Saving Gateway Accounts Bill

My Lords, before speaking on the Bill, I draw attention to my interests as listed in the Register of Members' Interests, and in particular my capacity as a director of a life assurance company. For my part, I welcome the explanation that the Minister has given of the Bill and its objectives. We must recognise that it is something of a mouse of a Bill compared to the scale of the challenges that we face, but it is welcome nevertheless as a small but significant recognition of the importance of developing a culture and habit of saving and thrift in the UK. That is clearly important for two reasons. First, because it is good for the economy; and secondly, and perhaps more importantly, it is good for the individuals. I shall touch on those points briefly. First, it is good for the economy because a high savings economy is more productive and wealth-creating. It is important that we are clear about that because there have been moments when the messages from the Government have appeared to be somewhat ambiguous or contradictory. We should be very clear that, at the end of the day, the output of the UK economy in the long run is determined by the size of the labour force and its productivity; it is not determined by any particular level of consumer spending or government spending. The more savings we have, the more productive the economy becomes and the higher is future output. A low savings economy, whether brought about because of government borrowing or consumer borrowing beyond prudent levels in the end leads to a trade deficit and a build-up of debt that has to be paid for by future generations. So we should unequivocally be in favour of a high savings economy. The question, of course, is how to manage the transition from where we are to that point, but that is the direction in which we should all seek to travel. Secondly, savings and thrift is important for individuals in encouraging independence and self-reliance. I accept, as has the Minister, that there are many people on low incomes, especially those targeted by the Bill, for whom paying their way week by week is a struggle. They have little if any cash put by to protect them against occasional emergencies. However, we should not imagine that just because people have low incomes, they cannot save. In part, it is an attitude of mind and an attitude of responsibility—of people living within means and taking some responsibility for their future welfare. Indeed, the pilots have demonstrated that many people on low incomes—not all, but many—can, if given incentives, find the opportunity to put some money aside to provide security for their own well-being. I was reminded of that a few years ago when an uncle of mine died at the age of 95. Among his papers, we found a life assurance policy that had been taken out by his mother when he was born in 1901 at a rate of a penny a week to a Hampshire mutual society. His mother was the wife of a rural labourer who became a war widow during the First World War, but for 40 years a penny a week was paid to that life assurance company to ensure that when her son died there was money to pay for his funeral. That type of attitude was not unique to her. It was part of the thinking and culture of her generation and class. I fear that in many sections of society, we have lost that sense of responsibility and thrift in the headlong rush to live on borrowing and credit—the mortgages of the future. Like the Minister, I am very much in favour of something which tries to recreate some of that culture and habit. The question is: if this Bill can help—and some pilot results suggest that it can—what can we do to make it even more effective? Let me pick on two problems that often occur to people targeted by this Bill. One is the fear that if they save and build up reserves and then, as often happens, fall into default on some of their loans or credit-card bills and are put under a court order, their savings are immediately taken as part of the settlement. That creates a view, "Why bother saving up money which will simply be taken away every so often when I hit that problem? If I had spent it, it would not have been there to be lost?". The problem is that if they do not save, it is more likely that they will not have the cushion to protect them when the unexpected comes along and they cannot keep up their payments. Another serious issue is that when they fall into that situation, get behind on rent and become homeless, getting back into housing requires a deposit. Many cannot, even with the amount of money envisaged in this scheme, save up enough to be able to take out the deposit to get back into housing. Will the Government consider a couple of modifications to this Bill? The first is to provide that savings in these gateway schemes are excluded from normal debtor claims and court settlements. In other words, will they ring-fence them, so that money put aside in these savings schemes will still be there at the end of a court settlement? It will not then be lost, but will be there to continue to provide a cushion. The second possibility is to create a link to the Social Fund, so that those who have built up some savings, and demonstrated that they have a savings habit, would have preferential access to a top-up loan or grant, which would enable them to afford a deposit to get back into housing. For many, that is the real source of continual poverty. Once they are evicted and lose their housing, they can never get the money together to get back into rented accommodation. Those two changes would significantly enhance the perceived attractiveness of putting savings aside in these schemes. They would address real issues on people’s minds and would increase the incentive to participate. I will leave it to the noble Baroness, Lady Hollis, to raise the issue of pensioners. However, in passing, I add it as a third area which the Government might amend. It is odd to suggest that people cease needing this just because they pass over the pension age. While many pensioners may have capital, many do not. They would benefit from the incentive to build up enough of a cushion to deal with the odd, unexpected bill. However, even with those additions, we have to accept that this Bill will remain a mouse—maybe a slightly stronger one. If we are to address the lack of savings in this country, we need to go further. I suspect that is beyond the scope of this Bill. There are a couple of things that I have spoken about in the House before, which I would like briefly to mention at this stage. One major step forward would be to remove taxation from all income derived from savings. It seems anomalous that, having encouraged people to save out of taxed income, we tax them again on the income that they produce from those savings. It is no incentive to save and no way to encourage people to be independent. My suggestion would simplify a whole range of schemes that are wholly designed to get around the taxation of savings, and would be a major step forward. The second point that I want to put to the House is about recognising the importance of passing down modest levels of accumulated savings from one generation to the next, and in particular allowing people who have built up a pension pot, and who believe that they can get by by drawing income from that capital rather than converting it into an annuity, to preserve their pension pot and not to have to convert it into an annuity, and to pass that savings pot down to the next generation to go into its pension pot without being lost to an annuity conversion or being subject to high levels of taxation. We must accept that, in the current situation, it will take several generations to build up the levels of capital in this country that will give people the independence that we want them to have. I know that it is asking a lot of the Minister to leap to those suggestions in this Bill, but I ask him to consider the other suggestions. Meanwhile, I welcome the Bill.