Saving Gateway Accounts Bill

My Lords, this is probably the least offensive Bill—certainly the least offensive I have had to deal with in my time on the Front Bench—to emerge from the Labour Party’s policy factory since 1997. We shall raise some detailed issues during the Bill’s 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 is entirely rational behaviour as the top-up which the Government will pay is too good an offer to miss for those who qualify for the scheme. The noble Lord, Lord Newby, pointed out that people will seek to exploit that. The Government are quite good at that; it is exactly the same behaviour that occurred when the Government set up the stakeholder pension arrangements. 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 month’s budget. My noble friend Lord Blackwell would go even further than I have suggested, but of course our nation’s 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 people—whether or not they have affluent parents—have 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 carer’s 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 Government’s 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 Office—I 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 up—I think that is the word he used—but I hope the Government will not be twisting the arms of the nationalised banks to get involved in this scheme and in effect force them to cross-subsidise because the market would not get involved in this scheme. That would be a very unstable foundation on which to build new savings behaviour. 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.