Saving Gateway Accounts Bill

My Lords, I very much enjoyed hearing the contributions of noble Lords, and I am much encouraged by the unanimity of welcome expressed from all sides about the central thrust and intention, and also informed by the valuable contribution from Members of both sides of the House to issues around both design and implementation. The noble Lord, Lord Blackwell, commenced our debate with some valuable insights around the importance of promoting savings to developing a strong economy. I have known the noble Lord for many years—we were colleagues at work together—I have greatly respected his understanding of these issues and find myself broadly in support of his observations about the need to develop a stronger savings culture. We spoke a little about this last night in the debate following the Chancellor of the Exchequer’s Statement on the G20 meeting of Finance Ministers and central bank governors over the weekend. However, my noble friend Lady Hollis also reminded us of the need to be careful when making comparisons about savings ratios to take into account different preferences in terms of assets, and that a low reported savings ratio does need to take into consideration, in a proper evaluation, interest such as property ownership. Generally speaking, countries with higher savings ratios would tend to have higher use of rented accommodation. We have a very high owner occupation, by contrast, and we also have high pension savings. However, the central thrust of the noble Lord’s point in that respect was well made. The noble Lord, Lord Blackwell, suggested that funds saved in a savings gateway account should be excluded from debtor claims where an individual has fallen into default. As we set out in the draft regulations, a savings gateway provider will not be able to set-off a debt on one account by taking money that a person has saved in the gateway account. The noble Lord suggested going further, protecting these funds from claims by third-party creditors where an individual is in default. The interests of creditors need to be balanced against savers’ interests. We should not rush into subserviating the interest of the saver over the interest of the creditor without thinking about it very carefully. However, I commit to the noble Lord to give this matter further consideration before Committee. The noble Lord, Lord Blackwell, also raised a question about whether the savings gateway accounts should not have an impact on Social Fund entitlement: those who save should have preferential access to the Social Fund. In the last month of 2008 the Government published an informal consultation document on the Social Fund, and they published the responses to this consultation last month. In the light of the significant interest in this consultation, the Government are planning more detailed public debate reform of the Social Fund during 2009, providing further opportunities for interested parties to express their views. In taking this forward the Government will continue to consider the impact of the savings gateway on the Social Fund. The noble Lord, Lord Blackwell, also suggested—although he did not necessarily expect me to reply to it—that people who have pensions cannot pass on those pensions but are obliged to annuitise them, and that that was invidious. I remind him that the purpose of pension savings is to provide an income in retirement. It is for this reason that tax relief worth an estimated £19 billion net in 2007-08 was given. Allowing tax relief savings to be used for other purposes would not be a fair use of taxpayers’ money. For those who have different needs a number of alternative savings options are available, including ISAs. The noble Lord, Lord Blackwell, asked a much broader question about why the Government need to tax savings at all, although the noble Baroness, Lady Noakes, reminded us that the Opposition are currently minded to exempt—at least, I believe, from basic income tax—income from savings. Nearly everyone is entitled to a personal allowance which allows a certain amount of income to be earned tax free, although I believe that the noble Lord, Lord Newby, was right to identify that this has an element of social-class or economic-category bias in the sense that we are offering further incentives, inducements and rewards to those who are already better off than many in the community by virtue of the fact that they are paying tax. Above the existing facility that is available to earn a part of one’s savings income tax free, there are other products such as individual savings accounts, child trust funds, employee share schemes, SAYE and share incentive plans. Indeed, there is a multiplicity of plans and arrangements that encourage people to save. The noble Lord, Lord Morgan, shamed me with the proficiency with which he extolled the merits of the saving gateway. He did so with much more conviction than I was able to do. I will pass on to the team who have worked on developing this Bill and carrying out the pilot schemes his congratulations on a first-class piece of work. It was also a delight to hear the contribution from my noble friend Lady Pitkeathley, who has a proud record of supporting carers. I am pleased that she took encouragement from my remarks about recipients of a carer’s allowance being able to participate in the saving gateway. I failed miserably to pre-empt the contribution from my noble friend Lady Hollis of Heigham. We greatly value her informed and measured contribution to so many debates around issues relating to gender, savings and age; we take everything that she says very seriously. Her observation, based on one of those involved in the pilot, that the saving gateway account had given that person control over his or her life was a wonderful way of summarising one part of what we are trying to achieve. It aligns with the observation made by the noble Lord, Lord Blackwell, about the importance of thrift. I repeat my remarks about the important benefits that are already available to pensioners through the tax system and other benefit arrangements. Pensioners are not necessarily excluded from the saving gateway and some may be eligible through tax credits. However, the saving gateway is targeted primarily at working-age people on lower incomes. As the noble Lord, Lord Newby, said, there are some rough edges. That is the price that one pays for producing a scheme that is simple and easy to administer. It is a matter of getting it very largely right, rather than completely right, in terms of participation. There are, as I said, significant supports to encourage people to save for their retirement. In particular, there are generous tax reliefs to incentivise pension savings, which were worth around £30 billion in 2007-08. As I also said, we will introduce personal accounts, which are intended to provide a highly attractive, low-cost option to those in the private sector on low to moderate incomes who currently have no occupational pension arrangement. That will extend, from recollection, to 5 million or 6 million people. We will continue to support programmes for those in receipt of pensions and I will carefully consider the contribution from my noble friend, although I would not wish to raise her hopes. Her observation about the shortcomings of the IPPR report on pensioners was apposite. She drew my attention to the IPPR report a few days ago and I set aside quite a lot of time to read the relevant section, although I found that I needed very little time, because it was very short and somewhat inadequate. At the very least in Committee, we will ensure that we have a more complete debate on the issues that my noble friend raised. The noble Lord, Lord Newby, raised a point that I had anticipated about the balance between the wording in the Bill and its dependence on secondary legislation; he asked whether the Bill was essentially a carrying document rather than a document of substance. Many of the important features of the saving gateway, including the list of qualifying benefits and credits and the method of calculating maturity payments, are set out in the Bill. However, many of the details of the scheme’s operations are relatively technical and are better suited to secondary legislation. It is also important that there is some flexibility for the scheme to be amended, developed and improved in the future in the light of experience to ensure that it continues to meet its objectives without the need for further primary legislation. We will of course look closely at the report of the Delegated Powers and Regulatory Reform Committee on the Bill and will consider these issues again carefully ahead of the Committee stage. The noble Lord, Lord Newby, raised questions about providers—a point also covered by the noble Baroness, Lady Noakes. The noble Lord asked whether we were creating something that no one would be willing to offer in the commercial market. I have in front of me quotations from Mr Alan Cook of the Post Office which take me to a rather different conclusion. I think that banks, building societies and credit unions all now recognise the increased value of a loyal depositor base from retail deposits, rather than reliance on wholesale deposits. The opportunity is here for banks and building societies, including the Post Office and credit unions, to develop a new customer base, because we are seeking to promote a new savings habit among a group of people who either do not have a savings habit at the moment or—this is very important—have savings but not within the regulated formal banking system. Taking people into the regulated financial system will, in itself, be a huge benefit arising from this important legislation. I am sure that the noble Baroness, Lady Noakes, would expect me to point out that there are no nationalised banks. There are banks in which the Government have a large shareholding and there are banks in temporary public ownership, but there are no nationalised banks. The noble Lord, Lord Newby, also raised questions about Thoresen and issues concerning advice. I will ensure that, when we come to this matter in Committee, I am informed and can advise the House or I will write to those who have participated in this debate, updating them on where the Thoresen projects are at the moment. I am afraid that this matter does not currently fall within my sphere of recollection but I will definitely ensure that we are well informed ahead of Committee. Finally, the noble Baroness, Lady Noakes, welcomed the Bill with what, for her, was an unusual and distinct enthusiasm, which will warm the hearts of new Labour and the left. There is a belief that after many years we are finally beginning to get things right and this may well be the start of a trend. She asked why it has taken us so long to bring about the scheme. The answer is that we have been carrying out pilots. If we had not, we would probably be criticised for that as well. Pilots will produce hard evidence. The noble Baroness said that she wishes to see more detail of that hard evidence. When we next come to the Bill, we will make every effort to satisfy that requirement. Questions were asked about the use of savings balances, but I am not sure in my own mind that that is necessarily relevant to the legislation. The purpose is to establish a habit and a pattern of saving without being prescriptive on the use of that saving. It someone used the saving to finance a special need or to meet an emergency, that would seem to be entirely consistent with the expectations of those who advocate thrift. The important question is: having run down the balance through force of necessity, will people, when circumstances permit, re-engage with the financial institution with which they have established a relationship and a comfort level? Will walking into a bank or building society no longer be an inhibiting or intimidating experience but one with which they are comfortable? The noble Baroness also asked whether the targeting was appropriate and, in particular, whether it should be defined in the way that the eligible community is. On that, the real value and virtue of this approach is its simplicity. We are creating a product that is simple, easy to administer and easy to understand, without the need for a means test or complicated form-filling. No doubt, as we go through the detail of the Bill in Committee, noble Lords will have an opportunity to test those attractions versus the counterarguments about the appropriateness of the defined target group, or the "rough edges" issue, as the noble Lord, Lord Newby, described it. I think that I have covered nearly all the points that were raised on Second Reading. If I failed to do so, I will of course write to any Member who raised a point that I overlooked. I commend the Bill to the House. Bill read a second time and committed to a Grand Committee.