government’s
proposal. I
have a great deal of sympathy with the comments of the hon. Member for
Fareham when he says that we need to strike a balance between a simple
system that people can understand and the potential dangers of a
complicated, mathematical calculation that no one
understands. Clause
8(2) describes how the qualifying balance should be established. The
Bill sets out that the qualifying balance will be the highest balance
over the life of the account. We believe that that has the advantage of
not penalising savers for making withdrawals, while simultaneously
discouraging them from doing so. If a saver makes a withdrawal, the
match payment they have earned so far will not be affected. However,
they will have to pay the amount that they have withdrawn back into the
account before they can earn any additional match payment, and, because
of the monthly deposit limit, only accounts where no withdrawals are
made will be able to earn the maximum match payment of
£300. The
hon. Member for Taunton is right to say that if somebody saved the full
amount for 13 months and then withdrew all but £1, there would
not be an incentive for them to save in the saving gateway account
because they would have already earned their full match. However, there
will still be a strong incentive for them to keep the saving account
open because they need to do so to qualify for the
match. The
circumstances in which that situation might arise are likely to be
rare. Less than 2 per cent. of participants in the pilots made
withdrawals. Also, basing the qualifying balance on the highest balance
over the life of the account has the advantage of not saying that if
people have washing machines that break down, or if their financial
circumstances change such that they desperately need the money, which
is often the case, we should penalise them. In effect, the amendment
would do that by saying that it is only the balance at the end of two
years that is important. That is what it
proposes. The
amendment may be designed to discourage withdrawals, but we do not
think that they are likely to be common. Only 1 per cent. of
participants in the first pilot and less than 2 per cent. in the second
pilot made a withdrawal each month. The proposal does not make the
calculation of the match simpler; it just makes it different and
potentially less generous, which is why it should not be
supported. I
will leave it there, because while I appreciate the hon.
Gentleman’s intention, if he reflects on this he will realise
that his amendment would make the measure less generous to savers,
which no one wants. It would certainly be more complicated to introduce
the sort of formula that he suggests. I hope that he will not push the
amendment to a
vote.
Mr.
Browne: I attach great importance to the simplicity of the
scheme, because even generous schemes that are difficult to understand
disincentivise all people, particularly those who are not familiar with
financial products of
that type. I take the Economic Secretary’s point; this was a
useful short discussion. It would be simple to devise a better system
with a more complicated mathematical formula, but we are dealing with
regular human beings, rather than with people who might respond to
circumstances that look good to a mathematician but might not work in
the real world. The only caveat is that if, after two years with one of
these accounts, people get into the savings habit, they might get a
rude shock when they try to save with a normal institution and find
that the system that they have become used to under the Government
scheme does not apply in the real world of financial services. However,
that is the Government’s decision. I beg to ask leave to
withdraw the
amendment. Amendment,
by leave,
withdrawn.
Mr.
Browne: I beg to move amendment 9, in
clause 8, page 4, line 33, at
end insert— ‘(2A) An account
holder shall qualify for a reduced maturity payment where a Saving
Gateway account is closed after a period of twelve months but before
the end of the maturity
period. (2B) The reduced
maturity payment in relation to a Saving Gateway account shall be
specified in
regulations.’.
The
Chairman: With this we may discuss amendment
11, in
clause 8, page 5, line 1, leave
out subsection
(5).
Mr.
Browne: I have nothing further to
add.
Ian
Pearson: For the reasons I have previously outlined, we do
not think that amendments 9 and 11 will add anything to the Bill. They
detract from a simple way of calculating the matching rate. One key
aspect of the matching rules for the saving gateway is that savers must
wait until the end of the account’s two-year maturity period to
receive the match payment, and nothing is payable if the account is
closed before the end of that period. Account holders are therefore
incentivised to continue saving for the full 24 months of the account.
However, they can access their money at any time without losing any
match payment that they have built up.
As we have
just discussed, we believe that that is the correct approach. It is a
simple rule that will help to foster the savings habit. I also remind
the Committee that the experts who gave evidence last week were
supportive of how the matching rules are likely to work, specifically
that savers are able access to access their money at any time but can
only access the match payment once the account has matured. On that
basis, I hope that the hon. Gentleman will withdraw his
amendment.
Mr.
Browne: I beg to ask leave to withdraw the
amendment. Amendment,
by leave,
withdrawn.
Mr.
Browne: I beg to move amendment 10, in
clause 8, page 4, line 41, leave
out from ‘within’ to ‘beginning’ and insert
‘one
month’. This
amendment is slightly separate, so I will briefly speak to it.
Subsection (4)
states: “The
account provider must pay the maturity
payment”— that
is the figure that we have just been discussing—
“to the account
holder within a period, prescribed by regulations, beginning with the
end of the maturity
period.” My
amendment wants to replace “a period” with a specific
period of one month. That seems to be a reasonable period to allow for
the calculation to be made. After all, it is not a difficult
calculation. We have just heard how simple it would be if the maximum
figure were £300. It does not seem to be unduly onerous to ask
someone to work out that half of £300 is £150 in a month.
That money could then be given to the account
holder. People
with restricted household finances who have saved quite small amounts
of money may be suspicious of financial services products and be uneasy
about participating in schemes even if they are Government schemes.
They will be keen to see both the money that they have had tied up for
two years and the rewards that the Government have promised as quickly
as possible. A protracted delay will be deemed unacceptable, and it may
discredit the scheme as a
whole. The
hon. Member for Fareham said that if the 50p level was
changed in the future, it would have to be done by statutory
instrument. Although we would be able to decide whether the
Government’s alternative figure was an improvement, we would not
be able to modify it. I do not know whether in future we could change
the stipulated period for payment, or whether the regulations could be
changed without reference to the House. Either way, seeing that the
calculation is so simple, it is sensible to specify a maximum period of
one
month.
Ian
Pearson: Certainly, we do not think that the period should
be longer than one month. However, we do not think that it is necessary
to put that in the Bill. The hon. Gentleman will be aware that the
draft regulations propose that there should be a shorter period of
14 days. No doubt that matter will be debated when we place
the regulations that specify the time period before the House and the
other place. We will still want to discuss the matter further with
industry, but I share his view that there should not be any delay in
doing that. A relatively straightforward calculation process is
involved. All I am saying is that rather than it is better to specify
the time in regulations. At the moment, the regulations suggest that it
should not be one month, but 14 days.
I hope that
that gives the hon. Gentleman the assurances that he seeks. People will
get their match paid to them promptly, which is what we all want to
see.
Mr.
Browne: I do not doubt that the Minister and I, and
probably all members of the Committee, share the same objectives. At
the risk of sounding like a broken record, I will repeat the constant
refrain that it is much more sensible for Members of Parliament not to
decide on any of these matters in the Committee in which we have been
sitting for four and a half hours. Such a forum is clearly
inappropriate for making these decisions. They should be decided at a
later date by Ministers in
regulation.
Dr.
Ladyman: I think that I can help the hon. Gentleman. I do
not think that he has read clause 27. When the Economic Secretary says
that these things are done by
regulations, such regulations have to be put before Parliament and they
are decided by a Committee, either by affirmative resolution, which
means that the Committee has to discuss them, or by negative
resolution, which means that the hon. Gentleman can pray against them
and a Committee has to consider them, and they have to be passed by a
resolution of both Houses of Parliament. It is quite clear and it is in
clause 27, so I think that his concerns are
met. 6.30
pm
Mr.
Browne: I understand that. However, we could have bypassed
many of this morning’s deliberations, and those of this
afternoon and later this week, and cut straight to the chase by voting
on the figures that matter. At the moment, we are talking in more
abstract terms, which I regret. Anyway, myself and others have made
that point elsewhere in our deliberations. I share the Economic
Secretary’s basic objectives, so I beg to ask leave to withdraw
the
amendment. Amendment,
by leave,
withdrawn. Question
put forthwith (Standing Orders Nos. 68 and
89), That the clause stand part of the
Bill. Question
agreed
to. Clause
8 ordered to stand part of the
Bill.
Clause
9Statements
etc.
Mr.
Hoban: I beg to move amendment No. 33, in
clause 9, page 5, line 8, leave
out paragraph (c) and
insert— ‘(1A) Account
providers will be required to send statements to the holder at not less
than 6 month
intervals.’. I
have tabled amendment 33 to reduce the sense of abstraction in the
Bill. I share the frustration of the hon. Member for Taunton that we
have had to go through the process of tabling probing amendments to be
able to tease out some principles and numbers underpinning the Bill,
but I suppose that that is how Parliament works. I believe that the
child trust fund was established on a similar principle of broad
enabling legislation followed by statutory instruments. In fact, next
Monday afternoon, I am down to debate a statutory instrument on the
child trust fund, which shows, I suppose, that such regulations come up
for discussion, from time to time, long after an Act ceases to be a
live political
issue. The
abstraction that I am seeking to reduce relates to the statements that
providers are required to produce for account holders. That cropped up
in the evidence session last week when we discussed the frequency of
the requirement to produce a statement. Potential account providers
talked about six months being an appropriate interval—and lo and
behold that number appears in regulations. A balance needs to be struck
between keeping consumers informed about their contributions and trying
to reduce the cost of the provision of statements. Every time a
statement is sent out, there are printing, paper and postage costs,
which add to the cost of providing these accounts. For accounts with
relatively few transactions, six months does not seem a bad interval
for the provision of statements.
A point was
raised about whether a statement was necessary and whether alternative
ways of providing the information to customers could be found. Adrian
Coles, from the Building Societies Association made that point when he
gave evidence. He said that a passbook approach might be an alternative
to a statement, because it would certainly provide much of the
information required—it would provide a balance at any point,
show payments in and out of the account, and provide details of the
account holder, such as name, address and postcode, and the closing
balance on the statement date. The only piece of information that it
would miss out, according to draft regulations, is a provisional
calculation of maturity payments. If that requirement was not in the
regulations, a passbook might be an appropriate alternative to a
statement.
The banks
made the comment that the more information prescribed in regulation,
the more expensive the statement will be, and that a programme to
calculate the estimated maturity payment would be needed. In a way, we
should be relaxed that banks are big enough to bear some of those
costs, but if credit unions were required to provide such information,
it might add to their costs and reduce the attractiveness of those
products to credit unions. Are the Government clear that six months is
the absolute minimum, or could a longer period be used? Might
Mr. Coles’s passbook proposal be an appropriate
alternative to the provision of a
statement?
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