House of Commons |
Session 2008 - 09 Publications on the internet General Committee Debates Saving Gateway Accounts Bill |
Saving Gateway Accounts Bill |
The Committee consisted of the following Members:Chris Stanton, Sarah
Hartwell-Naguib, Committee
Clerks attended the
Committee Public Bill CommitteeThursday 5 February 2009[David Taylor in the Chair]Saving Gateway Accounts BillClause 13Interest 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 Secretarys
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.
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 Governments
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 Majestys 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.
Amendment,
by leave, withdrawn.
Clause 13
ordered to stand part of the Bill.
Clause 14Relief
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.
Clause
14 ordered to stand part of the Bill.
Clause 15Alternative
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 16Transfer
of funds on account ceasing to be Saving Gateway
account
(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 Bills 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
years 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 optionthey 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 freejust 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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©Parliamentary copyright 2009 | Prepared 6 February 2009 |