Saving Gateway Accounts Bill

My Lords, the aims of this Bill are undoubtedly admirable and we support them and it. The Minister explained that there are two principal aims. The first is to encourage those on the most modest incomes to save sums regularly, so that they develop the savings habit and in doing so have the funds to hand to deal with emergencies or to fund essential capital expenditure. The second is to promote financial inclusion and to bring people into contact with the financial institutions, often for the first time. So far, so good. However, I have several doubts about whether the Bill will achieve these aims, not least, as the noble Lord, Lord Blackwell, almost put it, because of its mouse-like qualities. First, and uniquely among government savings initiatives, the Bill provides for only a limited period during which eligible people will be able to get government support for their savings. We believe that this is two years, although the Bill says nothing firm about a time limit. But a time limit there definitely is. This is unlike all the current principal savings incentives offered by the Government. For example, it is completely unlike the ISAs, where, in effect, there is an unlimited period in which to make savings. One can see by the amount of advertising done by the financial institutions towards the end of the financial year that they know that many people simply will not put aside cash or other forms of saving unless they are reminded of it and unless the tax incentives, year on year, are brought fully into view. Secondly, the tax benefits for making pensions provisions last for an individual’s entire lifetime of making contributions, which can be up to four decades and beyond. Even under the child trust fund scheme, a second payment is made after seven years and parents can make top-up payments tax-free for the 18-year life of the fund. So why do the Government feel it necessary to subsidise tax incentives for those who are rather better off over the long term but to support the very poor for only two years? The noble Lord, Lord Morgan, talked about the inherent class bias in the current savings regime. The Bill does not go as far as it might in redressing that bias, particularly now that carers are brought within its remit, which we welcome. As the noble Baroness, Lady Pitkeathley, said, many people are carers for significantly longer than two years and, in my view, they require a longer period during which to have an incentive to continue saving. I mentioned that we assume that the period of the incentive will be two years. The Minister said so, but we would not know that from reading the Bill. On this and on every substantive issue, the Bill is completely silent. It has 32 clauses and 29 separate delegated powers. We protested about this when it was debated in the Commons and I am protesting about it again. It is a very inadequate way of dealing with legislation to have all the substance in secondary legislation, which, as we know, will be unamendable. 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 institution—I will come to that in a minute—to 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 HMRC—unless it is couched in different language from most letters from HMRC, many may struggle to understand it—is 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 were extremely discouraging about the likelihood of their participating. The BBA has followed that up in a briefing that noble Lords will have received. It says that it is concerned about the complexity of the whole scheme and adds: ""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: ""That is a tricky question to answer, because it is not yet clear to me how it can be economically viable—full stop"." Is it the Government’s view that, if the Post Office cannot make this scheme economically viable—and it cannot, as Alan Cook made clear—it should, none the less, go ahead? Alan Cook also said: ""I would not … want to trivialise the cost issue … I would need to find a partner to provide the administrative capability and would pay that partner to do the work"." Can the Minister inform the House whether such a partner has been found, and on what basis that partner might do the work for the Post Office? If there are problems with the banks and the Post Office, what about the building societies? When questioned in another place, Adrian Coles of the Building Societies Association said: ""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 left—I do not say this pejoratively—with 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 concern—I would welcome the Minister’s view on this—is that neither the banks, the Post Office, the building societies nor the credit unions are yet signed up to the scheme. Without a significant number of them offering the scheme, frankly, whatever else its virtues or demerits might be, the thing will not fly, as Alan Cook said. 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-somethings—unemployed graduates with very affluent parents—on jobseeker’s 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 Government’s ambitions for it.