Saving Gateway Accounts Bill

My Lords, it is a pleasure to open this debate on the Savings Gateway Accounts Bill. This Bill will create a national savings gateway scheme, giving 8 million people the chance to open accounts in which each pound that they save will be matched by 50p of government money. I am pleased to have the chance to set out the purpose of the Bill and I look forward to the contributions of noble Lords both today and at future stages. I know that the Bill will benefit from the careful and expert scrutiny that it will be given in this House. I start by explaining the aims of the saving gateway scheme, which the Bill will introduce from 2010, and how we have reached this point, because this is a measure that has been carefully developed over a number of years. We have two objectives for the saving gateway scheme: to encourage a savings habit among working-age people on lower incomes and to promote financial inclusion. I am sure that noble Lords on all sides of this House will agree on the importance of saving. Savings can provide people with independence during their lives, security if things go wrong and comfort in later years. They make it easier to deal with unexpected events, to plan ahead and to prepare for the future. A lack of savings, by contrast, makes it more difficult to invest in education or training. Unexpected expenses, such as an unplanned domestic expenditure or an illness, are much harder to deal with, as there is less of a buffer to fall back on. Government incentives to save are already in place, including tax relief on pension contributions and tax-free savings accounts, or ISAs, which are now held by 18 million adults. However, both these incentives rely on tax relief to provide the incentive to save, but that offers little benefit to people on lower incomes, who pay little or no income tax. We know that people on lower incomes also have lower levels of savings than the rest of the population. According to the most recent Family Resources Survey, 43 per cent of households with a total weekly income of less than £100 have no savings at all, a percentage that falls as incomes rise. We therefore conclude that there is a strong case for an additional incentive for people on lower incomes to save, which is what the saving gateway scheme aims to provide by offering 50p from the Government for each pound saved. We believe that this can promote a saving habit, which will continue even after the saving gateway comes to an end. The saving gateway also aims to further financial inclusion by bringing people into contact with mainstream financial services, some of them for the first time. We are, I am sure, all aware of the costs that financial exclusion can bring, often to the most vulnerable members of our society, whether through something as simple as paying commission to cash a cheque or through being forced to turn to doorstep lenders or even illegal loan sharks because affordable credit is not available. We are working hard to tackle financial exclusion, supported by the Financial Inclusion Fund. The saving gateway will form part of that work by encouraging people to engage with the banks, building societies and credit unions that will offer saving gateway accounts. Again, there is a case for a particular focus on people on lower incomes. According to research by the Financial Inclusion Taskforce, whose chairman, Mr Brian Pomeroy, gave evidence to the committee on this Bill in the other place, low-income households are more than twice as likely to be unbanked as other households. Many may also be saving through unregulated products, the dangers of which were shown by the collapse of Farepak in 2006. Our objectives for the saving gateway have been welcomed by organisations that help to tackle financial exclusion, by representatives of people on lower incomes, by organisations focused on saving and by the financial services industry. Over recent years, we have looked closely at how the saving gateway can best achieve these commendable objectives. Since we first consulted on this idea in 2001, we have conducted two pilots of the saving gateway. Between the two, more than 22,000 people took part and over £15 million was saved. Those who participated were overwhelmingly positive about the effect of the saving gateway. We are currently conducting further evaluation of the second pilot. The initial results show that 91 per cent of participants would be very likely to open a saving gateway account again if they had the chance and that 93 per cent would recommend it to a friend. This evaluation also shows that, before the pilot started, around 40 per cent of participants were putting money into a savings account at least once a month. During the pilot, the proportion rose to around 80 per cent of participants. Unsurprisingly, that number fell slightly once the pilot ended and the incentive of a government contribution was removed, but even 18 months later around 60 per cent were still saving once a month and around a further 20 per cent had saved in the previous three months. We have also learnt a number of important lessons from the pilots, which have informed the design of the national saving gateway scheme. As I said, we believe that there is a strong case for an additional incentive for people on lower incomes to save. They have fewer savings than the rest of the population, they benefit less from incentives that rely on tax relief and they are also more likely to experience financial exclusion. We believe that the saving gateway should be focused on people of working age, rather than pensioners. There are significant incentives for people to save for their retirement before they reach it, including tax reliefs to incentivise pension savings, which were worth around £30 billion in 2007-08. We will also be introducing personal accounts to promote low-cost, tax-enhanced savings for retirement. On average, pensioners have higher levels of savings than the rest of the population. Only 17 per cent of households with more than one adult over pension age have no savings, compared to 24 per cent for all households and, as I mentioned, 43 per cent of households with incomes of up to £100 a week. The Government already provide significant support to pensioners in other ways, such as winter fuel payments, free prescriptions, free eye tests and free off-peak nationwide local bus travel for the over-60s, free TV licences for the over-75s, free central heating for pension credit recipients and free loft and cavity insulation for those aged over 70. We are also increasing the full basic state pension to £95.25 a week from April 2009 and raising the standard minimum income guarantee in pension credit by more than indexation in April, which means that no single pensioner need live on less than £130 a week in 2009-10 and no pensioner couple on less than £198.45. These measures mean that pensioners have money to fall back on, even if they have low levels of savings. I know that my noble friend Lady Hollis has views on this subject and I very much look forward to hearing them. I doubt that I have assuaged her concerns, but hope that I may be able to do so in the course of our consideration of this Bill. Our target group is working-age people on lower incomes. We believe that the simplest and most efficient way of reaching them is through passporting eligibility for the saving gateway from qualifying benefits and tax credits, which is what the Bill sets out. This means that people will not be required to complete a means test to prove that they are eligible for the saving gateway and they will not need to contact the Government. Instead, they can automatically be sent a notice of eligibility by HMRC, which will be operating the scheme. The qualifying benefits and tax credits are listed in Clause 3 of the Bill and have been carefully selected to target working-age people on lower incomes. Noble Lords may be aware that there was some discussion in the other place about the fact that carer’s allowance does not feature in that list. We have listened carefully to the views expressed. As the Economic Secretary said in the other place, we are minded to extend eligibility for the saving gateway to recipients of carer’s allowance, in order to target claimants of working age. We hope to do this in Committee. We believe that this amendment will make an additional 300,000 carers eligible for the saving gateway. I turn to how the accounts will work, once they have been opened with an account provider. These accounts will last for two years. Each month, savers will be able to deposit up to £25. The monthly limit will promote regular saving. For each pound saved, the Government will contribute 50p at the end of the two years. In total, this means that account holders will be able to save up to £600 in their accounts and receive up to £300 from the Government, all of which will be tax-free. How the government contribution will work is set out in Clause 8 of the Bill, which provides that the maturity payment, as it is called in the Bill, will be calculated on the basis of the highest balance that has been reached during the account. At the end of the account’s life, the saver will have the choice of what happens to the money that they have saved and the maturity payment that they have earned. There will always be a default savings account for the money to roll into if the saver does not make an active decision. The account holder will also have the choice of different saving products, or of spending some or all of the money. As I said, the results of the pilots suggest that many people will continue to save, having established the saving habit that the saving gateway is aimed to promote. I am sure that there will be widespread support in the House for that aim and for the aim of promoting financial inclusion and I hope that there will be widespread support for the Bill. It will introduce a national saving gateway scheme that will offer 8 million people a real incentive to save, targeted on working people on lower incomes who need it most. That will help to initiate a saving habit. I commend the Bill to the House.