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General Committee Debates
Saving Gateway Accounts Bill

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

Public Bill Committee

Thursday 5 February 2009

[David Taylor in the Chair]

Saving Gateway Accounts Bill

Clause 13

Interest
9 am
Dr. Stephen Ladyman (South Thanet) (Lab): I beg to move amendment 20, in clause 13, page 6, line 8, leave out ‘may’ and insert ‘must’.
Good morning to you, Mr. Taylor and to other members of the Committee. I shall not detain the Committee long. I tabled the amendment because I wanted to explore the Economic Secretary’s attitude to whether these accounts should pay interest. If you will give me the leeway to refer also to amendment 21, it will not be necessary for me to move it subsequently.
The Chairman: I am happy to allow that flexibility.
Dr. Ladyman: Amendment 20 would make it compulsory for these accounts to pay interest. If we wanted to stop some bank paying a nugatory level of interest it would be necessary to include in the Bill the minimum level of interest that could be paid. That is where amendment 21 would come in.
Mr. Mark Hoban (Fareham) (Con): Will the hon. Gentleman clarify this for me? I looked at the amendment and was slightly perplexed. Clause 13 refers to interest payable to the commissioners, not to interest payable on saving gateway accounts. So his amendment would provide that a payment be made to the commissioners rather than that interest be paid on accounts.
Dr. Ladyman: The hon. Gentleman may be right and I may have misread the clause. My purpose was to explore the Government’s attitude to whether these accounts should provide interest to the saver. That is what I hope the Economic Secretary will refer to.
One of our expert witnesses told us that they regarded it as essential that these accounts should pay interest to the saver because otherwise the saver would not become inculcated with the idea that money put into a bank account earns interest. Another expert witness told us that these accounts would generate a market of around £250 million. If the banks used that money for their personal loan businesses—
The Chairman: Order. The impact of the clause may have been misunderstood. The apparent objective might well be secured by moving an appropriate amendment to new clause 2, which deals with this issue.
Dr. Ladyman: That may well be the case. If the Economic Secretary indicates that my amendment is ill founded and will not serve the purpose that I hoped it would, I will certainly accept that and withdraw it. Perhaps in telling me that he will still indicate whether he believes that the accounts should pay interest. If he will take into account my point that these accounts are likely to raise sufficient profit for the banks to make about £21 million. That is more than enough for them to—
The Chairman: Order. I am sorry to interrupt the hon. Gentleman yet again, but we are on clause 13, which refers to interest payable to the commissioners, not to the depositors. If he wishes to return to his remarks when we debate new clause 2 the Chair will be quite content.
Dr. Ladyman: I understand what you are saying, Mr. Taylor. I have concluded my comments. I have raised the issue that I want to raise and I hope that the Economic Secretary will find either now or under new clause 2 the opportunity to respond and give us an indication of whether he thinks these accounts should pay interest to the saver.
The Economic Secretary to the Treasury (Ian Pearson): Good morning, Mr. Taylor. It is a pleasure to serve under your chairmanship again today. I can confirm that amendment 20 relates only to interest being paid on amounts owed to Her Majesty’s Revenue and Customs. The effect of amendment 21 would be to make saving gateway accounts inconsistent with what happens elsewhere in HMRC.
My hon. Friend rightly wants to have a debate about the general principle of interest and whether or not it should be paid on saving gateway accounts. We can have that debate when we come to new clause 2. There have been extensive discussions between the Government and potential account providers about that issue. I will say more on it at a later date.
Dr. Ladyman: I have no further comments to make. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 13 ordered to stand part of the Bill.

Clause 14

Relief from income tax and capital gains tax
Mr. Hoban: I rise to speak to amendment No. 35, in clause 14, page 6, line 24, leave out ‘may’ and insert ‘will’.
I welcome you to the chair this morning, Mr. Taylor. Amendment No. 35 is now redundant, because it was a probing amendment to establish the tax arrangements for saving gateway accounts. I was operating on the basis that they should be exempt from both capital gains tax and tax on any interest. The regulations now address that issue. I shall therefore not move the amendment.
The Chairman: The amendment is not moved.
Clause 14 ordered to stand part of the Bill.

Clause 15

Alternative finance arrangements
Question proposed, That the clause stand part of the Bill.
Mr. Hoban: I have a quick question about the clause. My thinking behind this is that the Minister is seeking to ensure that saving gateway accounts can be sharia-compliant. Does he share my understanding that if the requirement is to pay interest on these accounts, they would not be sharia-compliant?
Ian Pearson: Certainly, the purpose of the clause is to ensure that saving gateway accounts could be sharia compliant. The hon. Gentleman is right; my understanding of sharia law is that if interest were paid on saving gateway accounts, they probably would not be sharia compliant. That is something that potential providers of sharia-compliant saving gateway accounts could certainly consider. He makes a relevant point.
Dr. Ladyman: My understanding is that the sharia-compliant account can still pay a bonus at the end in exactly the same way that the Government intend. If that bonus at the end happened to be the same as the amount of interest earned, then, as it were, my hon. Friend the Minister might say “tomato” and I might say “to-may-to”.
Ian Pearson: Indeed. I am not a sharia theologian. [Laughter.] That is abundantly obvious to the Committee. Sharia compliance is a judgment to be made by a theologian. It would be up to those theologians to decide whether the accounts were sharia compliant. It is too early to say whether or not account providers will offer sharia-compliant accounts. Ultimately, that is a commercial decision for them to make and it would be up to the sharia theologians to decide whether a bonus is compliant with sharia law or not.
Clause 15 ordered to stand part of the Bill.

Clause 16

Transfer of funds on account ceasing to be Saving Gateway account
Mr. Hoban: I beg to move amendment No. 36, in clause 16, page 7, line 9, at end insert—
‘(1A) Funds in the account will be transferred into an Individual Savings Account as set out in the Finance Act 1998 (c. 36) of the kind prescribed by regulations and operated by the provider of the Saving Gateway account in question.’.
One of the debates that we had in the morning evidence-giving session last week was about what would happen to the money in the saving gateway account when the account matured and the account-holder received the matching maturity payment, as it is described in the Bill. We had quite an interesting debate on that point with the various witnesses and it was a subject that we returned to in the afternoon evidence-giving session.
It is an important issue, because the Bill’s objective is to try to develop a savings culture in the target group and we want that savings culture to extend beyond the end of the two-year period. Therefore, it is important to understand what will happen to the balance at the end of that period.
I propose in my amendment that the balance on the account should be automatically transferred into a cash individual savings account and that that would, in effect, be the default setting. The Government, following discussions with various potential providers and the savings industry, have already said that if amounts are transferred from a saving gateway account into a cash ISA they will not count towards that year’s subscription. That is a welcome move. The amendment takes things one step forward from that, making the automatic default setting a cash ISA. That will help potential savers.
Cash ISAs, on the whole, tend to pay a much more generous rate of interest than most instant access accounts; they are a product that the Government have supported and they would provide the right default setting in such a situation. However, that was not a universal view in the evidence sessions. There was some suggestion in the afternoon session with the potential account providers that they might prefer another option—they said that some accounts might provide a higher rate. I suspect that they would prefer a default option into an account that perhaps offers a lower rate than a cash ISA, because such accounts tend to offer higher rates than most instant access accounts.
Matt Wakefield from the Institute For Fiscal Studies, who did a lot of the relevant evaluation, said:
“I do not see why, if it is possible to organise, it should not be an ISA that is tax free—just a cash ISA that operates as a cash savings account.”——[Official Report, Saving Gateway Accounts Public Bill Committee, 27 January 2009; c. 16, Q33.]
There is some debate about whether a cash ISA is difficult or complex to explain to someone who has had a saving gateway account. We could surmount that barrier by ensuring that, alongside the saving gateway programme, there is financial education for people who take out such accounts. The national money guidance scheme, which we are committed to, would provide such guidance to people who have a saving gateway account.
Dr. Ladyman: I wonder whether the hon. Gentleman shares my concern that many people with such accounts will not be paying income tax, therefore a cash ISA might not be the most sensible form of saving for them. Perhaps a national savings account might be more appropriate.
Mr. Hoban: That is a good point. Some people will not be paying income tax, but they would be in the same position if the default was a savings account that paid them a lower rate of interest net, whereas at least the interest on a cash ISA at maturity is paid gross. The interest rate on a cash ISA is higher as well. We should think not just about ISAs in the context of their tax treatment but about their characteristics in terms of the interest that they pay. People can exit a cash ISA before its maturity period ends and they will benefit from a higher rate of interest on that. Yes, interest may be deducted, but under our plans we would ensure that that interest was paid gross rather than net and if people did not pay tax they would receive the full benefit of that. From our perspective we have squared that circle in our policy. Perhaps the plans that the Chancellor seems keen to bring forward in the Budget will also help people in this situation, by exempting them from payment of the basic rate of income tax on their savings income. If the Chancellor does that, we will support that measure.
There is a clear benefit to savers from the saving gateway account defaulting into a cash ISA, where returns tend to be higher. Cash ISAs are well marketed, are increasingly better understood by consumers and offer the best deal to savers. The better option is for the saving gateway account to default into a cash ISA, rather than simply defaulting into a current account, where it is available to spend. The fact that the money is not locked away but set in a separate account might encourage people to leave it alone for a bit longer, help them build up that nest egg and continue to pay sums into that account, whereas if it defaults into a current account the temptation might well be to spend it. We would all want to see more and more people who have had a saving gateway account continue to save. Therefore, defaulting to a savings account will help further to develop the saving culture that we are seeking to achieve through the Bill.
9.15 am
 
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Prepared 6 February 2009