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This has been a useful debate. I ought to put on the record for the Committee that the Minister has broken a record. He has managed to reply to a query raised in one of the earlier groups of amendments before we have completed today’s Committee sitting, which is quite impressive. I shall make no comment on whether the content is impressive; but the fact that I got a reply to a query that I raised on an earlier group of amendments before finishing the sitting is impressive.
Lord Myners: I hope that in so doing I am reducing the average time of my response to something closer to a target that the noble Baroness would find acceptable.
Baroness Noakes: We shall see if the noble Lord gets gold stars at the end of our consideration of the Bill. I beg leave to withdraw the amendment.
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Baroness Noakes: Amendment 27 deletes “true” from Clause 6(2)(b). I shall also speak to Amendment 28, which would delete, on a probing basis, subsection (4).
Clause 6 sets out what an application to open a saving gateway account must contain and has the expected regulation-making powers. Clause 6(2)(b) says that the application must include a “true declaration” about prescribed matters. My amendment deletes “true”, because the truth or otherwise of the declaration can be determined only by reference to the underlying facts, and the provider has no way of determining this.
Under Clause 6(3), an account provider must open an account if an application is made in accordance with Clause 6 and its regulations, and there is a penalty under Clause 21 if the account provider does not do this. It is reasonable for the account provider to check that a declaration has been made, but it is not reasonable for an account provider to ensure that the declaration is true. There is a penalty on a person who deliberately makes an incorrect declaration under Clause 6(2)(b), which is presumably one that is untrue. It is surely only in relation to the account holder that truth is relevant.
Linked to this are the regulations to be made under subsection (4) about circumstances in which the account provider may or must refuse to open an account. Amendment 28 deletes subsection (4) on a probing basis. The draft regulations at Regulation 13 require a provider not to open an account if it has reason to believe that the declaration is untrue. But providers do not seem to be required to make specific inquiries as to truth and thus the addition of the word “true” in Clause 6(2)(b) is misleading, as truth does not affect the provider unless the provider is somehow on notice that the declaration might not be true. Leaving the word “true” in the Bill may require the provider to carry out procedures to verify the truth of the declaration which, in some cases, might be quite difficult. An example is a person's residence status. What should a provider do proactively about establishing residence status? Or are providers simply to take information that comes to them?
Regulation 13 also requires the refusal of an application if the notice of eligibility might not be genuine. What do providers have to do in relation to notices to establish whether they might or might not be genuine? What can they rely on? Providers' staff may not handle more than a few notices each year and I will wager that notices will not be forgery proof. Modern photocopiers produce amazing copies nowadays and photocopied banknotes, as I am sure the noble Lord, Lord Myners, learnt when on the Court of the Bank of England, can fool most of the people most of the time. It is likely that it would be easy to forge a notice if people wanted to. My question on this regulation is: what are providers expected to do with notices to establish their genuineness?
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These two amendments ask the Minister to say why the word “true” is included in Clause 6(2)(b) and, more broadly, to explain what providers are meant to do before they open an account, either in relation to the truth of a declaration or in relation to the genuineness of a notice. I beg to move.
Lord Myners: Both of these amendments relate to account opening. As Members of the Committee may be aware from the draft regulations we have published—draft Regulation 13(2)—we intend that, at account opening, a true declaration will be required from the account applicant confirming that they meet the relevant connection-with-the-UK conditions set out in regulations; and that they have not previously opened a saving gateway account, other than an account closed within a cooling-off period offered by the account provider.
Amendment 27 would remove the word “true” from Clause 6(2)(b), so that the account applicant will be required only to make a declaration rather than, as the Bill currently states, “a true declaration”. I should explain that the word “true” was included in the Bill to add clarity. I recognise that it might be argued that the use of the word “declaration” implicitly requires that what is declared should be true. However, as this provision is the basis for the imposition of the penalty provided at Clause 19(1) of the Bill, we consider it prudent drafting to put the matter beyond doubt in the Bill.
Clause 6(4), which the noble Baroness’s Amendment 28 would delete, qualifies the requirement at subsection (3) that an approved account provider must open a saving gateway account for any eligible applicant so long as their application is made in accordance with the requirements of the scheme. We believe that there are only very few circumstances in which it would be legitimate for an account provider to refuse to open an account for an eligible person who is prepared to agree to the terms under which the account is offered. We propose to set these limited circumstances out in the regulations. One example relates to credit unions. An unqualified requirement to open accounts for all applicants could present difficulties for credit unions, which, as Members of the Committee may be aware, operate according to a common bond that determines who can become a member. We therefore propose to use subsection (4) to specify in regulations that credit unions will not be required to open accounts for people who are not members or who do not fulfil their membership qualifications. As the Committee may also be aware from the draft regulations, we intend that account providers should not accept an account application when they have reason to believe that a notice of eligibility presented to them is not or may not be genuine, or that a declaration or application made to them contains matters that are or might be untrue. The same applies when any requirements of money-laundering legislation are not satisfied.
The Bill allows for a penalty to be provided in such circumstances. However, the penalty will not be applied when an account provider has taken reasonable steps to comply with the rules. The penalty would not be provided, for example, when an account provider could not reasonably have known from normal account-opening checks that an applicant was not eligible for an account,
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Baroness Noakes: I shall read carefully what the Minister said about the inclusion of the word “true” for clarity in relation to Clause 6(2)(b). Part of the problem is that Clause 6 is being used to drive what the account holder or applicant needs to do as well as what the account provider needs to do. That is really the source of my problems. Could the Minister expand a little on what reasonable steps might be expected of account providers? Part of my probing here is about what they need to do to establish whether something is true, as well as about the genuineness of the vouchers coming forward. It is important that banks should know how proactive or otherwise to be. We have seen in relation to money laundering that unless significant guidance is given, banks can over-interpret what is required.
Lord Myners: I welcome the noble Baroness’s invitation for me to provide further clarity. Our proposed processes here are designed to allow account providers the security and comfort of knowing that they will not be required to open an account when they have reason to suspect that a person is not eligible. In meeting the requirement, we will expect account providers to do no more than to carry out their normal account-opening checks. We do not expect them to carry out any additional checks—for example, to establish an applicant’s benefit or tax credit status, their compliance with residency conditions or whether they have previously held an account with another provider. The essence of what we are trying to do here is to make the provision of such accounts as attractive as possible to banks and others. We hope that that will work to support the saving gateway initiative.
Baroness Noakes: I am grateful for the Minister’s comments, and I am sure that it will be helpful to those who read the proceedings of the Committee. As I said, I should like to think a little more about what he has said about the inclusion of the word “true” in Clause 6(2)(b). Apart from that, I am happy with his response and I beg leave to withdraw the amendment.
Baroness Noakes: In moving Amendment 29, I shall speak to Amendments 30 and 32 in this group. These amendments relate to whether it might be possible for a person to have more than one subsidised shot at creating a savings habit. However desirable it is for savings to be encouraged, this particular saving gateway
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Clause 6(5) permits regulations to do several things. Paragraph (a) refers to preventing a person from holding more than one saving gateway account at a time. Amendment 29 changes this so that it would prevent a person holding a saving gateway account more than once in a lifetime. That is what the draft regulations currently allow, so we are not out of line with government thinking on that. But, as we often find, the Government are legislating for the flexibility to do something which they have no current intention of doing and which goes against the advice of their own advisers. We do not think that that is a sound basis on which to approach legislation.
3.45 pm
Mr Brian Pomeroy and Ms Sharon Collard gave evidence on this topic to the Public Bill Committee in another place. Mr Pomeroy, who I have known for many years and who I respect, chairs the Government’s Financial Inclusion Taskforce, which includes savings in its remit. He was very clear that only one shot should be allowed, as was Ms Collard, who had a detailed understanding from her involvement in the evaluation of the first pilot.
I propose to delete paragraphs (b) and (c) of subsection (5) in Amendment 30. Paragraph (b) allows the specification of an interval before a second gateway account is opened and is unnecessary following my amendment to paragraph (a). Paragraph (c) allows regulations to prevent a person holding more than one saving gateway account during his or her lifetime and is similarly redundant if the flexibility is removed around more than one account.
Lastly, and as an alternative, I have proposed in Amendment 32 that, if the regulation-making power is retained, it is accompanied by the affirmative procedure. It is clearly inappropriate for the Government to make such a radical change to the scheme that they are setting up using only the negative procedure. They are setting the scheme up on the basis that it is only one saving gateway account per lifetime. We believe that it would require significant evidence in relation to savings behaviour to shift from the agreed starting position that only one saving gateway account should be allowed for individuals in their lifetime. The Government should not be allowed to sneak something through on a negative procedure instrument and expect the Opposition, with their eagle eyes, to spot that it was being sneaked through. They should come clean on making such a major change to the nature of the scheme. I hope the Minister can see that it is blindingly obvious that, if there were to be any change, the Government should bring forward an affirmative regulation. I beg to move.
Lord Davies of Oldham: Perhaps I may adapt the phrase: the noble Lady doth provoke too much. We are not about sneaking anything through—very far from it. We listened carefully to the expert advisers
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As the Economic Secretary said in the other place, and I repeat today, this is merely contingency planning. We will set the scheme up on this basis. The principles behind the scheme are exactly as the noble Baroness has suggested; namely, that it is a kick-start and is meant to provide for one opportunity. But in drafting legislation of this import, we introduced this reserved position of flexibility for the distant future, which is the only reason for Clause 6(5). It is not at all to sneak anything through; it is quite the opposite. We agree with all the main principles that the noble Baroness has adumbrated in her short contribution. The only thing that I am objecting to is the suggestion that the Government would do anything else except respond full-square with the intent that this is a kick-start and one provision for a lifetime. Nevertheless, when drafting primary legislation, you do not close everything off for the distant future if by drafting the legislation carefully you leave some scope for future contingencies which we cannot foresee. That is the intention behind Clause 6(5).
Baroness Noakes: If I had £5 for every time a Minister responded with the need for flexibility whenever I queried one of the regulation-making powers, I, too, would be a rich person—possibly even richer than the Minister. The Minister said that he wanted flexibility for the distant future. That is probably the reason why, if we buy the flexibility, to which I could probably sign up, any regulations to change that in the distant future should formally come to Parliament for approval. It would be changing one of the essential components of the scheme which, we are all agreed, should be set up on the basis that you get one shot at it.
Let us suppose that evidence came over time that there was a group that was somehow excluded from the benefit for whatever social reasons and we needed the ability to return. There would need to be some evidence to go back to Parliament to extend the scheme beyond the one that Parliament thinks it is approving now. It is for that reason that I put my alternative, which was for the affirmative procedure. That is why I said that it could not be sneaked through. The Government should come and ask Parliament for approval. That is the difference between affirmative and negative.
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Lord Davies of Oldham: The noble Baroness is now presenting the argument in more acceptable terms. I have never known any Government to use the negative procedure to sneak anything through. That is not the way we intend the legislation to work. However, there could be a significant change in the distant future, so she is saying that we ought to consider using the affirmative procedure. I will certainly look at that.
Baroness Noakes: I am grateful to the Minister and I beg leave to withdraw the amendment.
Lord Newby: This is a probing amendment in order to seek the Government’s view on the extent to which it might be possible to extend the two-year limit of eligibility for involvement in this particular scheme. At the risk of becoming a class warrior, I strongly support the assertion made by the noble Lord, Lord Morgan, at Second Reading that there is a strong class bias in incentives to save. It is extraordinary that the Royal Bank of Scotland should be given an incentive which amounts to hundreds of thousands of pounds to enable poor Sir Fred Goodwin to have a huge pension, yet poor people saving £25 a month are told that, after a two-year period, they have had their chance. They have had their one shot to adopt a savings habit.
Some of the language used about getting poor people to save is quite extraordinary. There is a sense that they should be grateful for having their one shot, whereas middle-class people, who as we go forward with the 45 per cent upper rate of tax, will be getting almost the same degree of subsidy on their pension contributions as we are proposing here, need this huge subsidy which amounts to billions of pounds a year in order for them to save. There seems to be a complete disparity in the approach to savings between two classes of people. Can the Minister answer two things? First, does this legislation allow the two-year period to be extended and, if so, to what extent? Secondly, what is the Government’s current thinking? I think that the Minister said earlier this afternoon that the two-year period was reviewable, but I would welcome any thoughts he might have on whether the Government intended to review it, and whether they have given any thought to what the outcome might be if they did so.
Lord Morgan: Since my name has been invoked, as a fellow warrior, the noble Lord, Lord Newby, will not be surprised that I totally endorse the spirit and substance of what he has said.
Lord Davies of Oldham: I did not doubt that my noble friend would make that comment. I have therefore had the argument, which the noble Lord, Lord Newby,
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However, the principle behind the scheme is different from ISAs. It is to give support to those with a low propensity to save because they have limited resources, and to kick-start the saving habit with a generous government subsidy. This legislation can be effective. For instance, the pilot indicated that, three months after the first pilot had finished, 41 per cent of participants were still saving regularly compared to only 16 per cent who saved regularly beforehand. That is encouraging evidence of the potential effectiveness of this scheme. It should act as a one-off catalyst rather than an ongoing incentive.
The noble Lord will recognise the costs involved in increasing the number of the accounts that could be held. We had a discussion earlier this afternoon on the costs of the scheme. Of course, we put this scheme in the framework of social responsibility and financial inclusion. With such small accounts, the number of transactions is unlikely to be affected; they are not bringing any profit—or only very limited profit—to the providers. So we are concerned about the costs of the scheme as it stands. As I indicated earlier, we are optimistic about the results of our fruitful discussions with a range of potential providers, but that is not to say that we should be anything other than careful about the scheme’s costs to such providers. We must therefore look at the scheme in those terms.
I understand the sentiment expressed by the noble Lord, Lord Newby, at considerable length, and reinforced by my noble friend Lord Morgan. It is important that we provide fairness in saving schemes. Prior to this scheme being made available, the position significantly benefits the better off. You can start an ISA at quite a low level, but we all know that the figures normally expected for ISAs are several thousand pounds: £3,600 in cash and £7,200 in equities. An awful lot of people subscribe monthly and hit lower levels than that over the course of the tax year. This provision is clearly directed at a different group of people, who have limited motivation to save because of their limited resources. They are targeted and will be supported, but we intend that this should be a one-off scheme to kick-start the saving habit. That is the essential principle of the scheme. Although the noble Lord has given voice to proper sentiments, I hope that he will recognise that the Government have to work within a proper framework of what is practicable to keep costs at a reasonable level so that the scheme can be successful.
Lord Newby: I am grateful to the Minister for that reply. He set out the difference between the tax incentive here and the ISA. To paraphrase him, the effect of the ISA and pension tax relief is to support those with a high propensity to save, to maintain the saving habit with generous government subsidy. He then went on to say that this scheme is very different from that because it is a one-off catalyst. My question, which he has not begun to answer, is why it is a one-off catalyst rather than a more permanent scheme. He has not answered at all why it would be possible for the
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4 pm
Lord Davies of Oldham: I apologise to the noble Lord; I should have answered that question before. It is possible to extend the scheme—Clause 4(2) provides for that—but, in launching a scheme with many attendant difficulties, we are concentrating on making it effective. We are therefore concentrating on the scheme as set out, with a two-year period and the given level of support. We have elements of flexibility in the Bill, but the noble Lord cannot expect the Government to give the scheme extensively greater possibilities when we must get it launched with the full confidence of the providers and guarantee that it will be effective for
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Lord Newby: I am most grateful to the noble Lord for clarifying that point, and I beg leave to withdraw the amendment.
Lord Davies of Oldham: I say with some enthusiasm that this looks like a convenient time for the Committee to adjourn until Tuesday 21 April at 3.30 pm.
Committee adjourned at 4.04 pm.
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