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The second reason why I am doubtful whether the Bill will achieve its aims is that I am concerned that not enough effort will be made or incentives given to encourage a high percentage of potential beneficiaries to set up a savings gateway account. The evidence from the pilots was indeed encouraging but, when this becomes a national programme, eligible individuals will, as I understand it, simply receive a notice of eligibility, of no value in itself, which they then have to take to a participating institutionI will come to that in a minuteto open an account. How many will actually do so? I suspect that it will be a significantly smaller proportion than took part in the pilot.
My reason for thinking so is in no small measure underpinned by what happened with the child trust funds. All parents were sent, in effect, a cheque for several hundred pounds; all they had to do was deposit it with one of the many institutions that were offering child trust funds. But we know that in the poorer constituencies barely 50 per cent of parents took that bankable asset to the bank and opened an account. In the poorer sections of those communities, the percentage who did not was significantly higher, and the Government had to do it for them. My concern is that the same principle will apply in this case and that, for many people, simply getting a letter from HMRCunless it is couched in different language from most letters from HMRC, many may struggle to understand itis not in itself incentive enough for them to set up an account at a bank.
That brings me to my third and arguably most significant concern. All this is predicated on there being banks and other institutions near at hand into which people can deposit their new-found savings. When evidence was taken in another place, the institutions
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Our second major concern has been the commercial viability for potential providers. Banks are likely to be interested in acting as providers only if the SG design is fundamentally simple, set-up costs were low and if therefore a business case could be made ... No bank has yet committed to acting as a provider.
We know that the banks undertook to introduce basic banking accounts only with great reluctance and one could argue that the costs of opening those accounts were less and the amount of money in them might well be greater. Can the Minister say anything about the likelihood, in his view, of any of the principal banks participating in this scheme? If they are not minded to do so at the moment, does he have any intention of asking the nationalised banks to join in?
The Government then said that the Post Office would offer these accounts. However, when Alan Cook, managing director of Post Office Ltd, was asked in another place what percentage of the market share he would need to make Post Office participation economically viable, he replied:
I am certain that some societies are sympathetic ... and will want to offer it, but others, in the current environment of low profitability, low margins, difficulties in the mortgage market and very low interest rates, may decide to stay out of the market.
He is saying that, frankly, many building societies will not carry out the scheme. As we know, unless the Nationwide does it, there is no building society with a national branch network either. We are then leftI do not say this pejorativelywith the credit unions, which are the fourth group of institutions that might be expected to offer this service. When questioned in another place, Mark Lyonette said:
Even we are looking, to some extent, for hidden subsidies, although not Government cash ... We may be looking for social landlords to do some of that collection business for us.[Official Report, Commons, Saving Gateway Accounts Bill Committee, 27/1/09; cols. 26-28.]
It is absolutely clear that the credit unions are finding it difficult, even with their very low cost base, to commit themselves to the scheme at this stage. My principal concernI would welcome the Ministers view on thisis that neither the banks, the Post Office, the building societies nor the credit unions are yet
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Will the Minister bring us up to date with the provision of financial advice to people on low incomes? It is all very well offering people this opportunity, but I suspect that one of the reasons why the pilots worked was that there was a bigger support system around people to encourage them to participate. I hope that the Minister will tell us where matters now stand with the Thoresen pilots and when he expects that a national scheme of financial advice will be available to those on low incomes as well as to everyone else.
Even if we put all that to one side, we have to accept that the scheme has some rough edges. Some people will not qualify who should qualify; poor pensioners are clearly in that bracket. Others will qualify who would not naturally be among the first flush of people who wish to qualify. I already know several early-20-somethingsunemployed graduates with very affluent parentson jobseekers allowance who are totting up how much they might make out of participation in this scheme. I do not think that that is anything other than a second-order issue, but it demonstrates the complexities of achieving a watertight Bill. I hope that the Bill is a success but, for the reasons that I have given, I have real doubt whether it will meet the Governments ambitions for it.
Baroness Noakes: My Lords, this is probably the least offensive Billcertainly the least offensive I have had to deal with in my time on the Front Benchto emerge from the Labour Partys policy factory since 1997. We shall raise some detailed issues during the Bills passage and we shall seek to improve it, but we shall not oppose it.
The most curious aspect of the Bill is why it has taken the Government nearly eight years, since the publication of their document Savings and Assets for All, to reach this stage. The other scheme floated in that document was the child trust fund, which was legislated for in 2004 and which has been in operation for some time. The child trust fund concept was not piloted and I think the jury is still out on whether it is a success on the various criteria set for it. That is a debate for another day.
The savings gateway concept has been piloted, not once but twice, and it is hard to argue with that as a process. However, the evaluation of the larger, second pilot scheme was not very encouraging. It did not give a massive amount of confidence that a savings gateway will result in an overall increase in savings. Indeed, the evaluation found that there was no evidence of an increase in net wealth as a result of the pilot and only limited evidence that other expenditure had been reduced to accommodate the saving that was made. That suggests that the saving was coming from other sources, possibly informal savings.
Furthermore, among savers at the higher income end of those included in the pilot, there was statistically significant evidence of switching from other formal savings sources, rather than of additional saving. That
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The evaluation of the pilots produced evidence that there was an intention that the majority of savings accumulated under the scheme and the top-up would be wholly or partly retained as savings at the end of the scheme. The report came out in May 2007. I am not sure whether there is further evidence of what happened to the balances that were accumulated at that time but, if the Minister has any further evidence of what has happened since then, I am sure the House will be grateful for it. Did the intention of holding on to the savings turn into reality or were the savings withdrawn?
I ask these questions because the savings gateway scheme is a modest one. It is targeted at a narrow group and lasts for only two years. It is much less comprehensive than the lifetime saving account which my party has proposed in the past. As explained, it is intended to kick-start a saving habit rather than be a part of a long-term structure of support for savings. As with all such schemes, we need to be sure that the public expenditure involved, which is over £100 million a year in the first three years falling to around £60 million in steady state, genuinely leads to higher saving as opposed to short-term switching followed by withdrawal once the government bonus has been paid. As I have said, I do not think that the pilots have produced any evidence on that, thus far.
I am sure that the Minister will not have definitive facts on all of these issues today, but I hope he will agree that a scheme such as the savings gateway has to be justified in the long term by hard evidence about the impact on savings behaviour. I put the Minister on notice that we shall want to explore that further in Committee.
We will lend our support to the Bill, not because we have particular faith in the solution that it puts forward, but because as a matter of principle we support savings. My noble friend Lord Blackwell spoke eloquently on that. The same cannot be said of the Government if we judge them by facts, rather than their words, because the plain fact is that the savings ratio was 9.6 per cent in 1997 and at the last count was 1.8 per cent. It was actually negative earlier last year. This is yet further proof that the Government have turned the UK from a nation of savers into a nation of borrowers.
One of the many urgent tasks facing the next Government is to reverse that trend and to help the citizens of our country again to embrace saving rather than debt. We have already set out our proposals to make savings income-exempt for basic-rate taxpayers, which should go some way towards helping those who have the virtue of saving but whose incomes have been hit by falling returns. I hope that the Government will follow our lead in next months budget. My noble friend Lord Blackwell would go even further than I have suggested, but of course our nations finances are perhaps not strong enough at this stage to go as far as my noble friend would suggest.
One of the things that we will want to look at in Committee is whether it is sufficient for this Bill to be targeted solely at the recipients of benefits. We understand that the passporting proposals are simple to operate, but I am not sure that they are necessarily simple to understand. Why should being poor but without benefits deprive people of access to the scheme? We know that many people resist the idea of applying for benefits and some groups, such as low-paid single peoplewhether or not they have affluent parentshave limited access to benefits. Surely, saving by these people is just as important as for those on benefits.
We will be supporting the extension of the scheme to carers, as announced by the Minister. It did not surprise me that the noble Baroness, Lady Pitkeathley, turned out today to argue that case, which, in her usual way, she did so well. However, whether the extension to carers should be dependent on the receipt of a carers allowance is another matter. Many carers do not claim the allowance or do not know that they are entitled to it. We are not convinced that linking savings policy to benefit entitlement is the correct approach and we shall want to look at that in Committee. In that light, it would be right to look again at pensioners, as the noble Baroness, Lady Hollis, suggested; but I suggest to her that the receipt of pension credit should not be the important consideration because many pensioners do not wish to apply for it.
As well as stimulating savings, the stated objective of the savings gateway proposals, as the Minister explained, includes the promotion of financial inclusion by encouraging people to engage with mainstream financial services. This is another bit of motherhood with which all parties can readily agree, but again the question will be whether the savings gateway in fact achieves its aim. The evaluation of the second pilot study indicated that, while many of the participants described themselves as non-savers, in fact almost all already had formal financial accounts and more than 40 per cent had financial assets of more than £2,000. Few took up the offer of financial training, saying that they already knew enough about how to manage their finances.
There is nothing in the Bill and little in the Governments proposals to date to deliver anything significant in the way of financial inclusion alongside the savings gateway. I echo the request of the noble Lord, Lord Newby, about the Thoresen proposals, because something is needed to support the savings gateway. I am sure that we will return to this issue in Committee.
The noble Lord, Lord Newby, set out some of the evidence that was given to the Public Bill Committee in another place by the British Bankers Association, the building societies and the Post OfficeI will not repeat the detail. It is very clear that there is no one group that is convinced that it is worth it to them to get involved in this scheme. The key issue is whether any of them can make it work.
The noble Lord, Lord Newby, suggested that the Government might ask the nationalised banks to take this upI think that is the word he usedbut I hope the Government will not be twisting the arms of the nationalised banks to get involved in this scheme
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The economics of the savings gateway proposal revolve around a number of issues which I am sure we will return to in Committee. They include the information required to be maintained and provided both to account holders and to HMRC. The ability to transfer accounts between providers, which we understand the Government favour, has a major impact on costs, according to the British Bankers Association, and is one of the key issues to make it unattractive to the banks. So too would the requirement to pay interest, although we note that the Government have decided not to mandate the payment of interest in their draft regulations, but of course in doing so they have diminished the attractiveness of the scheme, particularly in view of bodies such as the citizens advice bureaux. I think we will need to return to all these issues in Committee.
The Bill will be a difficult one to scrutinise since it amounts to not much more than one long regulation-making power, as the noble Lord, Lord Newby, has pointed out. The Minister may rest assured that that will not deter us from the task of scrutiny at which your Lordships House excels.
In sum, we have a number of concerns about whether this Bill will have the effect that the Government desire. At the macro level, it seems unlikely to make any significant contribution to restoring savings, but if it contributes to a habit of saving and financial security at the micro level, then it probably is worth a try.
Lord Myners: My Lords, I very much enjoyed hearing the contributions of noble Lords, and I am much encouraged by the unanimity of welcome expressed from all sides about the central thrust and intention, and also informed by the valuable contribution from Members of both sides of the House to issues around both design and implementation.
The noble Lord, Lord Blackwell, commenced our debate with some valuable insights around the importance of promoting savings to developing a strong economy. I have known the noble Lord for many yearswe were colleagues at work togetherI have greatly respected his understanding of these issues and find myself broadly in support of his observations about the need to develop a stronger savings culture. We spoke a little about this last night in the debate following the Chancellor of the Exchequers Statement on the G20 meeting of Finance Ministers and central bank governors over the weekend. However, my noble friend Lady Hollis also reminded us of the need to be careful when making comparisons about savings ratios to take into account different preferences in terms of assets, and that a low reported savings ratio does need to take into consideration, in a proper evaluation, interest such as property ownership. Generally speaking, countries with higher savings ratios would tend to have higher use of rented accommodation. We have a very high owner occupation, by contrast, and we also have high pension savings. However, the central thrust of the noble Lords point in that respect was well made.
The noble Lord, Lord Blackwell, suggested that funds saved in a savings gateway account should be excluded from debtor claims where an individual has fallen into default. As we set out in the draft regulations, a savings gateway provider will not be able to set-off a debt on one account by taking money that a person has saved in the gateway account. The noble Lord suggested going further, protecting these funds from claims by third-party creditors where an individual is in default. The interests of creditors need to be balanced against savers interests. We should not rush into subserviating the interest of the saver over the interest of the creditor without thinking about it very carefully. However, I commit to the noble Lord to give this matter further consideration before Committee.
The noble Lord, Lord Blackwell, also raised a question about whether the savings gateway accounts should not have an impact on Social Fund entitlement: those who save should have preferential access to the Social Fund. In the last month of 2008 the Government published an informal consultation document on the Social Fund, and they published the responses to this consultation last month. In the light of the significant interest in this consultation, the Government are planning more detailed public debate reform of the Social Fund during 2009, providing further opportunities for interested parties to express their views. In taking this forward the Government will continue to consider the impact of the savings gateway on the Social Fund.
The noble Lord, Lord Blackwell, also suggestedalthough he did not necessarily expect me to reply to itthat people who have pensions cannot pass on those pensions but are obliged to annuitise them, and that that was invidious. I remind him that the purpose of pension savings is to provide an income in retirement. It is for this reason that tax relief worth an estimated £19 billion net in 2007-08 was given. Allowing tax relief savings to be used for other purposes would not be a fair use of taxpayers money. For those who have different needs a number of alternative savings options are available, including ISAs.
The noble Lord, Lord Blackwell, asked a much broader question about why the Government need to tax savings at all, although the noble Baroness, Lady Noakes, reminded us that the Opposition are currently minded to exemptat least, I believe, from basic income taxincome from savings. Nearly everyone is entitled to a personal allowance which allows a certain amount of income to be earned tax free, although I believe that the noble Lord, Lord Newby, was right to identify that this has an element of social-class or economic-category bias in the sense that we are offering further incentives, inducements and rewards to those who are already better off than many in the community by virtue of the fact that they are paying tax. Above the existing facility that is available to earn a part of ones savings income tax free, there are other products such as individual savings accounts, child trust funds, employee share schemes, SAYE and share incentive plans. Indeed, there is a multiplicity of plans and arrangements that encourage people to save.
The noble Lord, Lord Morgan, shamed me with the proficiency with which he extolled the merits of the saving gateway. He did so with much more conviction
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I failed miserably to pre-empt the contribution from my noble friend Lady Hollis of Heigham. We greatly value her informed and measured contribution to so many debates around issues relating to gender, savings and age; we take everything that she says very seriously. Her observation, based on one of those involved in the pilot, that the saving gateway account had given that person control over his or her life was a wonderful way of summarising one part of what we are trying to achieve. It aligns with the observation made by the noble Lord, Lord Blackwell, about the importance of thrift.
I repeat my remarks about the important benefits that are already available to pensioners through the tax system and other benefit arrangements. Pensioners are not necessarily excluded from the saving gateway and some may be eligible through tax credits. However, the saving gateway is targeted primarily at working-age people on lower incomes. As the noble Lord, Lord Newby, said, there are some rough edges. That is the price that one pays for producing a scheme that is simple and easy to administer. It is a matter of getting it very largely right, rather than completely right, in terms of participation.
There are, as I said, significant supports to encourage people to save for their retirement. In particular, there are generous tax reliefs to incentivise pension savings, which were worth around £30 billion in 2007-08. As I also said, we will introduce personal accounts, which are intended to provide a highly attractive, low-cost option to those in the private sector on low to moderate incomes who currently have no occupational pension arrangement. That will extend, from recollection, to 5 million or 6 million people.
We will continue to support programmes for those in receipt of pensions and I will carefully consider the contribution from my noble friend, although I would not wish to raise her hopes. Her observation about the shortcomings of the IPPR report on pensioners was apposite. She drew my attention to the IPPR report a few days ago and I set aside quite a lot of time to read the relevant section, although I found that I needed very little time, because it was very short and somewhat inadequate. At the very least in Committee, we will ensure that we have a more complete debate on the issues that my noble friend raised.
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