Savings (Government Contributions) Bill
Monday 17th October 2016
(7 years, 6 months ago)
Commons ChamberRead Full debate Savings (Government Contributions) Act 2017 Read Hansard Text Read Debate Ministerial Extracts
The Financial Secretary to the Treasury (Jane Ellison)
I beg to move, That the Bill be now read a Second time.
Let me start by reminding the House why the measures contained in the Bill are so important. We want people in this country to have all the tools at their disposal to save money in a way that works for them. We want to make it easier for everyone to build up the savings that they need, to meet their ambitions and to feel secure in their personal finances. We have already set to work to make that the case, putting an end to 17 million people having to pay tax on the interest they receive on their savings and making the biggest ever increase to the individual savings account allowance—to £20,000 from April next year—but we want to do more. The Bill will introduce two new schemes—the lifetime ISA and Help to Save—that will support more people as they save up for the future and provide them with new options to do so.
The lifetime ISA will provide a new option for young people who are looking to save for the long term. We want to make sure that they have a choice in how they save. For some, the pensions system alone is the way forward and we have done a lot to improve it, such as through automatic enrolment and initiatives such as the pensions dashboard. In our consultation last year on pension tax relief, we heard that the pensions system on its own is too inflexible for young people, so the lifetime ISA complements that system while giving people a new option that has been designed with flexibility in mind.
The lifetime ISA is a way of saving up to £4,000 a year. Someone can open an account between the ages of 18 and 40 and carry on saving up to the age of 50. On top of any interest they receive on their savings, they will earn a 25% tax-free bonus from the Government that is paid straight into their account.
Jonathan Edwards (Carmarthen East and Dinefwr) (PC)
Is the Minister at all concerned that this lifetime ISA will introduce an added complexity to the savings market, in particular for young people? Choosing whether to go for a pension or a lifetime ISA could be one of the most important financial decisions in a person’s life. Does she think that there is merit in increasing investment in independent advice and financial literacy so that young people are able to make informed financial decisions?
Jane Ellison
On the latter point, I will discuss advice a bit later on, but we are keen that people have access to good advice and good information. On the hon. Gentleman’s first point, this is about complementary products. It is not an either/or choice. The feedback from last year’s consultation was that many younger people did not want to make a binary choice between saving for later in life and saving for a house. This product is simple in its design but gives people that flexibility. As he says, it is important that people get advice, but the welcome that the proposal has received from consumer advocates indicates that people think that it is simple and flexible.
Jonathan Edwards
I am grateful to the Minister for giving way again. Their incomes mean that many young people are perhaps more hard-pressed than older generations. They do not have the choice of investing in a pension and a lifetime ISA, so they will be deciding which one to go for. The Government need to address that worry with these proposals.
Jane Ellison
That interaction has been addressed in the Bill’s impact assessment. There was some concern about the Help to Buy ISA and the interaction with automatic enrolment, but we have seen no evidence of it driving a higher opt-out rate. In fact, the opt-out rate for automatic enrolment is lower than forecast—even on the forecast that was revised down. I note the hon. Gentleman’s concern but I think it has been addressed in the work that we have done.
What is attractive about the lifetime ISA is that people do not have to make an immediate decision about why they are saving this money, which goes back to the hon. Gentleman’s point about people not having to make that decision at an early stage when they cannot see what is ahead.
Ian Blackford (Ross, Skye and Lochaber) (SNP)
Anyone saving into an auto-enrolment pension will get tax relief up front, but anyone who invests in a lifetime ISA will be making that investment out of taxed income. Does the Minister see the unfairness in that?
Jane Ellison
Obviously, we have the Government bonus, which I mentioned, but I go back to the point about this not being an either/or choice; this is about people having potentially complementary products that are for different purposes. This product is not about replacing a pension; it is about giving people a complementary product to help them save for later in life, while keeping open the option of building up money to put towards a house. As we have seen, many hundreds of thousands of people have taken that opportunity with the previous ISA product.
The lifetime ISA can be used by people to get on to the property ladder for the first time and can be put towards a home worth less than £450,000. Through this Bill, from April next year a new, more flexible way to save will be available to people, as one of a number of options.
The Bill also introduces Help to Save, which is about finding a better way to support families who are just about managing but are struggling to build up their savings. All Members will be aware of the research carried out by a number of bodies, particularly the excellent Centre for Social Justice, which estimates that 3 million low-income households have no savings at all. That is not a nice position for anyone to be in: living without having any kind of financial safety net in place and knowing that if they lose their job, they have barely got enough money to pay next month’s rent.
Mr Gareth Thomas (Harrow West) (Lab/Co-op)
Will the Minister acknowledge the concern of some that the two-year qualifying period for Help to Save is lengthy for people on very low incomes? Will she also acknowledge the credit union movement’s concern that as a result of the Government response to the consultation on Help to Save—this is how I understand it—it is going to be excluded from offering Help to Save products?
Jane Ellison
We have announced that we will be going with a single provider, National Savings & Investments, at the outset, but the primary legislation does not preclude more people providing the product in future; it was essential that we got national coverage for offering this product, but, like all of us in this House, I have huge respect for the credit union movement and we certainly see a role for it going forward, not least in respect of advice and support, a point referred to a moment ago. Perhaps we will tease more of that out in this debate, but I hope that gives the hon. Gentleman some reassurance.
The two-year period comes from looking at the advice and research that has been done by groups that deal with people in this category, and trying to capture the moment at which a savings habit is ingrained. This does not mean people cannot take money out; there is no penalty for taking money out earlier if they want to access it, but the bonus comes at the two-year point, and I will come on to deal with that. This is based on research by groups and charities that work with people in the target market for the product, so there is a robust reasoning for that two-year period.
If someone is trying to put some of that hard-earned money aside in an effort to be more financially secure, we want them to have the full support of their Government as they do so. That is why, through this Bill, we want to introduce the new Help to Save accounts by no later than April 2018. They will be open to any adult who is getting working tax credits or universal credit and working enough to earn the equivalent of at least 16 hours’ pay at the national living wage. That means about 3.5 million people are likely to be eligible.
As has been mentioned, people can save up to £50 a month for two years—we are talking about £1,200 in total—and the Government will give them a 50% bonus. If after those two years someone wants to do that again for the next two years, they will be able to do so. This way to save also offers complete flexibility. What people want to do with the money they have saved and with the Government bonus they have earned is completely up to them, and if they want to take their money out at any time, they can; there will not be any charge or penalty for doing so.
Jonathan Edwards
As usual, the House of Commons Library has produced a fantastic briefing on this Bill. In relation to this product, it mentions the conclusions of the Institute for Fiscal Studies, which says that only £70 million has been allocated by the Treasury to cover this new savings product in 2020-21, which is nowhere near enough to cover the Government contribution of 50% if everybody who is eligible takes up the product. Has the Treasury got its figures wrong?
Jane Ellison
We know that, historically—the hon. Gentleman is right on this—it has been difficult to target financial advice at some of those who are being targeted by this product. Indeed, not many financial products are being targeted at this particular group. However, I can reassure him that we will be doing everything we can—all hon. Members and credit unions have a role to play in this—to promote this product. If the take-up exceeds our expectations, we would be delighted, and we will certainly be working to that effect.
The scheme provides a real incentive for people on low incomes to keep saving what they can. That means that more and more families will have a rainy day fund, so that they can cope with unforeseen events that come their way. I am talking about the sort of events that many of us as constituency Members recognise. They are the ones that drive people into our advice surgeries because something has happened. Research from the debt charity, StepChange, suggests that if families have £1,000 in the bank, they are almost half as likely to fall into problem debt, by which it means being in arrears with at least one bill or credit commitment. This is a savings vehicle that will really help people to build up a pot of money, which can be used for any purpose at all, but which is also there if needed for a rainy day.
In conclusion, this Bill is all about rewarding people who are trying to save for their future and providing them with new options to do so, and it encourages more people to follow their example. Whether we are talking about a young person who wants flexibility in how they save for their future, or someone on a low income who is trying hard to set aside a bit of money each month, we want to ensure that they have a helping hand along the way. Through these two new savings vehicles, that is exactly what the Government will provide. It therefore gives me great pleasure to commend this Bill to the House.
Rebecca Long Bailey (Salford and Eccles) (Lab)
It is a pleasure, as always, to debate opposite the Minister. I thank her for outlining the overarching principles of the Bill, which will introduce the new lifetime ISA and the Help to Save scheme. As we have heard, the lifetime ISA is a new savings product that will be available from April 2017 in which people under 40 may deposit up to £4,000 a year. The Government will then top up those savings by 25%. The savings accumulated in the LISA can be used as a deposit towards a first home, or can be accessed once a person is 60 to “complement”, to use the Government’s word, their retirement income. In the absence of using the product to save for a house deposit, it will be possible for a person to remove funds from the LISA before they are 60, but there will be a charge of 25%, effectively to remove the Government top-up from the funds withdrawn.
The Help to Save scheme will be available for people in receipt of either universal credit or working tax credit. If they receive working tax credit, they must have minimum weekly earnings equivalent to 16 hours at the so-called national living wage.
Mr Gareth Thomas
I was grateful to the Minister for her response to my question. Will my hon. Friend commit our Front-Bench team to probing the Government further on whether there should be a two-year qualifying period, or if the period should be reduced to 12 months? Similarly, will she commit our Front-Bench team to exploring in Committee whether credit unions can be allowed to take part alongside National Savings and Investments? NS&I already offers national coverage, so there is no reason why credit unions should be excluded.
Rebecca Long Bailey
My hon. Friend makes important points and we would support him in pushing the Government to respond to those questions. I will highlight some of the concerns of our Front-Bench team about the Help to Save scheme in particular. Credit unions are vital for the roll-out of any savings scheme that targets the most deprived communities.
Lucy Frazer (South East Cambridgeshire) (Con)
The hon. Lady helpfully outlined the circumstances in which the lifetime ISA kicks in. Does she welcome that ISA to enable young people to save, given that half of present ISA holders are over 55?
Rebecca Long Bailey
I welcome the Government’s sentiment of encouraging people to save. If I may make a little progress, the hon. and learned Lady will get a fuller response in due course.
The Opposition have serious concerns about both policies under the Bill and a number of questions, with which I hope the Minister can assist. The Labour party warmly supports the Government’s principal aim of encouraging saving. Many working people in Britain are not saving enough or not saving at all, and that is storing up a multitude of problems not just for their personal finances, but for the public purse. The helpful House of Commons Library briefing states that 28% of people say that they have no savings at all and that 38% would struggle to pay an emergency expense of more than £500. In addition, the Joseph Rowntree Foundation surveys on poverty and social exclusion consistently find that between a quarter and a third of households say that they are unable to make regular savings. In the most recent survey, which was conducted in 2012, 32% of households gave that answer.
It is therefore right for the Government to examine methods and structures that will encourage saving, but I am sure that the Minister agrees that they must also address the root causes of this low saving trend. Will she examine carefully the reasons why many people do not save at all? Is it because they are splashing out on fancy cars and extravagant purchases, or is it because wages are too low and the cost of living is too high to get through the month for some people, never mind whether they have a bit of spare cash at the end of the month to put into a savings plan?
Jo Churchill (Bury St Edmunds) (Con)
Does the hon. Lady agree—this is perhaps unlike some of the measures brought in by Chancellor Gordon Brown—that it is important to keep products as simple as possible? It is also hugely important that they are transferable—a Help to Buy ISA can be transferred into the lifetime ISA—and complementary.
Rebecca Long Bailey
Indeed. Products need to be explained as simply as possible and there needs to be a commitment from the Government that there will be an adequate advertising campaign to avoid any ambiguity about a product. I shall shortly come on to some of my concerns about the specific products to which the Bill refers.
It is important to examine the fact that those who live in more deprived areas or areas that do not have access to a healthy range of high street financial services are often more financially excluded, having limited access to reasonable lending facilities. This in turn leads many to rely on extremely high interest lending facilities such as payday lenders, which are often the only lending facility available. In many cases, that initiates a cycle of debt and sucks any possible savings surplus out of the monthly pay packet. It cannot be lost on the Minster that for some time now food banks have been reporting surges in the number of people in full-time employment who are accessing them. This in itself may suggest that many people have no spare cash to live on day to day, let alone to save.
These problems bring me to the Opposition’s main problem with the Help to Save scheme that the Bill introduces. We wholeheartedly support moves to encourage saving for a rainy day, but in many cases the idea that those on universal credit and working tax credit have a spare £50 at the end of the month is extremely optimistic. People can barely make ends meet, as the Government found out last year when there was a cross-party backlash after they tried to take thousands of pounds from the recipients of much-needed tax credits. The transition to universal credit will arguably leave people in an even worse position.
Rebecca Long Bailey
I will pre-empt the Minister’s reply that Help to Save is incredibly similar to the saving gateway scheme that was piloted by the previous Labour Government.
Jane Ellison
I do not wish to interrupt the hon. Lady, but it is important to make the point that this is about people saving up to £50. It must not be suggested that everyone must save £50. The figure is up to £50, and that can be a very small amount. I would just like to make that clear.
Rebecca Long Bailey
I thank the Minister for clarifying that point, but I think that some people would struggle to save even £5 a month, let alone £50.
Let me go back to the point I was trying to make about Labour’s scheme. We did introduce a similar scheme, but it is important to note that we had not spent the previous six years eroding the disposable income of the people whom it targeted. Help to Save might well look good on paper in terms of helping those on low incomes to save, but I must warn the Minister that, given the long-term effect of Government cuts and wider austerity measures, it will not have the desired impact in many cases. The cuts the Government are making to universal credit alone will cost 2.5 million families up to £1,600 a year, according to the Institute for Fiscal Studies. Where will these families find even £1 a month, or up to £50 a month, to put into this savings scheme?
It appears that the Government are not expecting the measure to put rocket boosters, as it were, under savings by those on low incomes. Their costing for the policy is £70 million in 2020-21. Some 3.5 million people will be eligible for the scheme, so if my and the IFS’s calculations are correct, that works out as a Government bonus of £20 per eligible individual in 2020-21.
I was very excited to read the Government’s impact assessment in the past few hours. However, the Minister should note that it arrived at only 1 pm today, and while I am pleased that it arrived at all, she will appreciate that it is really not acceptable to provide such information at the 11th hour if the Government wish to be transparent and capable of being effectively held to account. None the less, I was interested to see that the Government’s expected take-up rate was 500,000 people in the first two years. I will be grateful if she explains the rationale behind that figure. For example, are specific groups more likely to save than others?
Lucy Frazer
The hon. Lady refers to the impact assessment. After the sentence she referred to, it says:
“These estimates were informed by information from similar savings schemes and government savings pilots.”
Rebecca Long Bailey
I thank the hon. and learned Lady for reading from the impact assessment, but I was asking whether specific groups are more likely to save than others, and I do not think the assessment provides that information.
Most importantly, however, how will the scheme help the remaining 3 million people who simply cannot afford to participate in it? I can sum up my concerns about this element of the Bill by reiterating comments made by our former shadow Work and Pensions Secretary, who stated that the scheme was
“like stealing someone’s car and then offering them a lift to the bus stop.”
Kit Malthouse (North West Hampshire) (Con)
I have to confess that I am a little confused by the hon. Lady’s arguments. Is she saying that because the scheme will not target all 3.5 million people who may be eligible, the Government should do nothing? Despite the fact that it might be a partial success or that a large number of people might take up the scheme, she seems to be saying that because not everybody will take it up, this is not worth doing.
Rebecca Long Bailey
No, that is not what I am saying at all. It is important that we address this issue, but we have to be clear about how we do so. Dealing with the root causes of poverty and people’s inability to save is the first important thing that the Government need to look at, and then the second element they need to consider when rolling out the measures in the Bill is the specific groups they intend to target. If they do not target the 3.5 million people who are eligible to take part in the scheme, how will they help those who do not take part in it?
There is considerable unease about the lifetime ISA policy across the pensions industry, the trade union movement, the Office for Budget Responsibility and Select Committees of this House. The Opposition support the idea of incentivising people to save for the future, especially for retirement income, but we are concerned that the scheme could create a diversion from saving in traditional pension products, rather than being an add-on to one’s main pension plan. Even a former Pensions Minister stated that the LISA “could even destroy pensions”. The UK faces a pensions time bomb. Eleven million people are signed up to defined benefit schemes in 6,000 pension funds in the UK, but PricewaterhouseCoopers recently produced data showing that the collective deficit in those 6,000 schemes had risen by £100 billion in just one month so that it stood at £710 billion at the end of August. Earlier this year, the OECD reported that we were facing a “global pension crisis” in which a person buying an annuity today who had saved 10% of their wages into a pension for 40 years could expect just over half the earnings of someone who had saved the same amount but retired 15 years ago.
This situation is very worrying, especially when the state pension in its current form certainly cannot be relied on to plug the gap. Last week, the OBR published a report concluding that recent pensions and savings measures introduced or announced by the Government would create a £5 billion a year black hole in the public finances. The report states:
“The net effect on the public finances is positive in the early years, peaking at £2.3 billion in 2018-19 before turning negative from 2021-22—the year after our March 2016 forecast horizon…But the small net gain to the public finances from these measures over the medium-term is reversed in the long term as the net cost continues to rise, reaching £5 billion by 2034-35. Expressed as a share of GDP—a more relevant metric when considering fiscal sustainability—the net cost builds up until it reaches a steady state toward the end of the period of just over 0.1 per cent of GDP. If that steady-state effect was to continue to the end of our usual long-term projection horizon of 50 years, that seemingly small cost would add 3.7 per cent of GDP to public sector net debt.”
The report also said that these measures
“shifted incentives in a way that makes pensions saving less attractive—particularly for higher earners—and non-pension savings more attractive—often in ways that can most readily be taken up by the same higher earners.”
That is a pretty worrying assessment of the Government’s pensions and savings policy, in which the LISA will play a large part.
I am also worried about the level of assessment that the Government have carried out about the impact that the LISA could have on pension savings, and, more specifically, their auto-enrolment scheme. The Work and Pensions Committee has outlined its concerns about the threat to automatic enrolment in workplace pensions, the roll-out of which is having a great deal of success. The Committee was particularly worried about the risk of people opting out of a workplace pension in order to save in a LISA, thinking that it will be more of a beneficial pension savings product when it is not. The Committee highlighted extreme ambiguity about whether the LISA is intended to be a pension replacement.
As the House will recall, the previous Chancellor stated in his Budget speech that the LISA was for
“those under 40, many of whom have not had such a good deal from the pension system”.—[Official Report, 16 March 2016; Vol. 607, c. 966.]
That was something of an indication that this was a new-generation pensions product. On the other hand, the Department for Work and Pensions has stated that the LISA is
“not a part of the pension system but an additional flexible savings product”.
I am pleased that the Minister has, once and for all, clarified this point and stated that it is a complementary product. None the less, many witnesses who gave evidence to the Select Committee said that all indications so far suggested that the LISA was being interpreted as a pension product, including those from the Centre for Policy Studies, which actually developed the LISA and stated that many employees not already in a pension scheme would have to decide whether to save through a LISA or enrol in the pension scheme. Royal London stated that many people could in fact opt out of workplace pensions.
Will the Minister therefore confirm whether she has made any assessment of the impact of the LISA on automatic enrolment into workplace pensions? Will she confirm what safeguards will be put in place to ensure that people do not opt out of auto-enrolment? Will the Government mount a detailed advertising campaign, as suggested by the Select Committee, to ensure that people do not wrongly view the LISA as their main pension product? The Pensions Regulator has argued that by 2017, when the LISA is available, thousands of small and micro-businesses will not have rolled out auto-enrolment. Have the Government considered timing the LISA roll-out to coincide with the full completion of auto-enrolment to avoid the risks I have outlined?
It is acknowledged that LISAs will be successful among those who have savings elsewhere. There might simply be a case of them transferring those savings into LISAs, but will the Government provide the distributional analysis of the income groups who will specifically benefit the most? Will they confirm what impact the scheme will have on women and minority groups, especially, and therefore provide a much more detailed impact assessment, as the Work and Pensions Committee suggested? Will the Minister confirm what the Government will do to assess those groups that are not currently saving or unable to save, and what will they do to ensure that these people will be able to avail themselves of the scheme? The Select Committee has suggested that those who might benefit most from the scheme could be those who can afford to contribute to a pension scheme and deposit additional savings in a LISA to complement their retirement savings—higher earners, in other words. In these difficult economic times, Opposition Members question whether the scheme is an effective use of up to £2 billion of public funds.
Another concern is not simply that people will use the LISA as an alternative pension product, but that there will be nothing to stop them from taking the money early for other purposes, aside from as a deposit for a house. The Bill enforces a 25% charge for the early withdrawal of funds, which effectively removes the Government bonus, but people will not lose anything from their savings. That will therefore not be a significant deterrent from removing money early, so there is a significant risk for those who use the product as their sole pension income.
LISA funds may be used towards a deposit for a first home. That is not a bad thing, but the Government are failing to address the wider problems that are causing the housing crisis. There is no point having a deposit if there are no houses to buy. We need a significant private and social house building programme supported by the Government, not populist policy making. It is a shame that fewer new homes were built during the previous Parliament than under any peacetime Government since the 1920s. Labour has committed to build more than 1 million new homes over the next Parliament, and that is the level of intervention that is required of any Government who truly want to ensure that everyone can live in a decent and secure home.
Mr Gareth Thomas
Before my hon. Friend concludes her speech, may I suggest one further area on which Labour Front Benchers could press the Government in Committee? The Bill does not include a requirement that any employer should offer payroll deduction services, but that could help all savers, especially those on low and middle incomes. In that way, people could, if they wanted, have money deducted from their pay at source by their employer. Ideally that would go into a credit union, but it could go into any other source of savings. I suspect that that would create a significant boost to savings in this country.
Rebecca Long Bailey
My hon. Friend makes a very important point that Labour Front Benchers are considering in detail.
The Opposition have serious concerns about the policies in the Bill, as I have outlined, and I hope that the Minister will respond to my various queries. However, as I have confirmed, we support the overarching aim of encouraging people to save at a time when they are not doing so. There is significant room for improvement in the Bill, so we will try to amend and improve it as it makes its way through Parliament in the coming weeks to try to alleviate some of our stakeholders’ concerns about the possible effect of the lifetime ISA and the Help to Save scheme.
Robert Jenrick (Newark) (Con)
It is a pleasure to speak briefly on Second Reading and to support two schemes that are an excellent part of what should be a wider strategy to tackle a fundamental and chronic lack of saving in all age groups and all income levels in our country. I want to say a few words about the schemes themselves and then about the scale of the problem and what more the Government might like to do in the years to come to address a chronic issue that should trouble us all, particularly the Treasury.
The problem is greater than many of us like to imagine; the state of saving in this country is worse than we like to kid ourselves. I remember going to visit my grandparents when I was a child and seeing on their mantelpiece a jam jar in which they used to put sixpences to save up for things such as a holiday to Blackpool and for rainy days, should things have got worse. Back then, I think they were the only people on their street who did that and who could afford the coach to Blackpool once a year. I think that my grandmother would put half a crown in a box just below the sofa, to save up for something or other every year, such as a new chair or stool for the house.
That seems like another country and another age—something that could never happen nowadays, when we are all so much richer and have so much greater access to spending. Of course, the statistics—we have heard some of them already—show that that is not the case at all.
Those experiences come from a time before the rise of hire purchase, credit cards, overdrafts and mortgages, all of which, although they have brought with them problems and difficulties that we have to cope with, have created a safety net of sorts against the real fragility that previous generations used to feel, going back as long as anyone can remember. The historian in me thinks of medieval, Georgian and Victorian times, when people used to feel that they were living fragile lives because they could fall from what were then called respectable lives into abject poverty purely as a result of ill fate, including illness, losing a job and having an unscrupulous landlord.
We like to think that those things could not happen today, but, of course, they can, and the statistics that we have heard from both Front Benchers show that very clearly. A quarter of households have less than £1,100 in their total financial assets, and debts of more than £3,500. One in 10 of us has available savings—rainy day money in the jam jar on the mantelpiece—of less than £100. That means less than £100 if someone happens to lose their job, if their company goes bust or if they were in the private rented sector and had an unscrupulous landlord. That should make us all very worried indeed.
Even beyond the poorest in society—those who should be very concerned about short-term saving—there is a crisis in long-term saving, and it looks more and more like an impending disaster for the country. We are all—rich and poor, young and old alike—simply not saving anything like enough.
The latest Deloitte survey shows that, by 2050, the retirement savings gap—the difference between what people will save and what they need to save, if they want to have a reasonable standard of life in retirement—will be £350 billion, which is an increase of £32 billion from five years ago, despite the many measures introduced by the previous Administration and the coalition. On average, each of us has to put away an extra £10,000 every year to avoid what we could think of as a miserable old age. Even people on middle and higher earnings—including all of us in this Chamber—would probably struggle to do that, if we want to pay our mortgages, bring up our children and enjoy a reasonable standard of living in the interim years.
One reason for that, among others, is that we are living much longer. Not only will future Governments struggle to maintain current levels of state pension payment, but we are spending longer in retirement and the cost of retirement income has risen. The latest BlackRock survey calculated that for a 70-year-old male to buy £1 of retirement income via an annuity would have cost £6 in 1970, but today it would cost £12. The cost of retiring is rising dramatically. We all know this, but it is worth underlining that we need a fundamental change in our cultural attitudes towards money and saving.
George Kerevan (East Lothian) (SNP)
Many of us in the Scottish National party would agree with everything that the hon. Gentleman has said so far. However, the argument against the lifetime ISA is that far from encouraging extra saving, it diverts existing savings from pensions into housing and stokes up the housing market. It does not actually resolve the problem that he has described so eloquently.
Robert Jenrick
I am interested in the point that the hon. Gentleman makes, and I will say more about the lifetime ISA in a moment. The point of it is that many of us in our 20s and 30s—I am just about in that category—are more preoccupied with getting on the housing ladder than we are with looking out for our retirement, and that is a major worry for the Government and for future Governments. The lifetime ISA is flexible, however, because it enables people to spend money in the early years to try to get on the housing ladder, and later to convert the product into something else with a view to retirement. The hon. Gentleman raises a major problem, and we need to look at many solutions; this, I am afraid, is only one.
There needs to be a fundamental change in all our attitudes. We should not purely seek instant gratification; we, as individuals, and the Government must promote ways in which to defer gratification through saving, in contrast to our present, quite corrosive, consumer attitude.
I warmly welcome the lifetime ISA. It is an extremely popular product and there has been a lot of interest in it. I do not represent a particularly wealthy constituency— the average wage is just below the national average—but many of my constituents have said to me that they would like to take up the lifetime ISA. Clearly, offering a 25% top-up as well as the usual tax advantages of an ISA gives us all a strong incentive to save. ISAs are popular, as we know from the millions of people who have taken them up over the years. Contrary to some of the comments that we have heard today and comments in the press, ISAs are simple. We all understand them, and they are part of our saving culture.
I welcomed the news in April that the limit would be raised on the standard ISA from £15,000 to £20,000 a year. That might sound like a great deal of money to many people, but as the problem of insufficient saving affects all income levels, it is an important measure. This is an exciting development for those of us—particularly the younger generation—who will not benefit from generous final salary pension schemes. Although the scheme is not intended to take over from pensions, it creates more flexibility in the sector. Under the previous Chancellor, we saw that across a whole range of issues to do with pensions, flexibility is key.
The lifetime ISA will help younger people to save for a deposit, which is, as we all know, the primary preoccupation of every young person with more than a basic level of income. If this vehicle allows us to help any of them to get on to the housing ladder and then to convert to a product that will help them to save for the rest of their working lives, it will be very useful.
Help to Save explicitly does the same job for those on very low incomes. I appreciate that there are many people, including many in my own constituency, for whom saving seems like another country; it is extremely difficult for them to do. But the alternative is to do nothing and to accept that we live in a country where people cannot save in that jam jar, and where the Government cannot create mechanisms to incentivise them to do so and top up what they have saved. The 50% contribution rate is clearly a great incentive, which we should all appreciate and welcome.
Rather as the IFS has said, it would be helpful for the Government to do more work on understanding which groups are the most critical in terms of saving, and to develop more products that specifically target the core group that we are most worried about—the people who have only £100 or £1000 in the bank as a rainy day fund. That is a very worrying state of affairs.
What else should I raise? One area we should look at is savings interest tax. I am in favour of simple and bold tax reforms that will not complicate the already far too complicated tax code even further, but send everyone in society the extremely clear message that the Government believe we need to save more and will back that up with action. I would strongly welcome a further move to take more people out of paying savings interest tax. The announcement in April, creating a £1,000 threshold for those on the basic rate and a £500 threshold for higher rate taxpayers—was excellent, and we should look at more changes, not least because current levels of interest rates are so pitifully low that the Government are receiving very little, and rapidly declining, tax revenues from savings income. In 2013-14, the income to the Treasury was £2.8 billion, but it is estimated to be £1.1 billion this year and to continue to decline further. Those are obviously large sums, but what would create a greater incentive and give a stronger signal than to say that we will no longer charge tax on savings interest?
My last point is simply to reiterate the one made in debates in recent weeks, which is that interest rates are too low in this country. That has had a very corrosive impact on pensioners and anyone trying to save in this country, on the gap between the rich and the poor, and on the wider economy. I, like many others, was delighted to hear the Prime Minister imply in her speech in Birmingham that she would like to take action on this matter.
Mr Gareth Thomas
The hon. Gentleman is making a very powerful application to serve on the Public Bill Committee. Given his point about low interest rates, does he not share the concern of many outside the House—indeed, it is a concern of mine—about the fact that the qualifying period to get the Government’s bonus payment under the Help to Save scheme is two years, rather than just 12 months? Would not a shorter period be a further and more sensible incentive to get people saving more quickly?
Robert Jenrick
I listened to the hon. Gentleman’s intervention earlier, and I would be interested to hear the Minister’s views on that. We want to create as many incentives as possible for everybody—from the rich to the poor, from the young to the old—to save because, as I hope I have made the principal point of my remarks, this country is facing a crisis and we all need to take responsibility for it.
On interest rates, the Bank of England now needs to take action. I did not believe there was any real cause to lower interest rates earlier this summer. It misread the initial signals after the referendum and acted too soon. We have already seen that the consequences of the referendum, at least in the short term, will not be as severe as it imagined. I hope the Bank of England—of course, it is independent—does not reduce interest rates further, and that we can now move away from the policy of quantitative easing as soon as possible for many reasons, but particularly for the sake of pensioners and savers.
I want the Government to create a long-term strategy on saving that tries to change the culture in this country towards looking to the future and putting money aside. The Government need to back that in many ways, some of which will involve extremely difficult decisions. One of those decisions will, of course, be to continue to raise the state pension age to protect the triple lock, which I would like to happen as soon as possible. The two schemes we are considering today are excellent. I fully support them, and I hope that they will be the first of many from the new Administration.
Ian Blackford (Ross, Skye and Lochaber) (SNP)
It is a pleasure to follow the hon. Member for Newark (Robert Jenrick). I was interested that he closed by talking about a long-term savings plan for the Government. I suppose the long-term economic plan has crashed and burned, so they need another anachronism that they can use for the future.
SNP Members welcome any reasonable proposals that encourage savings—we will work, where we can, with the UK Government to seek to encourage pension savings—but we very much see the Bill as a missed opportunity for us all to champion what we should be focusing on, which is strengthening pensions savings. Instead we have another wheeze that emanated from the laboratory of ideas of the previous Chancellor, the right hon. Member for Tatton (Mr Osborne), and his advisers, who had form on constantly tinkering with the savings landscape. The right hon. Gentleman may have gone from the Front Bench, but his memory lingers on with this Bill.
Let us recall what the former Chancellor said in his Budget speech this year:
“too many young people in their 20s and 30s have no pension and few savings. Ask them and they will tell you why. It is because they find pensions too complicated and inflexible, and most young people face an agonising choice of either saving to buy a home or saving for their retirement.”—[Official Report, 16 March 2016; Vol. 607, c. 966.]
The problem was that that assertion was not backed up by evidence, and it was half-baked. Young people under the age of 30 have the lowest level of opt-out rates of all those who have been automatically enrolled into workplace pensions. Department for Work and Pensions research found that for under-30s the opt-out rate is 8%, compared with 9% for 30 to 49-year-olds and 50% for those aged 50 and over. One would have thought that the Chancellor and the Minister had looked at the DWP evidence and recognised that the assertion behind the justification for these measures is quite simply wrong. The fundamental principle, that young people are not saving for a pension when presented with a solution for pension saving such as auto-enrolment, is wrong. After much effort, automatic enrolment has been successful in encouraging young people to save. We must not undermine those efforts by inadvertently encouraging people to opt out and confusing consumers with new, competing products. As has been stated by the likes of Zurich Insurance:
“There is a real danger that the LISA could significantly derail auto-enrolment and reverse the progress made in encouraging people to save for later life.”
I agree with that. Why would we want to undermine pension savings?
Of course we know that the Treasury has flown kites on moving from the existing arrangements for pensions—exempt, exempt, tax—to considering tax, exempt, exempt. That would have a drastic impact on incentivising pension savings, but clearly from the Government’s point of view it would mean higher tax receipts today rather than pensions being taxed on exit. This is a wheeze from the previous Chancellor to deliver higher taxation income today, rather than taxing consumption in the future—a modern day reverse Robin Hood.
Is it not the case that when this idea was kicked into the long grass along came the Chancellor with proposals to achieve the same ends through the backdoor? Is this the first step to moving towards tax, exempt, exempt? If it is, the Government should come clean. If they do so, we on the Scottish National party Benches will vigorously oppose it, because it would amount to an attack on pension savings. We should recall, after all, that it was Gordon Brown, when he was Chancellor, who raided pension schemes with his dividend tax changes—an attack that seriously undermined defined benefit pension schemes in particular.
David Morris (Morecambe and Lunesdale) (Con)
Does the hon. Gentleman not agree that what Gordon Brown did when he was Prime Minister—taxing pension schemes—was catastrophic? I know that, because I had a pension scheme and stopped paying into it.
Ian Blackford
I absolutely agree with the hon. Gentleman that that was the beginning of the end for defined benefit pension schemes in this country. At the time, just about every company in the FTSE 100 had a defined benefit pension scheme. There are hardly any today. My criticism of what the Government are doing with the Bill is that they are once again undermining pension saving. I will come on to the facts of the matter. We cannot get away from this: anybody saving into a pension does so out of pre-tax income. Anybody investing in the LISA will be doing so out of taxed income. That is unfair and unjust. As I mentioned earlier, this is more about a wheeze for the Government to generate taxation income. It is wrong and they should not be doing it without proper incentives for the young people they are targeting.
We would resist any further attempts to undermine pension saving and, specifically, to change the tax status of pension savings. That would be little more than an underhand way of driving up tax receipts—sweet talking workers to invest after-tax income in LISAs when their interests are best served by investing in pensions. We have considerable challenges in ensuring that we take appropriate action and provide the right kind of leadership to encourage pension savings above all else. That is not happening under this Conservative Government. Pension savings are the most tax-efficient arrangement for savers and that is what we ought to prioritise
We also need to revisit the issue of pension tax relief to make it fairer to pension savers. Many commentators and providers, such as Zurich, have suggested that a flat rate of pension tax relief could increase saving among low earners. While ensuring pensions remain an attractive investment for higher earners, it would be inherently fairer. Coupled with auto-enrolment, it would give a powerful boost to the pensions of millions of workers and help the vast majority of people to save more for retirement. It would also end the complexity of the current regime and set tax relief at a sustainable level for the longer term. That kind of approach rather flies in the face of what the Minister has signed off in the impact assessment, which states:
“The government could have done nothing more, relying on existing tax incentives to promote saving among younger people and working families on low income. However, this would have failed to provide the necessary level of support for those who are unable to use existing support to plan and save for their future.”
This is bunkum. Tax relief can be addressed, as I have said, but we must also take into account the fact that a review of auto-enrolment is due in 2017. We can strengthen auto-enrolment to deliver inclusion and encourage pension saving. We want to work with the Government to strengthen auto-enrolment and pension savings, which are the most efficient way for young people to save.
Just today, as we debate the Bill, the Financial Times has published an article highlighting new analysis on pension savings conducted by Aon. The analysis concluded that UK pension savings have a massive deficit of £11 billion a year. A poll of 2,000 pension savers indicates that only 16% of workers are saving enough to maintain their standard of living when they stop work. Why on earth do we want to take attention away, through the Bill the Government are bringing forward, from pension savings? Why are we not focusing on what we should be doing: fixing the problems in the pension industry? That is the priority of those of us on the SNP Benches.
The Aon analysis suggests that members of defined contribution schemes on average need to pay an extra £1,400 a year to achieve a decent retirement income. That is what we should be addressing in this Chamber here tonight. My message to the Government is this: let us all work together to tackle the under-investment in pension savings, to deal with the many challenges we face, and to enhance the attractions of pension savings. That is the priority. Today, too many people are excluded from workplace pensions.
I commend the introduction of auto-enrolment, but recognise that more needs to be done to enhance auto-enrolment and seek to offer affordable solutions to the low-paid, women and the self-employed who, to use the Prime Minister’s term, have been left behind. We need to tackle the issue of those who are currently excluded, such as the 20% of workers who earn less than £10,000 a year. We need to make sure we have an inclusive approach to pension savings that works for all workers.
The average value of conventional ISAs held by those aged between 25 and 34 is £5,186. The annual allowance for the lifetime ISA as proposed is £4,000, so from experience of ISAs this question needs to be addressed: who exactly will benefit? It looks like yet another policy to benefit the rich who can afford to save at such a level and therefore get the full benefits of the Government bonus. So much for the sermon from the Prime Minister about delivering policies for those left behind. It looks to us more like the same old policies for the benefit of the wealthy. When we look at the news today we see that the UK is looking to spend billions of pounds for the City to access the single market—and we should not be surprised. It is yet another case of the poor subsidising the rich.
We need to address the unintended consequences of quantitative easing, which has driven down yields, moderating expectations of future growth for pension funds and substantially increasing the deficit for many defined pension schemes, as the hon. Member for Salford and Eccles (Rebecca Long Bailey) mentioned. If we add to that the decline in annuity rates, which is cutting expectations of pensioner income, it means that savers have to increase their contributions to defined contribution schemes. This makes for a challenging environment for pension savers, which needs to be addressed.
On 11 July, the former Secretary of State for Work and Pensions, the right hon. Member for Preseli Pembrokeshire (Stephen Crabb), said that
“there is a very real systemic issue with DB pension schemes that we need to look at, and my Department will be discussing it further in the months ahead.”—[Official Report, 11 July 2016; Vol. 613, c. 10.]
Since that statement, there has been silence from the Government. Where is the response to the fundamental challenges for today’s pensions and, as some might argue, the crisis in both defined benefit and defined contribution schemes?
We know of the significant factors affecting the BHS and British Steel schemes, and we know that hundreds of other schemes are facing significant deficits. Rather than seeing the Government face up to these challenges and the threat to the many beneficiaries of the schemes, we see a missed opportunity to tackle what ought to be the priorities. When will the Government respond in detail to what the former Secretary of State for Work and Pensions admitted, which we all know to be the case? I give the Minister the opportunity to intervene and tell us what the Government have done since the announcement of the previous Secretary of State. Where is the Government’s response? What do they have to say about the deficit on defined pension schemes? I see Government Members on the Front Bench looking down, but we need answers. What we get from this Government is no action.
Jane Ellison
I draw the House’s attention to the fact that we had DWP questions earlier today, and I am sure the hon. Gentleman took the opportunity to put his question then.
Ian Blackford
That was a politic answer. I cannot help but remark that I asked the Secretary of State for Work and Pensions a question earlier today, which was enlightening in itself. I asked a question about the WASPI women. I raised a specific point, saying that the SNP had put proposals in front of this Government as we were asked to do. We said that we could deal with the WASPI issue by spending £8 million, which, by the way, the Government could afford to spend because there is a surplus of nearly £30 billion sitting in the national insurance fund. What was the answer we got from the Secretary of State? It was to get the Scottish Government to do that. What he failed to realise is that this House has not given the Scottish Parliament the responsibility for pensions. Why not do that now, then? The Scottish Parliament and the Scottish Government would certainly take responsibility for pensions and for pensioners, which this Government are walking away from.
Nothing is being done by this Government. They are like rabbits caught in headlights. That is exactly what we got when the Financial Secretary intervened just now. This is a Government who have no answers to the real issues and the real problems that affect us in the pension landscape. They have been caught doing nothing in the face of systemic risk, which the Government themselves recognise. The Financial Secretary turned around and said, “It is not for me, but for the Department for Work and Pensions”. Well, I am sorry, but she is a Minister of the Government, and this is a Government responsibility. She should be coming to this place with answers.
We also need to recognise that although this Bill will help some savers, it does little to help those who cannot afford to save for later life. Of course, we have had the benefit of the Work and Pensions Select Committee holding an inquiry into the effect of the lifetime ISA on auto-enrolment. Evidence from the Association of British Insurers stated:
“Presented as a choice, no employee will be better off saving into a Lifetime ISA than they would under automatic enrolment. This is due to the loss of employer contributions.”
A recent Standard Life analysis shows that the typical gain from tax breaks and minimum employer top-ups to a qualifying workplace pension for a basic rate taxpayer is between 70% and 85%, compared with the return of 25% from a LISA. That is the con that this Government are trying to inflict on the people of this country. The long-term cost of forgoing annual employer contributions worth 3% of salary by saving into a LISA instead of a workplace pension would be substantial. For a basic rate taxpayer, the impact would be savings of roughly one third less by the age of 60. For example, an employee earning £25,000 per annum and saving 4% of their income each year would see a difference in excess of £53,000. After 42 years, someone saving through a pension scheme would have a pot worth £166,289.99 at a growth rate of 3%. Under a LISA at the same growth rate the value would be £112,646.75. Is the Minister going to defend this?
Dr Eilidh Whiteford (Banff and Buchan) (SNP)
My hon. Friend is making a really important point about the advantages of pension saving over the new LISA, but does he share my concern that the real beneficiary of the LISA will not be people on low and middle incomes, but exceptionally rich people looking for a tax-efficient way to save very large amounts in a year?
Ian Blackford
My hon. Friend is spot on. Those who are already investing large amounts into pension schemes and perhaps approaching the cap will be turning around and saying, “Thank you very much.” This is not a policy for low and middle-income workers; this is a policy for the rich. It is the same old thing from this Tory Government who learn nothing. No wonder they are so out of touch in Scotland and no wonder that they have only one Member of Parliament in Scotland when they do not do the right thing for the pensioners in our country.
There are clear risks for young people in taking the wrong decisions if they do not get appropriate advice—something that is lacking from these proposals. Will the Government make it clear that young people will be advised of the likely outcomes of opting for a LISA over pension savings? If not, why not?
The SNP is supportive of any initiative that promotes savings for later life, but the LISA is simply a gimmick that benefits only those who can afford to save to the levels demanded by the Government to get the bonus. Help to Save is another example. We agree that working to encourage savings is welcome, but in this case again, the UK Government have only scratched the surface rather than really targeting those who are struggling to plan for emergencies or later life. Individuals eligible for Help to Save have only limited resources for saving by definition, and they will now have more difficult choices to make between medium-term savings and longer-term aspirations.
The very fact that the Government expect the policy to cost only £70 million in 2020-21 implies that the Government top-up will, on average, be only £20 per eligible individual in that year. Yes, £20—that is what this Government are proposing in this Bill. The Institute for Fiscal Studies has taken the view that Help to Save is poorly targeted, and it questioned the purpose of the scheme, stating:
“There is also a deeper and critical question about which groups are really ‘under-saving’. The key justification for giving a household extra money only if it places funds in a savings account, rather than giving it extra money regardless and letting the household decide what to do with it, is that we have reason to believe that the household is saving less than is ‘appropriate’ given its circumstances.”
The charity StepChange found through its work with poorer families and those with existing problem debt that four in 10 people struggling to save experience an income shock, such as a broken boiler or car repairs, at least every six months; that 60% of those facing an income shock turned to borrowing; and that a third of them cut back on essentials such as food to cover the costs. It found that half a million families could avoid problem debt if they had £1,000 of savings.
Responding to the Government’s consultation on Help to Save, the charity had three concerns: the proposed two-year period over which a Help to Save account will run may disincentivise applicants, and the Government should think “very carefully” about the way in which the scheme is advertised, in order to minimise a potential problem caused by the perception of a rigid two-year account length; the Treasury should amend the eligibility criteria so that those aged under 25 who work at least 30 hours a week can apply for a Help to Save account; and the Treasury should look closely at the debt-collection and insolvency implications of the scheme, and the Government should protect money in Help to Save accounts from third-party debt orders or insolvency proceedings. The charity concluded:
“At the very least any bonus accrued should be protected.”
Once again, we have seen a missed opportunity to tackle the pension saving deficit head on. While helping some, the Bill does little for those who cannot afford to save for later life. The Government must be much more ambitious if they are to deliver real dignity in retirement. We do not intend to oppose the Bill tonight, for which I am sure the House will be grateful, but we will seek to deal with the missed opportunities and to strengthen the Bill in Committee.
Kit Malthouse (North West Hampshire) (Con)
I hesitate to detain the House by repeating much of what was said by my hon. Friend the Member for Newark (Robert Jenrick) in his thoughtful speech, but I particularly wanted to speak in support of the Help to Save scheme, which seems to be the Cinderella scheme in today’s debate.
Rare is the politician who understands the difference between profit and loss and the balance sheet. That is normally left to dull accountants like me. We spend a great deal of time in the House talking about people’s differential profit-and-loss accounts—the difference in earnings, and whether some members of society earn far too much in comparison with others—and we do a fair amount in trying to close that gap. However, we often fail to recognise that the solution to those inequalities in society, and the solution to the problem of poverty more generally, are first multi-generational and secondly as much about the balance sheet—the asset share that those people may have for the future—as about how much they happen to earn at the moment. Anything that enables people with low incomes, who may be on benefits or the like but who are certainly at the bottom of the socio-economic ladder, to start to get the idea of saving and, in particular, investing the money saved in assets can only be applauded.
One of our problems in this country is that the collective balance sheet—the assets held both privately and publicly—is concentrated in far too few hands. Over the last 20 or so years there has been a diminution in the number of people who own shares or, indeed, have any asset base, even ownership of their houses. We need to reverse that, but sadly it has been far too low on Ministers’ agendas. A good example is the sell-off of the Post Office. The retail tranche of sales—the shares that were to be sold to members of the public in small lots—was scaled back, while the tranche that was being sold to large institutions such as Goldman Sachs was inflated. It seemed insane that a Liberal Democrat Secretary of State, in particular, would do that. There was a lost opportunity to spread what was known back in the 1980s, in the heyday of a certain politician, as the “ownership society”. The former Member of Parliament for Richmond, Yorks, William Hague, said that we should be a share-owning, property-owning society, and should roll back the frontiers of the state to enable that to happen.
I am keen for Help to Save to be promoted, because it allows people with very low incomes, or no incomes at all, to start thinking about their own asset bases and start saving for the future. However, I should like the Minister to consider a couple of issues. First, I do not understand why there is a cap on the amount that can be contributed. If someone earning a very low wage is able to contribute £20 a week or £20 a month year in, year out, why should we seek to limit that? Why should we not allow such people to build up a fund which they could use in the future, possibly passing it on to their children, who might then decide to do the same? Secondly, £50 seems a rather small amount to me, particularly for someone who is starting to build up an amount and getting into the spirit of saving. Thirdly, especially in the current interest-rate environment, requiring people to hold their savings in cash strikes me as self-defeating. Allowing them to go to their banks and buy, for instance, shares in Marks & Spencer or Royal Bank of Scotland—when, hopefully, they become available—would give them the idea that they could benefit from the country’s asset base.
It is worth noting that, when it comes to the lump sums that people want to accumulate over their lives, their aspirations are often quite modest. Many years ago a great friend of mine who works in television was devising a new quiz show, and wanted to establish what prize money he should offer so that he could deal with the show’s finances. A survey was conducted, and people in the United Kingdom were asked what amount constituted “change your life money”. In this age of the lottery, my friend thought that the answer would be hundreds of thousands of pounds, but in fact it was just over £6,000. That is what the vast bulk of British people thought was “change your life money” which would give them the chance to start to build for the future.
Suella Fernandes (Fareham) (Con)
The Money Advice Service recently found that 21 million families had less than £500 in savings. What does my hon. Friend think about the lack of financial literacy and money management skills among people who do not have the techniques and the basic understanding that would enable them to manage their personal finances?
Kit Malthouse
My hon. Friend has touched on an interesting issue. What she has said reflects one of the observations made by the hon. Member for Ross, Skye and Lochaber (Ian Blackford). Over the past three or four decades people have, perhaps, been infantilised in respect of the financial choices that they make, and politicians in the House of Commons may have sought to make their choices for them. Personally, I would like the opportunity to decide between a lifetime ISA, a pension and a normal ISA, for instance, but then I am a chartered accountant of moderate skill—deeply moderate; I resigned on the day I qualified for exactly that reason—but I recognise that plenty of people feel confused and are unable to do so. We have taken the power away from them over the years, and we must start to reverse that. We must either put choice back into their hands, or educate them so that they can make those choices in the future. The financial world is becoming ever more complicated, and if people are to do well out of it—particularly those on lower incomes—they will need to have that kind of knowledge.
Another reason why people should take an interest in acquiring assets rather than the mere ins and outs of their monthly incomes is the fact that a number have missed out, recently in particular, on what could have been a big upswing in their wealth. Brexit has seen a massive rise in the stock market, and anyone who has had stocks and shares over the last couple of months will have done extremely well. Similarly, the housing market has risen prodigiously over the last three or four years.
Ian Blackford
Does the hon. Gentleman not realise that there has been a massive 16% decline in the value of sterling over the last couple of months? Moreover, the fact that the market has risen as much as it has is due, quite simply, to the overseas earnings of United Kingdom companies. It is not that the world thinks the United Kingdom has become a more investable case; indeed, some would argue that it has become a basket case.
Kit Malthouse
I entirely agree that overseas earnings are rising. That is why the stock market has increased so significantly, and I think that is a good thing. I am proud to say that I voted “out”. I am not sure what the hon. Gentleman thinks should be the level of the pound, but I think it should be at a level that increases our overseas earnings, means that people will re-shore manufacturing—because it is now more expensive for goods to be made overseas—and helps our exporters. I cannot see that that is anything other than beneficial for a country that is carrying a massive current account deficit.
The point that I am trying to make, however, is that 40 or perhaps 30 years ago many more people were investing in the stock market by buying shares in British Gas and all the privatised industries, and those people would have been benefiting from the present upswing. I am proud to ask my postman how his shares are doing every time I see him, and I should like to be able to say the same to most people on low incomes.
Ian Blackford
Perhaps the hon. Gentleman should ask his postman how much his holiday will cost him next year. There is a real problem for the United Kingdom, which is that inflation is now going to increase. We have already seen the impact of the likes of Unilever seeking to pass on 10% price increases. At a time when wage growth in the United Kingdom is limited, we have choked off next year’s consumption. That is the effect of Brexit. This is not about wealth; it is about an economy that has been damaged by the Brexiters.
Kit Malthouse
The hon. Gentleman will not be surprised to know that I disagree with him. I hesitate to get into a bit of economic argy-bargy in this debate—I was hoping to keep my comments short—but inflation is currently running at 0.6%, and as a result we have extremely low interest rates. The Bank of England’s target is 2%. I am pleased that the low pound may help it to get to that level because there is no doubt that low inflation, or a deflationary environment in real terms, is extremely damaging to the economy. The hon. Gentleman will be pleased to hear that the effect he desires of the drop in the pound has happened: my wife and I decided just this week that this February half-term we would go to Scotland on holiday rather than overseas. We would like to explore the glorious land of his birth. I hope that more and more British consumers will do the same. We may even see the rejuvenation of the tourism industry in lovely places such as Blackpool.
Mr Gareth Thomas
The hon. Gentleman has set out three concerns, if I remember rightly, about Help to Save. I wonder whether he shares my view and that of the hon. Member for Newark (Robert Jenrick) that the Government need to do more to explain why they think there should be a two-year qualifying period for the Government bonus for Help to Save, as opposed to just 12 months.
Kit Malthouse
I completely agree with the hon. Gentleman. The Government should look at exactly that. The barriers to saving that are in the way of people on low incomes should be removed as much as possible. I like his suggestion that people should be able opt to save out of their payroll—that employers should make the deduction. I like anything that makes it painless. The Government opt for PAYE because it takes our taxes away from us painlessly; we do not actually have to give them over. Doing the same with savings would be a good idea.
Throughout my life, my granny, until she sadly died when she was 94, put £5 every month in a post office savings account for me. She gave the savings to me on my 21st birthday. I have always been grateful for that money. I still have it sitting in that savings account. I hope and believe that I will be able to pass it on to my three children as a sign of what can be done by putting £5 away every month—a sign of the change that is possible from the first generation, from the back streets of Harrogate, to me now as a Member of Parliament.
Mr Gareth Thomas (Harrow West) (Lab/Co-op)
It is a pleasure—on this occasion anyway—to follow the hon. Member for North West Hampshire (Kit Malthouse). I rise in particular to support the remarks of my hon. Friend the Member for Salford and Eccles (Rebecca Long Bailey) and to dwell on a number of the points that I have made in interventions.
The hon. Member for Ross, Skye and Lochaber (Ian Blackford), who speaks for the Scottish National party, the hon. Member for Newark (Robert Jenrick) and my hon. Friend, in particular, addressed the scale of the savings crisis. In their own different ways, they underlined the need to do a lot more to encourage those on low and modest incomes to save. It is in that spirit that I gently underline, in this, I hope, more substantive contribution, the need for the Government to look afresh at their decision on Help to Save.
The Government have decided that they will make their bonus payment after two years, as opposed to 12 months. The hon. Member for Newark talked about the person who has only £100 in their bank account and dwelt on the difficulties they have saving. Two years is a long time. I think of a constituent of mine who does the right thing and is working. She is a teaching assistant and therefore on a low income. She has faced, given the scale of the housing crisis, to which my hon. Friend the Member for Salford and Eccles rightly alluded, significant increases in rent, and she struggles to manage her income and to pay all her bills. She is surely exactly the sort of person we would want to benefit from a scheme such as Help to Save, but I suspect that, if she thought that she was not going to get any benefit from her savings for two years, the struggle to make ends meet in the intervening period would be a significant disincentive to her setting even small amounts of money aside in a savings account. I share the concern of others that the scheme will benefit only those on in-work benefits. Again, I encourage the Government to be a little more imaginative on the scheme.
I understand and see the logic of the Government’s need to have a Help to Save implementer with national coverage. Clearly, the Government have failed to persuade traditional banks or big financial players to offer the scheme, so I can see the attraction of NS&I. What I fail to understand is why credit unions cannot be allowed to offer the service to communities in their areas alongside NS&I. I hope that the Government will reconsider that point.
I have the great privilege of chairing the all-party group on mutuals. I commend the contribution of the Building Societies Association which, in its comments on the lifetime ISA and its briefing for the debate, shares the concern that others have expressed about the risk of the lifetime ISA conflating savings for a house deposit and savings for retirement in one product. Again, there are concerns that the scale of withdrawal charges will be punitive. I hope that the Minister will pick up those two points.
I welcome the support of the hon. Member for North West Hampshire for the idea of making payroll deduction a statutory right. He is right to say that the Government have a statutory right to take tax through PAYE, so why should they not also support a statutory right to allow people, with their employers, to save through a credit union, a standard mutual or a mainstream bank product?
Giving people the right to payroll deduction would be of huge long-term benefit. Many of the credit unions that are highly successful underline regularly how important the facility of payroll deduction is to their ability to offer financial services, particularly in the savings context, to their members. For a while, one issue prevented an armed forces credit union from being established. When one considers that before credit unions came along often the only products that were available for those serving in our armed forces on comparatively low incomes were those offered by legal loan sharks—the payday lenders charging huge sums of interest—one understands the scale of the benefit that credit unions are beginning to offer to armed forces personnel.
The Financial Secretary to the Treasury has a reputation as a shrewd and effective operator around Whitehall. Now that she is in the Treasury, she has even more power at her disposal. Many parts of government, whether Whitehall directly, agencies outside Whitehall, the NHS, individual academies, academy chains or indeed some parts of local government, still do not offer payroll deduction services for credit unions that want to serve their employees. One thing the Minister could do if she is not immediately persuaded—I hope she will be by the time the Bill completes its passage—would be to use the weight of the Treasury to encourage all Whitehall Departments to check that every bit of government for which they are responsible allows payroll deduction and lets credit unions offer savings and other financial services to their employees. If the police can offer payroll deduction services—many police officers and other police staff are signed up to credit unions—and if our armed forces can do it, why cannot all of government offer this service? I therefore hope the Minister will not only lead a drive on allowing payroll deduction, but will be willing to contemplate amending the Bill to make payroll deduction a statutory right.
It is worth reflecting briefly on the appetite across the House for more diverse financial markets. Arguably, one of the reasons why organisations within the financial services community can sometimes make high charges for their services is that there is not enough competition. Encouraging more savings through building societies, and in particular trying to build up the credit union sector, is surely something that every Treasury Bill, and indeed every Government Bill, should have at the back of its mind. Might there be an opportunity to encourage more tax incentives for savers? The armed forces credit union has been established. Why should there not be tax incentives to encourage more of our soldiers, sailors and air force personnel to sign up and support that credit union, and benefit from its services?
Stephen Doughty (Cardiff South and Penarth) (Lab/Co-op)
I thank my fellow Co-operative MP for giving way and apologise for not being able to be in the Chamber to hear the whole debate—I was at another debate in Westminster Hall. I wholeheartedly agree with my hon. Friend’s remarks and pay tribute to his work on the armed forces credit union. I will certainly support the amendment that he suggests tabling. Does he agree that we should also look at countries such as Canada and Germany, where there is diversity in savings, and where much stronger credit unions are available to a much wider group of the population?
Mr Thomas
My hon. Friend makes an important point. Many financial services markets around the world are far more diverse than the UK’s, and therefore far more competitive. We need to build up our building societies and other mutuals such as credit unions, and further tax incentives that encourage saving and taking up other financial services through mutuals can only be a good thing.
I have no intention of voting against the Bill, but I share the concerns of my hon. Friend the Member for Salford and Eccles. I hope that both Front-Bench teams will reflect on my suggested amendments and that we will see progress on the concerns that they address during the Bill’s passage.
Richard Graham (Gloucester) (Con)
I congratulate the hon. Member for Harrow West (Mr Thomas) on his comments, particularly those about the Help to Save product the Government are introducing. He talked about the Government looking at the role of credit unions and whether it would be possible to use payroll. It would be helpful if the Ministers, whom I welcome to the Chamber, commented on those matters, as well as some of the IFS criticisms and the very helpful Library briefing.
I want to focus on the Government’s lifetime ISA. We should not question its intentions. Its simple aim is to increase savings among the young and to help more people on to the housing ladder, and surely none of us can have any objection to that in principle. The difficulty is that we do not, of course, start with a blank sheet of paper, and adding yet more products to the already complicated savings landscape risks bringing unintended consequences. I want to focus on that risk.
As the Library briefing rather coyly puts it, over the past 25 years, a string of largely tax-based savings incentive schemes has been brought in under different Governments. Some Members will remember the stakeholder scheme, yet not many will perhaps now remember personal equity plans, tax-exempt special savings accounts, child trust funds—they ceased not that long ago—or indeed the saving gateway, which was never rolled out nationally. When we consider the lifetime ISA and what it is proposed that it will achieve, we must also bear in mind what other savings products exist.
Under the general heading of “savings” I include pensions; they are simply a particular form of savings designed primarily to provide people with adequate income in retirement. Of course as we live ever longer, the value of having those savings, lasting well beyond an age to which people were expected to live not long ago, becomes more important. The Government have a crucial role to play as the body that will prop up all or any of us when we run out of savings. I want to focus on a couple of things within the product range of savings and the potential unintended consequences of this Bill.
The LISA was introduced in this year’s Budget after the Chancellor said that it was clear there was no consensus on the future development of pensions. But in a sense he revealed his own hand by increasing the ISA limit and proposing the introduction of the lifetime ISA. This showed the Treasury’s direction of travel very clearly. It is no surprise that the Centre for Policy Studies has welcomed this ISA since, it says, it is similar to a proposal made in the past. Indeed, Michael Johnson at the CPS has been advocating the end of pensions for a long time. I have described him as the Guy Fawkes of the pensions industry—he would love to blow the whole thing up tomorrow if he could. The lifetime ISA was just one of his steps towards that goal, with a workplace ISA coming in next.
That is where some of the problems start. The Chancellor’s main underlying argument for introducing the LISA was that younger people did not understand pensions—that they were far too complicated and were not popular and therefore we needed to use the well-known brand of the ISA. I have clashed many times with the hon. Member for Ross, Skye and Lochaber (Ian Blackford)—mostly happily—on pensions issues. His contributions are normally way over the top, as, unsurprisingly, they were again this evening. However, he was right to use the quotation in the Association of British Insurers briefing, demonstrating that, interestingly, the opt-out rates in auto-enrolment among the under-30s have been the lowest of all age groups. That arguably suggests that younger people do not necessarily find pensions complicated when they are provided with a solution in the workplace into which they, their employer and the Government can all contribute and the paperwork is easy. So pensions do not have to be any more complex than any other form of savings, but what makes the whole sector more complicated is the constant temptation of successive Chancellors to act as product designer for the industry and introduce yet more different products.
Kit Malthouse
I am a little puzzled by my hon. Friend’s use of the statistic that the under-30s have the lowest opt-out rate. The under-30s will of course become the over-30s and the over-40s, and they might well opt out at that point. Their continuing to opt in at this early stage, when they might not have quite so much pressure on their wage packet, is not necessarily indicative of what they will do in the future.
Richard Graham
My hon. Friend makes a perfectly reasonable point, but he should bear in mind the fact that opt-out rates were expected to be 25% and are averaging 9% so far. The Government’s expectations about opt-out rates have therefore, happily, been proved wrong. He is right to say that the under-30s will become the over-30s, but we should all be trying to encourage those people to stay in and build up their savings through the pensions scheme, rather than introducing a competitive product that could, for various marketing reasons, seem more attractive and therefore divert people of all ages from the good and noble cause, which I think he supports, of building up more savings for their retirement.
Ian Blackford
Does the hon. Gentleman agree that auto-enrolment has been an enormous success, and that one reason for that success has been the relatively low opt-out rates? Does he also agree, however, that there is more to be done to ensure that we include low-paid workers, particularly women and the self-employed? That should be the focus, but the tragedy of the Bill is that it deflects attention from what we should be doing—namely, incentivising pension saving.
Richard Graham
That is an interesting point. The hon. Gentleman is absolutely right to say that auto-enrolment is not good for the self-employed, and there are other aspects of it, including women’s savings, that could be improved. Yes, there has been success, but my “yes” is a cautious one. After all, auto-enrolment has not been going for very long. The real test will be over the next couple of years when up to 4 million people could come into the scheme, taking it from roughly 6.9 million savers at the moment to more than 10 million fairly soon. We will have to see whether they come in with the same enthusiasm as did those who work for larger employers. My point is that introducing the lifetime ISA at this stage, before we know how smaller employers and their employees are going to react, risks undermining the success of auto-enrolment so far.
In 2005, the Pensions Commission described pensions, and the tax relief on pensions, as
“poorly understood, unevenly distributed, and the cost is significant.”
It was absolutely right. The cost to the Treasury is £34 billion a year, and it receives back some £13 billion in tax on pensions, so there is a huge cost involved. I am pretty sure that that is why the Treasury is rightly trying to shape a savings policy that is both good for individuals and not so expensive for taxpayers or for the Treasury as the intermediary. I would like to see a much more co-ordinated effort by the Treasury and the Department for Work and Pensions to look closely at the existing range of savings offerings, pensions included, to see how they can be rationalised in order to come up with a simpler, less expensive method of encouraging people to save.
It is interesting that the online information sheet on the lifetime ISA does not mention the fact that contributions come from someone’s salary after they have paid tax. It also strongly urges people to
“use it to save for retirement”.
That is exactly what we would expect people to do with a pensions product, so the concept that the lifetime ISA is not competitive with auto-enrolment and other pensions offerings is slightly disingenuous. Others have made the point that it is competitive with auto-enrolment and therefore offers significant potential for many of our constituents. Let me quote briefly from one or two of those who have highlighted this issue.
The Pensions and Lifetime Savings Association, which used to be called the National Association of Pension Funds, illustrates my point that all pensions are now, rightly, considered to be savings products. It comments:
“We look forward to working with the Government to help make sure that the Lifetime ISA does help younger people build up their savings.”
It goes on to say that it is important to ensure that
“the regulation on charges and governance of the Lifetime ISA are comparable to those for pensions, which have been reviewed to make sure they offer savers good value”.
That refers to the cap on charges and the increased governance. The association is implicitly recognising that this product will be considered by consumers as an alternative to saving. Indeed, former pensions Minister Steve Webb says:
“There is a real danger that the new product will mean that many young people will not start saving for their retirement until their thirties”
because that option is available to them through the lifetime ISA.
It is also interesting that the Association of British Insurers, Zurich and Hargreaves Lansdown have all expressed concern. One of the points raised by the Institute for Fiscal Studies is exactly the same point that I made in an article earlier today in which I referred to the lack of clarity over the extent to which there will be new savings, as against the shifting of existing funds by people who have already saved in ISAs. We must recognise the fact that 21 million people have invested in ISAs. That is not a small body of people. It is not a narrow cohort consisting exclusively of the very rich, for example. If savings are recycled and 80% of the people who put money into a cash ISA in 2014-15 recycle their money into a lifetime ISA to get the 25% Government bonus, that would not necessarily demonstrate a success for the Government in terms of bringing in new savers and people who would not otherwise have the chance of getting on to the housing ladder. Rather, it would demonstrate that people who already have savings are being given an opportunity to increase the return on those savings, and that higher-rate earners will have an opportunity to provide lifetime ISAs for their children or grandchildren.
It would help if the Minister clarified what impact assessment the Treasury has carried out. How much money does it expect to come in from new savers? How much does it expect to be recycled from existing ISA-holders? Who will be the beneficiaries of the lifetime ISA? My concern is that the main beneficiaries of the vast weight of the £850 million that this will cost the Treasury and therefore the taxpayer will be people who already earn quite a lot, or their children, and that the benefits will not reach the many, even though that is the intention behind the Bill.
I have tried to address some of the issues and unintended consequences that could arise from the Bill. Hargreaves Lansdown has written a useful paper on simplifying ISAs and pensions, in which it proposes a number of changes to ISAs. It is worth flagging them up today. It proposes: consolidating six different types of ISA into one; limiting the cost to the Exchequer of the Government top-up to the lifetime ISA; simplifying ISA decision making for investors; reducing the administrative burden for the industry; retaining the help-to-buy element of the lifetime ISA in one simple ISA product; and eliminating the risk that the ISA will undermine pension saving. It goes on to make a similar number of recommendations on pensions as well. The last point about eliminating the risk that the LISA will undermine pension saving is the one to which I keep returning because it is possible to do these things in a different way.
The Pensions Policy Institute found that Canada, Australia, New Zealand, US and Singapore—all countries that broadly follow Anglo-Saxon approaches to finance and investment—allow early access from the same product used for pension saving. That is critical because it means that people do not have to choose between a LISA or auto-enrolment and that they can decide whether they want to save to get on to the housing ladder or to save for their retirement through the same product. It would be a major achievement of this Government and Treasury and DWP Ministers if they could work together to rationalise the structure of pensions and savings so that individual consumers can access the same product for different reasons without having to subscribe separately. That would eliminate the main concern of many about the unintended consequence of the LISA directly and negatively impacting auto-enrolment. That is why I will certainly not be voting against the Government but will abstain from voting on the Bill this evening.
David Morris (Morecambe and Lunesdale) (Con)
It is a pleasure to follow my hon. Friend the Member for Gloucester (Richard Graham). I am sure the Bill covers the self-employed, but that has not been brought up today. When I was self-employed 20 years ago, the then Government made a change to taxation which basically meant that a substantial amount of every pound that I put into my pension pot was taken out in cash, so I stopped paying into a private pension. The policy in front of us today proposes a break in that sort of behaviour, particularly for the self-employed. The self-employed have always been worried about the harmonisation of national insurance contributions. When I was the Prime Minister’s ambassador for the self-employed, I worked closely with my right hon. Friends the Members for Bromsgrove (Sajid Javid) and for Chingford and Woodford Green (Mr Duncan Smith) on trying to harmonise national insurance contributions so that self-employed people would eventually have the same state pension.
However, I want to talk about the lifetime ISA proposal, because it should not be confused with an extra pension top-up, about which every speaker in the debate before me has talked. It should instead be seen as a savings guarantee for the future. It was a tidy move by the Treasury and the Department for Work and Pensions in reaching the point of harmonising NICs. This proposal takes us a little further into the realms of the self-employed being able to look after themselves in future.
I do not want the LISA to be confused with a pension supplement. It is not that. It is something that helps to save for the future. To put it in perspective, we hear a lot of doom and gloom, but let us look where we were seven years ago. The then Prime Minister, the former Member for Kirkcaldy and Cowdenbeath, used to say quite often that he had put an end to boom and bust, but we then went bust in the biggest possible way. Near enough 10 years down the line from that, we have to address how we are going to save for our future. As someone who took the decision 15 or 20 years not to pay into a pension plan, I wholeheartedly welcome what the Government are doing.
I want to provide some perspective. Unemployment is dropping in my constituency—so much so that a Labour councillor was boasting about his business and saying that he cannot get enough employees to fill the positions. The workplace pension has its place, but the LISA has a separate place. I hope that it will carry on and enable people to save for their old age.
Dr Lisa Cameron (East Kilbride, Strathaven and Lesmahagow) (SNP)
I do not want to start by correcting the hon. Gentleman, but I am pleased to have a savings account named after me, and the LISA is most definitely a “Lee-sa” and not a “Lye-sa”. Does he agree that financial education in schools is the crux of the matter? Children must learn how to budget in order to learn how to save and have a secure relationship with their finances.
David Morris
That is part and parcel of the mix. However, this Bill is about where we are going in the future. I take on board what the hon. Lady says and I am sure that everyone else in the Chamber and in the country more widely will have done, too.
Thank you for allocating this time to me, Madam Deputy Speaker. I wholeheartedly endorse what the Government are doing.
Peter Dowd (Bootle) (Lab)
We have had a number of contributions. The hon. Member for Newark (Robert Jenrick) told us about his grandparents getting to Blackpool courtesy of a jam-jar savings policy, which I thought was novel. The hon. Member for Ross, Skye and Lochaber (Ian Blackford) summed up the Government’s proposals as a missed opportunity, as undermining pension savings and as not tackling the real issue. The hon. Member for North West Hampshire (Kit Malthouse), who does not appear to be here, spoke of the diminution in the number of people with an asset base and said that, in his modest opinion, we should try to push on and get people to have a bigger asset base.
In an excellent contribution, my hon. Friend the Member for Harrow West (Mr Thomas) underlined the need for the Government to look afresh at the timescales in the Help to Save scheme and asked the Government to be more imaginative and reinforce the need to permit credit unions to participate in the scheme and the statutory right of payroll deductions of savings. The hon. Member for Gloucester (Richard Graham) gave us an enlightening exposition of his concerns that the proposal might be moving towards the death of the pension as we know it. I am not quite sure whether that was what he said, but that was the impression I got.
Richard Graham
Just to clarify, I said that the proposal risks undermining saving through a pension scheme and we do not want to do that.
Peter Dowd
I understand that clarification and I will touch on that topic in my speech.
Finally, the hon. Member for Morecambe and Lunesdale (David Morris), who supports the Government’s proposals, spoke about his experiences as a self-employed person and said that the proposal is not a supplementary pension but a means of saving.
Labour welcomes the sentiments expressed today on both sides of the House about the need to address savings overall. In general, anything that allows more people to save for the future is to be welcomed. Helping younger people and those on low incomes to save is a particularly legitimate and worthy objective, and the Government are right to consider policies to incentivise it. The majority of people on low incomes or in precarious work—categories sadly growing in Conservative Britain—are far from being in a position to save. Six years of Tory failures and austerity has led to many not knowing from where the next pound will come week in, week out. The Government’s clueless approach to exiting Europe simply compounds the problem on a macroeconomic level.
How is it possible for people to save when it is hardly possible for many to live properly on a weekly basis? How can a person save for the future when they can barely get through the day? The scandal of low retirement savings for the less well-off is an indictment on any notion of a cohesive society. One in seven pensioners lives in poverty and a further 1.2 million have incomes just above the poverty line. Distributional analysis by the Women’s Budget Group shows that single female pensioners will experience a whopping 20% drop in their living standards. It is unconscionable that people who have worked hard and contributed to society are forced to spend their final years in hardship and insecurity. We agree that there are problems that need to be solved urgently but the TUC states:
“Products such as… the forthcoming Lifetime ISA are disconnected from the world of work and prioritise goals other than retirement saving.”
As for the lifetime ISA, it is hard to see how its introduction even begins to tackle the problems to which I have just referred; not only does it represent a missed opportunity to build on the success of automatic enrolment, as those on the SNP Front Bench have said, but its introduction could serve as a distraction to tackling the real issues at hand. It misdirects valuable resources, as the money the Government are spending on this scheme is likely to benefit mostly those on higher incomes, as has been mentioned on a number of occasions. It also needlessly complicates the pensions and savings landscape—an arena already fraught with complexity. Perhaps most dangerously, it has the potential to undermine the emerging consensus that a pension ISA approach would be detrimental in the round. Indeed, it has the potential to introduce just such an approach through the back door. That is a concern and we are seeking assurances from the Government that it is not doing that.
In the months leading up to the Budget, the concept of replacing the existing systems of pensions tax relief with an ISA-style approach was widely debated and almost universally rejected as damaging to people’s retirement prospects. I wonder, as do many others, whether, after enduring an embarrassing rebuff, the Tories are back again with the same intent under the guise of this Bill. Many in the pensions industry have described the LISA as a “stealth” move towards pension ISAs. The Work and Pensions Committee has said that the Government are marketing the LISA as a pension product and there is a high risk that people will opt out of their workplace pension as a result. Let me be perfectly clear: people will not be better off saving into an ISA as opposed to a workplace pension. The Committee found that
“For most employees the decision to save in a LISA instead of through a workplace pension would be detrimental to their retirement savings.”
Ian Blackford
Can the hon. Gentleman shed some light on why he thinks the Government would introduce a Bill that would make people worse off as a result of investing in an ISA than they would be if they invested in a pension? Does he not think that that is an abdication of responsibility by the Government?
Peter Dowd
The answer to the first question is that I do not know and the answer to the second is yes.
I have to give credit where credit is due, because the Conservative party has a particular talent for conjuring up political smokescreens and opportunistic gimmicks: it has given us a national living wage, which, by any stretch of the imagination, is not a living wage; we were promised a “big society”, yet the Government set about systematically undermining the notion of a cohesive society; and we were cynically assured by the late, unlamented Chancellor that we were “all in it together”. One thing I do acknowledge is that post-Brexit, given the poor performance of the Ministers responsible for negotiating it, we will all be in it together—and it won’t smell very nice. In the meantime, the Government continue unfairly and unjustly to condemn working people and vulnerable groups to pay for the Government’s failed austerity obsession—and now it is time for the Government to mess up pensions. Do they never learn from their mistakes? Are they so ideologically driven that they simply cannot admit that they get things wrong? These are mistakes, I might add, that others pay for. Have the Government not done enough damage to the prospects of hundreds of thousands of WASPI—Women Against State Pension Inequality Campaign—pensions without thinking that through? Yet again, they have not thought about the potential for millions more to be affected.
When former Conservative pensions Ministers are referring to the LISA as a “Trojan horse” and warning that such “superficial attractions” will “destroy pensions”, alarm bells begin to ring on the Opposition Benches, if not on the other side of the House. Given this scenario, common sense demands ask that we ask this: are we now being presented with a savings Bill that will fundamentally undermine proper planning for pensions for the future? As many others have pointed out, the LISA is a sort of pension and not a sort of pension—it is both and not at the same time—and neither will it necessarily last for a lifetime. This seemingly opportunistically designed product risks even more pensioner poverty, which people can ill afford at any time, let alone in their later years. Moreover, the Tories’ approach of transferring responsibility and risk from the collective to individuals will not work, especially as the incomes of the poorest, the majority of whom are women, are being squeezed by public sector cuts and the roll-out of universal credit.
The Labour party is motivated and inspired by the real principle and value that we are all in it together—this is not a slogan and a soundbite, but a truism. We know that the majority of people are significantly disadvantaged by an individualised, dog-eat-dog approach, as opposed to a collective system that has fairness at its core. Today, people struggle with wages that are still lower than they were before the global financial crisis in 2008. There are now 800,000 people on zero-hours contracts and half a million people in bogus self-employment, and nearly 4 million of our children are living in poverty. Labour’s economic strategy is committed to tackling wage stagnation, particularly among those at the lower end, so that they are able and have the capacity to save for their future as well as living life now.
As the shadow Secretary of State for Work and Pensions has said:
“The pensions system that I want to see ensures dignity in retirement, and a proper reflection of the contribution that older people have made, and continue to make, to our society.”
Labour Members would like the Government categorically, unequivocally and clearly to assure the public that this Bill is not a veiled attack on pensions as we know them.
The Economic Secretary to the Treasury (Simon Kirby)
First, let me thank everyone here today for contributing to this interesting debate. As my hon. Friend the Financial Secretary said in her opening remarks, the measures contained in this Bill are really important priorities for this Government, and both Help to Save and the LISA offer people in this country a new and effective option for how they save their money. Help to Save focuses on giving more support to those on low incomes. It will give a 50% boost to those who can get into the saving habit of putting aside a small, regular amount into their account each month. The LISA focuses on younger people. It is an account that will offer genuine choice and flexibility, not to mention—
Simon Kirby
I will give way, but I had hoped to address the hon. Gentleman’s many comments later on.
Ian Blackford
I am grateful to the Minister, but this is an important point. Will he explain to the House why he thinks it is right to encourage people to invest in the lifetime ISA rather than in a pension, given that a pension will give a better return, as has been demonstrated in the figures, such as the one I cited of a 32% difference over a 40-year period? Why are the Government being misguided and prioritising ISAs over pensions?
Simon Kirby
I thank the hon. Gentleman so much for that intervention, but the Government are not doing what he suggests. We are offering people a choice, and these two schemes are complementary and serve very different purposes. The genuine choice and flexibility to which I alluded are at the core of this Bill, but now let me deal with the specific points raised today.
The hon. Members for Salford and Eccles (Rebecca Long Bailey) and for Harrow West (Mr Thomas) mentioned credit unions. The Government recognise that many credit unions were interested in offering accounts, but it was not clear that a multiple provider model would guarantee national coverage for the scheme. We will continue to explore further options for credit unions to support delivery of the scheme, and I am sure that we will have that conversation in more detail as the Bill progresses.
The hon. Member for Salford and Eccles talked of this scheme being a substitute for benefits, but it is about increasing the financial resilience of low-income families so that if they are hit with an unexpected bill or if someone loses their job, they will have money for a rainy day. If something unexpected happens to their income, they will have savings to bridge the gap. She also asked why two years was chosen. This is the period of time needed to encourage account holders to develop a regular savings habit—a habit all too lacking in many people, especially younger people. I reiterate that the amount is up to £50 a month. People may not be able to afford that amount, but any regular saving is something that all of us should encourage.
I wish to clarify one point. The hon. Lady mentioned that there would be an additional penalty if people took money out of a lifetime ISA. An additional charge will be applied to reflect the long-term nature of the account, and that will act as a disincentive to people removing money unless it is essential or if there is a very important change in circumstances to be taken into account.
I wish to thank my hon. Friend the Member for Newark (Robert Jenrick) for his contribution. Our constituents are looking forward to the introduction of these products, and I agree with him that they contain significant incentives. He also mentioned the abolition of savings tax. It is worth putting it on the record that 95% of people have no savings tax to pay thanks to the new personal savings allowance.
The hon. Member for Ross, Skye and Lochaber (Ian Blackford) mentioned a smorgasbord of issues, a few of which I shall pick up on. He said that women were disadvantaged by automatic enrolment. Before it began, 65% of women employed full time in the private sector did not have a workplace pension; as of 2015, that had fallen to 35%. He said that a lifetime ISA was just for the rich, but it is for anyone between the ages of 18 and 40. They can open it and save into it until they are 50. The maximum annual contribution that an individual can make is £4,000. People can pay less than that and still enjoy the Government bonus. We expect that a large majority of those who use the lifetime ISA will be basic rate taxpayers.
The hon. Gentleman mentioned StepChange. Well, this is what StepChange has said:
“We welcome Government recognition of the need for a savings scheme aimed at those on low incomes. Our research shows that if every household in the UK had £1,000 in rainy day savings, 500,000 would be protected from falling into problem debt.”
He also mentioned the Association of British Insurers, which said in August:
“The industry supports the Lifetime ISA as a vehicle to help people save, in addition to a workplace pension.”
I hope that is fairly clear.
My hon. Friend the Member for North West Hampshire (Kit Malthouse) asked very sensible questions and made some thoughtful points. In particular, he asked about the limit of £50 a month. Individuals saving £50 a month for four years will earn a generous bonus of £1,200. It is probably an appropriate limit for people on low incomes, at whom the scheme is targeted. There has to be a ceiling.
The hon. Member for Harrow West asked about payroll deduction. I have to thank him for a very sensible and measured contribution. There is no reason why payroll deduction cannot take place. I cannot make a commitment to him today, but I can confirm that I am happy to see whether there is more that we can do in that area.
Mr Gareth Thomas
I am grateful to the Minister for his considered response to my request for payroll deduction. Would he be willing to meet me and the Association of British Credit Unions Ltd to discuss this issue further?
Simon Kirby
Yes, I would be very happy to do that.
I thank my hon. Friend the Member for Gloucester (Richard Graham) for his thoughtful contribution. Clearly, he feels very strongly about a vast number of issues. I respectfully disagree with some of his opinions, but I hope that he continues to contribute to this important debate, as it is important that we get it right. At the end of the day, this is about helping younger people and poorer people get into the habit of saving.
Dr Cameron
Given that the crux of the matter is to help younger people to save, will the Minister have a dialogue with colleagues about financial education at school, and why it is really important that children and young people have a stable and secure relationship with money and that they understand that at an early age?
Simon Kirby
I absolutely agree with the hon. Lady. Making sensible, correct and proper financial decisions is important for all of us throughout our lives. She has got her point in Hansard. I will also take it away with me.
Let me come back to the points raised by my hon. Friend the Member for Gloucester. There was some confusion about the factsheet of Her Majesty’s Treasury. May I make it clear that the lifetime ISA is for long-term saving, and is designed to complement pensions? Contributions to an ISA are made from post-tax income.
My hon. Friend the Member for Morecambe and Lunesdale (David Morris) mentioned self-employed people. We should never forget that many people do not have this quandary about whether they should auto-enrol or go for a lifetime ISA. There are sensible self-employed people who either want to save for later life or purchase their first home. I know that the lifetime ISA scheme will be very well received by them.
Finally, I thank the hon. Member for Bootle (Peter Dowd) for his contribution. I disagreed with almost everything he said, but I genuinely look forward to his continued involvement in this important area. Let us not forget that we have a responsibility to the millions of people out there—young people and poorer people—who should be saving and getting the very best assistance they can from the Government.
In conclusion, when it comes down to it, this Bill is about supporting people who are trying to save. It does not matter whether they are a young person looking for a flexible way to save for the future or if they are someone who is on a low income and are making a big effort to save up some money each month, they deserve a savings account that will support them and give them a boost on what they manage to put aside. Although these two savings vehicles are new, they are intended to do exactly that. I am pleased to commend this Bill to the House.
Question put and agreed to.
Bill accordingly read a Second time.
Savings (Government Contributions) Bill (Programme)
Motion made, and Question put forthwith (Standing Order No. 83A(7)),
That the following provisions shall apply to the Savings (Government Contributions) Bill:
Committal
(1) The Bill shall be committed to a Public Bill Committee.
Proceedings in Public Bill Committee
(2) Proceedings in the Public Bill Committee shall (so far as not previously concluded) be brought to a conclusion on Tuesday 1 November 2016.
(3) The Public Bill Committee shall have leave to sit twice on the first day on which it meets.
Proceedings on Consideration and up to and including Third Reading
(4) Proceedings on Consideration and any proceedings in legislative grand committee shall (so far as not previously concluded) be brought to a conclusion one hour before the moment of interruption on the day on which proceedings on Consideration are commenced.
(5) Proceedings on Third Reading shall (so far as not previously concluded) be brought to a conclusion at the moment of interruption on that day.
(6) Standing Order No. 83B (Programming committees) shall not apply to proceedings on Consideration and up to and including Third Reading.
Other proceedings
(7) Any other proceedings on the Bill (including any proceedings on consideration of any message from the Lords) may be programmed.—(Andrew Griffiths.)
Question agreed to.
Savings (Government Contributions) Bill (Money)
Queen’s recommendation signified.
Motion made, and Question put forthwith (Standing Order No. 52(1)(a),
That, for the purposes of any Act resulting from the Savings (Government Contributions) Bill, it is expedient to authorise the payment out of money provided by Parliament of:
(1) any expenditure incurred by a Minister of the Crown or a government department under or by virtue of the Act; and
(2) any increase attributable to the Act in the sums payable under any other Act out of money so provided.—(Andrew Griffiths.)
Question agreed to.
Savings (Government Contributions) Bill (Ways and Means)
Motion made, and Question put forthwith (Standing Order No. 52(1)(a),
That, for the purposes of any Act resulting from the Savings (Government Contributions) Bill, it is expedient to authorise—
(1) charges on certain withdrawals from Lifetime ISAs; and
(2) the recovery (with or without interest) of sums paid by way of government bonuses under the Act.—(Andrew Griffiths.)
Question agreed to.
Savings (Government Contributions) Bill
Monday 12th December 2016
(7 years, 4 months ago)
Commons ChamberRead Full debate Savings (Government Contributions) Act 2017 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Consideration of Bill Amendments as at 12 December 2016 - (12 Dec 2016)
18:33 - The House divided: - Ayes: 230 / Noes: 277 - Question accordingly negatived.
18:47 - The House divided: - Ayes: 45 / Noes: 285 - Question accordingly negatived.
19:00 - The House divided: - Ayes: 227 / Noes: 279 - Question accordingly negatived.
Mr Gareth Thomas (Harrow West) (Lab/Co-op)
I beg to move, That the clause be read a Second time.
Mr Speaker
With this it will be convenient to discuss the following:
New clause 2—Impact review: automatic enrolment and pensions savings—
‘(1) The Treasury must review the impact of Lifetime ISAs on workplace pensions automatic enrolment and pensions savings within one year of this Act coming into force and every year thereafter.
(2) The conclusions of the review must be made publicly available and laid before Parliament.’
This new clause would place a duty on HMRC to review annually the impact of Lifetime ISAs on automatic enrolment.
New clause 3—Lifetime ISAs: Advice for applicants—
‘(1) The Treasury must, by regulations, make provision for all applicants for a Lifetime ISA to have independent financial advice made available to them regarding the decision whether or not to save in a Lifetime ISA.
(2) Any applicant that opts in to the services offered under subsection (1) shall be given a signed declaration by that service provider outlining the financial advice that the applicant has received.
(3) Any provider of a Lifetime ISA must confirm whether an applicant—
(a) intends to use the Lifetime ISA for the purposes of paragraph 7(1)(b) of Schedule 1,
(b) has a signed declaration of financial advice under subsection (2), or
(c) is enrolled on a workplace pension scheme or is self-employed.
(4) Where the provider determines that the applicant is—
(a) self-employed and does not participate in a pension scheme,
(b) not enrolled on a workplace pension scheme,
(c) does not intend to use the Lifetime ISA for the purposes of paragraph 7(1)(b) of Schedule 1, or
(d) does not have a signed declaration of financial advice under subsection (2),
the provider must inform the applicant about the independent financial advice available to them under subsection (1).’
This new clause would place a duty on the Treasury to make regulations that ensure all applicants for a Lifetime ISA have independent financial advice made available to them.
New clause 4—First-time residential purchase: research and impact assessment—
‘(1) Within one year of this Act coming into force the Treasury must conduct a review into the potential impact of provisions within paragraph 7(1)(b) of Schedule 1 on—
(a) house prices in the UK, and
(b) the operation of the housing market.
(2) The findings of the review must be made publicly available and laid before Parliament.’
This new clause would require a review of the Bill’s effect on the UK housing market/house prices.
New clause 5—Distributional analysis of the impact of the Lifetime ISA and Help to Save—
‘(1) Within six months of this Act coming into force the Treasury must conduct an analysis of the distribution of benefits of Lifetime ISAs and Help-to-Save accounts including between—
(a) households at different levels of income,
(b) people of different genders,
(c) people with disabilities, and
(d) black and minority ethnic groups.
(2) The findings of the analysis conducted under subsection (1) must be laid before Parliament.’
New clause 6—Lifetime ISA and Help-to-Save: value for money—
‘(1) Within six months of this Act coming into force the Treasury must assess the value for money provided by the Lifetime ISA and Help-to-Save scheme.
(2) The assessment must in particular include—
(a) the cost to the Exchequer of the measures,
(b) the number of individuals who have benefited from the measures, and
(c) the average tax deduction received by an individual as a result of the measures.
(3) The findings of the assessment must be made publicly available.’
New clause 7—Advice for applicants—
‘The Treasury must make provision by regulations to ensure all providers of Lifetime ISAs or Help-to-Save accounts provide applicants, at the point of application, with advice about the suitability of the product in question for each individual applicant.’
This new clause would require advice to be provided to applicants for LISAs or Help-to-Save accounts which must include information on automatic enrolment and workplace saving schemes.
Amendment 15, in clause 1, page 1, line 1, leave out clause 1.
See explanatory statement for amendment 16.
Amendment 17, in clause 3, page 2, line 17, leave out “1 or”.
Amendment 18, page 2, line 19, leave out “Lifetime ISA or”.
Amendment 19, page 2, line 23, leave out “Lifetime ISA or”.
Amendment 20, in clause 4, page 2, leave out lines 32 to 36.
Amendment 21, page 3, leave out lines 9 to 11.
Amendment 22, in clause 5, page 3, leave out line 23.
Amendment 6, in clause 6, page 3, line 36, leave out from “on” to end of line 37 and insert “30 April 2019”.
This amendment would delay the commencement of the Bill until the end of April 2019, when all firms will be auto-enrolled and the increase in minimum contributions to eight per cent. will be completed.
Amendment 16, page 5, line 1, leave out schedule 1.
This amendment, together with amendments 15 and 17 to 22, would remove provisions for the Lifetime ISA from the Bill.
Government amendment 3.
Amendment 1, in schedule 2, page 16, line 3, leave out “48” and insert “24”.
Amendment 12, page 16, line 31, at end insert—
“(1A) The conditions specified under subsection (1) shall not include the condition that the individual be over 25 years old if that individual meets all other specified conditions relating to the working tax credit.”
Currently those aged under 25 only qualify for Working Tax Credits if they work at least 16 hours a week. This amendment would ensure any individual aged under 25 would qualify for a Help-to-Save account if they met other specified criteria.
Amendment 2, page 17, line 36, at end insert—
“(d) a credit union.”
Amendment 8, page 18, line 16, leave out “maximum” and insert “average”.
See explanatory statement for amendment 11.
Amendment 9, page 18, line 19, leave out “maximum” and insert “average”.
See explanatory statement for amendment 11.
Amendment 10, page 18, line 19, after “means”, insert “an average of”.
See explanatory statement for amendment 11.
Amendment 11, page 18, line 19, after “£50”, insert
“across every two month period within the maturity period”.
Together with amendments 8, 9 and 10, this amendment would allow HTS to provide for “top-up” monthly payments above £50 so long as the average payment for every two months is £50.
Government amendment 4.
Amendment 14, page 19, line 2, at end insert—
“(e) provision for eligible persons to be auto-enrolled into Help-to-Save accounts through deductions from salaries or benefit entitlements unless the individual chooses to opt-out.”
This amendment would enable an ‘auto-enrolment’ workplace saving scheme which would see an individual automatically signed up to a Help-to-Save account. He or she must opt-out to stop money being deducted from their pay or benefits into a savings account.
Government amendment 5.
Amendment 13, page 19, line 31, at end insert—
“(3A) Where a bankruptcy order is made against a person with a Help-to-Save account any bonus paid into the Help-to-Save account will not form part of a debtor’s estate during insolvency proceedings.
(3B) Any bonus paid into a Help-to-Save account shall not be liable to be taken as repayment via third party debt orders.”
Amendment 7, page 20, line 23, at end insert—
“(ba) for a bonus in respect of a Help-to-Save account to be paid after six calendar months beginning with the calendar month in which the account is opened and at six month intervals thereafter;”.
This amendment would reduce the time before the holder of a Help to Save account would receive a government bonus to six months.
Mr Thomas
I am grateful for the opportunity to speak not only to new clause 1, but to amendments 1 and 2. I should declare an interest as a member of the M4Money credit union and as chair of the all-party group on mutuals.
New clause 1 seeks to give a statutory right to anyone wanting to save with a credit union via payroll deduction. Amendment 1 would reduce to one year the two years that those who are just about managing will wait before getting the Government top-up under Help to Save, to better incentivise saving under the scheme. Amendment 2, about which I shall speak a little more first, seeks to allow credit unions to offer the Help to Save product.
I took part in the Second Reading debate and raised the concern that credit unions would not be allowed to offer the Help to Save product. I have read through the transcripts of that debate and of the Committee proceedings and I can still see no good reason for the Government’s resistance to allowing credit unions to offer the Help to Save scheme. I recognise that Ministers want to ensure national coverage of Help to Save so that everyone who meets the criteria—the potentially 3.5 million people across the UK who Ministers think might do so—regardless of where they live can access the scheme. That clearly makes sense. I have no objection to the choice of National Savings & Investments as that national provider of choice. What I cannot see is any valid reason why credit unions cannot be allowed to complement the NS&I offer.
Stephen Doughty (Cardiff South and Penarth) (Lab/Co-op)
I too declare an interest as a member of the Cardiff and Vale credit union and I am also pleased to be, like my hon. Friend, a member of the Co-operative party. Does he agree that the Government need to be far more ambitious as regards credit unions playing a full part in financial services, and that, as I mentioned on Second Reading, we need to be heading in the direction of other countries, such as Canada, that have a much bigger credit union sector?
Mr Thomas
My hon. Friend makes an important point. We need much more ambition for credit unions and for financial mutuals and co-operatives more generally. I am thankful for his intervention.
Ministers claimed in Committee that a multiple provider model for Help to Save would not offer value for money, yet as far as I can see they have produced no costings to justify that claim. It is not as if Ministers are dealing in the case of NS&I with a private company demanding an exclusive arrangement as it feels threatened by the competition that credit unions can offer. NS&I is a state-owned bank, effectively, and is responsible to the Treasury. Indeed, I understand that the Minister responsible is the Economic Secretary to the Treasury, who is also responsible for policy on credit unions. NS&I has some 25 million customers and £135 billion in assets. By comparison, credit unions across the UK have £1.37 billion in assets, less than 1% of the value of NS&I’s investments. In short, credit unions are no threat to NS&I.
NS&I is under the control of the Treasury, as I have said, and it is in Ministers’ hands, or it was until the start of the House’s proceedings on this issue. The House now has the opportunity to decide whether credit unions should be allowed to offer the Help to Save scheme.
Seema Malhotra (Feltham and Heston) (Lab/Co-op)
I thank my hon. Friend for giving way, and I am delighted to serve as a Labour and Co-operative MP alongside him. Does he agree that allowing such diversity is important in helping to change behaviour? Many of the issues with savings are about cultural attitudes, and having ways to reach out to communities that might not have engaged in such behaviour is an important part of changing the savings culture in this country.
Mr Thomas
My hon. Friend makes a good point, and I hope to deal with it a little more in due course. She is right that credit unions have scope to reach out to more of the 3.5 million people Ministers want to assist through the Help to Save scheme, whom NS&I might not be best placed to help.
Credit unions are not-for-profit financial co-operatives, owned and controlled by their members. They are, I would argue, more uniquely exposed to low and middle- income financial services markets and are used to offering financial services to those who are often excluded from other better known sources of finance. They provide safe savings and affordable loans, with some credit unions offering other products, such as current accounts, individual savings accounts and mortgages.
Yvonne Fovargue (Makerfield) (Lab)
Is it not true that what is key is that credit unions can also provide loans? We know that low-income families have more bumps in the road than the majority of people on a higher income, so that provision, combined with the opportunity to keep saving, is an important service that NS&I cannot offer.
Mr Thomas
My hon. Friend has stolen one of my lines from later in my speech. She makes an entirely appropriate point: credit unions can offer access to an affordable loan while encouraging people to save at the same time. When the loan is paid off, the incentive to keep saving is still there.
Credit unions have until now enjoyed the support of Members on both sides of the House. From 2006 to 2007 the growth fund, launched by the Co-op party’s—and now Strictly’s—very own Ed Balls, saw more than 400,000 affordable loans offered and saved recipients between £120 million and £135 million in interest that would otherwise have been paid to high-cost lenders. It is that type of success that, after a long Co-operative party campaign under the last Government, saw Ministers, led by the right hon. Member for Broxtowe (Anna Soubry), agree to allow three credit unions to offer services to our soldiers, sailors and airmen and to their families—in short, to offer an armed forces credit union. Given the funding from the Department for Work and Pensions under the last Government to expand credit unions, it seems odd that Ministers should tonight want to continue to exclude credit unions from offering a product in a market in which they already have significant interest and penetration.
Stella Creasy (Walthamstow) (Lab/Co-op)
It will come as no surprise to many people in this House that I am here in full support of my Co-op party colleagues on this matter, and in full support of the vital importance of supporting our credit unions because of the debt tsunami that is coming our way as a nation. Some people may think that it is one of my greatest hits to talk about personal debt and the scourge of the high-cost lenders. The credit unions have always been very much part of the answer to this, and I support amendment 2 on that basis. It is absolutely critical, with the debt tsunami that is coming towards us, that we act to support the credit union movement as a vital component of helping people.
For too many people in our nation, debt is a part of life. There is simply too much month for their money. That has been the case for many years, but the problems are becoming endemic, to the extent that people may not even realise the level of debt that they have. For other people, it may be all too clear: two out of five people are very worried about their level of personal debt. Let me be clear that we are talking about unsecured personal debt. These are not people who are just worrying about their mortgages; these are people who are worrying about the day-to-day cost of everyday living.
For 54% of people who are struggling, the cost of food is the problem—literally, the cost of putting food on the table as well as keeping a roof over their heads and those of their families. For 30% of people, the problem is the cost of energy. Those people will look at the weather forecast fearfully as the temperature drops, knowing that they simply cannot afford to put money in the meter to keep their families warm. Increasingly, people are in debt because of their debt: 22% of people are struggling because of credit card repayment debt.
That is everyday Britain. That is the kind of country we have become—a country where debt is so commonplace that people are not just waving but drowning in it. It is the responsibility of all of us to act. We must not simply give people debt advice, or shrug our shoulders and see this as part of how our economy works. We must ask whether there are things we can do to help people to manage their debts.
The debt tsunami will only become worse as we head into 2017. We all recognise that inflation is likely to rise from 1% to possibly 4%, some experts suggest. The cost of food and basic goods such as energy is going to get higher, not lower. So many people’s wages have been frozen for so many years that in 2017 the gap between the start of the month and the end of the month will feel very large. That is why we have to be pragmatic. Pragmatism is about offering people good options for managing what little money they have, and that is where the credit union movement comes into its own. When the Government want to encourage saving, it is absolutely vital that instead of excluding the credit union movement, they embrace it and the benefits that it can offer. A quarter of people in this country have no savings at all, so we need to ask ourselves which movement always has its doors open to every citizen, and how we can help it to bridge that gap. That means looking to the credit union movement.
My hon. Friend the Member for Harrow West (Mr Thomas) has made an admirable case for helping our credit union movement and its work. At the risk of repeating what has been said, I want to echo his words and say that we can do so much more. This scheme and the involvement of credit unions are the start, not the end, of that conversation. My own credit union struggled for many years to get on to the high street in Walthamstow, but what a difference that has made. My credit union struggled for many years to get into workplaces and to work with people, but what a difference doing so can make.
Councils around the country, such as Southampton, are working to give people access to a credit union as savers, in return for helping those who would otherwise have gone—let us say it—to a payday lender to get the money that they needed. That sort of work enables us to link communities together. It is crucial that we see credit unions as being not just about borrowing, but about saving. We must recognise that saving enables us to support wider social objectives in a local community.
That is why this omission must be corrected and why Co-operative MPs are standing here tonight to try to get the Government to think again about excluding credit unions from the Help to Save scheme. Instead, we ask the Government to embrace credit unions by accepting the amendment. I join my hon. Friend in saying that if we do not get support from the Government for this change, we will seek to divide the House.
We want to send a message. We know that people will have to borrow. When 2017 looks as dire as it does, with inflation rising, people’s wages still stalling and the cost of living continuing to rise, we have to make sure that people have sensible borrowing options. They also need to have sensible saving options, and the credit union movement is the answer. It is the solution for people who might not have gone anywhere else. If we can get them into a credit union, we can start dealing with their debts and getting them to save.
This is a critical time for our country’s debt portfolio. As I said at the beginning of my remarks, a debt tsunami is heading our way. Let us not turn our backs on it. Let us be sensible about what we can do to help, and let us make credit unions part of the solution.
Peter Dowd (Bootle) (Lab)
I thank my hon. Friend the Member for Harrow West (Mr Thomas) for his indefatigable pursuit of the issues he has raised today, particularly on the role of credit unions. He is supported by other Members, such as my hon. Friend the Member for Walthamstow (Stella Creasy). No reasonable person could disagree with anything articulated by my hon. Friend the Member for Harrow West in his usual coherent, cogent and reasonable way. He has the support of Labour Front Benchers and of many other hon. Members in the Chamber.
My hon. Friend is in line with organisations such as StepChange Debt Charity, which welcomes the concept of Help to Save, but feels that the Government have not gone far enough in their commitment to facilitating saving. It says that only one in seven people eligible for the scheme are likely to take it up, and it supports the payroll deduction concept suggested by my hon. Friend.
Before I deal with the Opposition new clauses and amendments, I will first summarise our overall view. Although we fully support any measure that will encourage people to save, particularly young people and those on lower incomes, we feel that the proposed lifetime individual savings account will do little to help those two groups. In the Public Bill Committee, we heard a raft of expert evidence in support of that view, with many experts citing their concern that this may be simply another product in an overcrowded market. The products are not necessarily complicated per se, but the market is.
The Opposition will not stand in the way of the Bill, but we want to make a number of reasonable changes to ensure that the proposed ISA and right-to-buy scheme proposals do what they say they will do. Those with low incomes are already struggling to make it through the week, and they have seen the Government drastically cut in-work benefits. I do not see how people will meet the minimum threshold, particularly given the reports showing that half of UK adults have set aside less than £500 for emergencies. Some families will simply not be able to save £50 every month, as was raised by Scottish National party Members in Committee.
On the impact review of auto-enrolment, the Opposition’s wider concern is that the new savings scheme will interfere with and perhaps even have a negative impact on the automatic enrolment of people into pensions. Do the Government really want to gamble that, with 6.7 million people already auto-enrolled across 250,000 employers, they will not reach their target of 10 million by 2020? The Opposition new clauses and amendments are designed collectively to address the concern expressed across the board, including by the pensions industry, the trade union movement, Select Committees of this House and the Office for Budget Responsibility, which is that the lifetime individual savings account poses a threat to traditional pension savings and, most significantly, to auto-enrolment.
It is self-evident that automatic enrolment, which was mandated by the previous Labour Government, is an outstanding initiative that, as time passes, is starting to achieve the objective set for it. Hence our new clause 2, which proposes to place a duty on Her Majesty’s Revenue and Customs to review the impact of lifetime ISAs on automatic enrolment annually. Auto-enrolment is one of the few success stories in the pension landscape, and it is widely acknowledged in all sectors to be right. We fear that, intentionally or not, the Government’s policy may put the wider landscape in jeopardy and be a dangerous path to follow. Pensions history suggests that this will only be recognised in years to come. We want the Government to review the situation and the impact on the auto-enrolment scheme annually to ensure that the introduction of lifetime ISAs does not have a negative impact on the success of automatic enrolment.
Similarly, not all employees will be auto-enrolled until February 2018, and the increase in minimum contributions to 8% will not be completed until April 2019. The level of drop-outs is relatively low among younger people, but we do not want anything whatsoever to jeopardise the maximum possible number of people enrolling or to provide any incentive for them to opt out. That is not an unreasonable position to take, given the implications of getting things wrong. We have therefore tabled amendment 6 to delay the commencement of the Bill until the end of April 2019, when all firms will have been auto-enrolled and the increase in minimum contributions to 8% will have been completed. The simple truth is that many people cannot afford to pay into both a pension and a LISA. In fact, many can do neither. The Work and Pensions Committee has warned the Government:
“Opting out of AE to save for retirement in a LISA will leave people worse off.”
Government messages on the issue have been mixed. The DWP has been very clear that the LISA is not a pension product, but the Treasury has proffered an alternative view.
New clause 3 is on independent financial advice. If the Government cannot get their position on the lifetime ISA clear, how will ordinary people in the street be clear about it? Compared with those of other pension plans, the benefits of the LISA are relatively confusing and unclear when set in the context of the wider market. That is why we have tabled the new clause, which would place a duty on the Secretary of State to make regulations that ensured that all applicants for a lifetime ISA
“have independent financial advice made available to them”.
In other words, the new clause’s purpose is to ensure that those opening a lifetime ISA for retirement savings receive independent financial advice.
Advice is crucial in purchasing any expensive product, in particular one involving post-retirement income. The advice would be offered automatically—through an opt-in service, for example—and the service provider would sign a declaration outlining the advice the applicant had received. Any provider would have to confirm the status of the applicant, whether they were enrolled in a workplace pension scheme, whether they had signed a declaration of financial advice and whether they planned to use the lifetime ISA for a first-time residential purchase.
Independent financial advice does not have to be expensive. In fact, to give an example, the Government could mandate a robo-advice scheme, which is an online platform where an individual can get independent financial advice. Given the putative simplicity of LISA that the Minister has championed, experts inform me that having a robo-advice scheme would be a reasonable course of action, although such a scheme would need safeguards. First, it should be backed up by accredited financial advisers. Secondly, the Government should take steps to ensure that no one company has the contract, something that is all the more important to avoid a repeat of the Concentrix scandal.
The Opposition believe that it is only right that anyone considering a lifetime ISA be given the opportunity to see its benefits compared with those of other schemes on the market. New clause 3 would ensure that people could make an informed choice with the benefit of independent financial advice. It would enable parity in the quality of advice for all those entering the scheme and mean that much-needed oversight and education about the benefits of the scheme would be in situ.
It goes almost without saying that a pension is perhaps one of the most important purchases a person makes. That issue has exercised the minds of many people in government, in the regulatory sector and in the products sector. The history of mis-selling has left a long, deep shadow across the financial products sector. We must take that into account—we cannot ignore it. With so many bodies from across numerous industries outlining their concerns that there is a risk that people will save into a lifetime ISA when it is not the most beneficial retirement savings option, I cannot see a reasonable argument against ensuring that applicants receive independent financial advice before opening an account.
Millions of people have lost confidence in much of the sector to some degree or other. As witnesses in Committee alluded to, that is partly why when people are saving they do so in cash ISAs. They are not sure about stocks, shares and other products and so put their savings into products that give them a return of 0%, 0.1% and so on—up to 1% if they are lucky. We must create an environment in which people save and feel confident that they will get a reasonable return on their investment, especially if that investment is for their later years. That, too, is perfectly reasonable.
On new clause 4, the Opposition recognise that many people want to own their own home, and would encourage people to do so if that is what they wish, but we are concerned that the Government’s housing policy will only inflate housing prices further, and that the lifetime ISA will make things even more difficult in a housing environment that is already strained because of the limited numbers of houses being built nationwide. I will not even mention the huge cost of housing, particularly in London and the south-east. The average figure nationally is as much as £250,000 and over £500,000 in the capital. That is why new clause 4 would require the Government to conduct a review, within a year of the Act coming into force, of the potential impact of the lifetime ISA on house prices in the UK. It would also require that the review be made publicly available and be laid before both Houses of Parliament.
Evidence received in Committee, from the likes of Martin Lewis of MoneySavingExpert.com, acknowledged the potential popularity of the lifetime ISA but highlighted concerns about its potential impact and argued that unintended consequences of the scheme were a possibility and a concern. Worryingly, fewer homes were built in the last Parliament than under any other peacetime Government since the 1920s. The lifetime ISA might help to overheat a market already short of capacity. The Government’s priority should be to try to mitigate, not to add to, the problem. I do not consider that an unreasonable point either.
People are increasingly chasing a product in a market that has low supply levels. As I indicated in Committee, it so happens that that product is housing. The facts speak for themselves: the Government are almost two years through their five-year housing plan—not counting the previous five years—and still falling badly behind on their targets. If I recall correctly, the OBR’s assessment suggests a 0.3% inflationary effect on the housing market from products such as lifetime ISAs. If there are 100,000 house transactions a year, at £750 a time, that will add about £70 million a year to prices. If we are to implement policies that will affect an already overheating sector, it is important that we take into account their overall impact.
New clause 5 calls for a distributional analysis. As mentioned earlier, the Opposition’s underlying concern about the lifetime ISA is that it will do little to help those on low incomes to save. That is why we would like the Government to produce, within six months of the Act coming into force, an analysis of the distribution of benefits of lifetime ISAs and Help to Save accounts, including of the distributional effects between households at different income levels, genders, people with disabilities, and black and minority ethnic groups.
We should not forget that the Government’s huge cuts to universal credit will see 2.5 million people in working families lose as much as £2,000 a year, even after the Chancellor’s recent minor adjustments. It is difficult to imagine that such families will have a spare £50 a month to put into a Help to Save account. I made a point earlier about the low take-up. Those who can afford to save are generally better off, so the lifetime ISA will deliver subsidies to those who least need them. Meanwhile, the danger is that the Help to Save measure, which is specifically for universal credit and tax credit recipients, might encourage those on low incomes to save money when it is not, at that point, necessarily in their best interests. According to the Women’s Budget Group,
“Incentives to encourage saving—via the ‘Help-to-Save’ and ‘Lifetime ISA’ measures”—
are
“likely to disadvantage women”
and tend to represent
“a move away from collective provision of welfare”.
It is concerned
“that in the future such individual accounts are used to provide an income during periods of caring, illness or disability…As women are both less likely to have funds to save and more likely to require time out for caring, they would be significantly disadvantaged by such an individualized approach as opposed to a collective system that enables redistribution.”
New clause 6 feeds into the overall debate about whether the lifetime ISA and Help to Save measure will be good value for money, particularly if they do not help those on low incomes and minority groups to save. We welcome the sensible measures to address the thorny issue of the low retirement savings of the less well-off, and anything that puts money into the pockets of middle and low earners is welcome, but I wonder how that aim sits alongside the Conservatives’ planned cuts—they are more like a heist—to universal credit. According to the OBR, the various pensions and savings policies introduced since 2011, including the lifetime ISA, will create a £5 billion lacuna in the public finances.
It is therefore imperative that the scheme benefits everyone in society, not disproportionately those who are already in a position to get on the housing ladder and save. It would be a real shame if the beneficiaries of the scheme were limited to those who were already able to afford to save and afford the deposit for a house. Given that the two policy announcements come at more or less the same time as cuts to tax credits, the juxtaposition of an investment of £1.8 billion in housing support for those in a better position to afford to buy against the significant cuts for those in lower-paid work will be seen at the very least as insensitive, and by some as crass and unfair.
Ian Blackford (Ross, Skye and Lochaber) (SNP)
It is a pleasure to be called to speak in the debate. I rise to speak to new clause 7 and amendments 7 to 11 and 13 to 22, which were tabled in my name and those of my hon. Friends.
We in the SNP—[Interruption.] I see that Conservative Members are laughing, but if the Government had taken this issue seriously and accepted some well-intentioned amendments in Committee, we would not have had to table all these amendments this evening. Let me tell Conservative Members that this Bill is a seriously bad piece of legislation, and they should take it seriously, not scoff at it.
The Scottish National party has consistently warned of the dangers of the Bill and its consequences for savers. The SNP is supportive of any initiative that promotes savings, but the lifetime ISA is a gimmick, as it will work only for those who can afford to save to the levels demanded by the Government to get the bonus. The LISA falls short of real pension reform, and it is a distraction to allow the Treasury access to taxes today rather than having to wait for tomorrow.
Savings into a LISA are made out of after-tax income; pension contributions are tax exempt and tend to receive employer contributions. Saving through pensions remains the most attractive method of saving for retirement. While anything that encourages saving for later life has to be welcomed, the danger is that the Government will derail auto-enrolment. Help to Save is another example: we agree working to encourage savings is welcome, but once again the UK Government are only scratching the surface, rather than really targeting those struggling to plan for emergencies or later life.
The Bill risks seducing young people away from investing in a pension by encouraging investment in a lifetime ISA. We have said before that no one investing in an ISA can be better off than someone investing in a pension. Why are the Government persisting with the Bill? Let us be clear: if we pass the Bill tonight, we could create circumstances in which young people might be sold a lifetime ISA when their interests would be better served by investing in a pension. That is what we will do if we pass this Bill.
In Committee, we sought to make sure that safeguards were in place and that advice was available for applicants to remove that risk, but for some reason the Government refused to accept our reasonable proposals. This evening, we are pressing new clause 7, which would require the Secretary of State to make regulations requiring all providers of LISAs or Help to Save accounts to provide applicants, at the point of application, with both advice on the suitability of the products to the individual and information on automatic enrolment and workplace pension schemes. Auto-enrolment is still in its infancy and is due to be reviewed next year, although we heard today that increases in payments to auto-enrolment schemes are now off the agenda. That too should be debated by the House and changed.
That has to be our priority for savings, but if we are not successful in pressing the new clause tonight, our only alternative is amendment 15, which would completely remove the LISA from the Bill. Our primary problem with the Bill as drafted is the LISA. While the UK Government rely on low opt-out rates from auto-enrolment to justify their claim that the LISA would not risk pension savings, we are not convinced. The Bill is a missed opportunity to focus on strengthening pension saving, rather than tinker with the savings landscape.
The amendments we tabled in Committee aimed to delay the LISA until safeguards were built in; they also highlighted the need for mandatory advice. The Government say that the LISA is a complementary product, not an alternative to pension saving, but they have given no real thought to the difficulties facing consumers in understanding their options and, for those who have savings, whether they are in the best product for their needs. Pensions are already confusing and complex; the LISA as it stands adds to that complexity. We need to build trust in savings. That can only come if consumers have confidence in what is offered to them. A new suite of savings products that in many cases are inferior to existing offerings does not help build confidence in savings.
On Second Reading the Financial Secretary said:
“What is attractive about the lifetime ISA is that people do not have to make an immediate decision about why they are saving this money…people not having to make that decision at an early stage when they cannot see what is ahead.”—[Official Report, 17 October 2016; Vol. 615, c. 607.]
That is an astonishing statement. Why is the Financial Secretary not saying that we ought to be encouraging pension savings? I get the point that we need to consider ways to help young people to get on the housing ladder. Perhaps we need to think about how investments in pension savings might help in that regard. That is one of the reasons I keep asking for the establishment of a pensions and savings commission, so we can look at these matters in a holistic manner. I keep making the point, and I make no apology for saying again, that nobody should be better off with a LISA than with pension savings.
The long-term cost of forgoing annual employer contributions worth 3% of salary by saving into a LISA would be substantial. For a basic rate taxpayer, the impact would be savings of roughly one third less in a LISA over a pension by the age of 60. For example, an employee earning £25,000 per annum and saving 4% of their income each year would see a difference in excess of £53,000. After 42 years, someone saving through a pension scheme would have a pot worth £166,289.99 at a growth rate of 3%; in a LISA at the same growth rate the value would be only £112,646.75. That is a difference of over £53,000, and the difference would be even greater if wage growth was factored in. That is why we cannot support the Government tonight on the LISA elements of the Bill.
Without the introduction of advice, we are creating the circumstances in which mis-selling can take place. How can we stop someone being sold a LISA when a pension plan would be better for the consumer’s needs? We cannot. That, quite simply, is why the Bill is wrong. The Government ought to be thoroughly ashamed of themselves. They are creating the circumstances in which mis-selling can take place. I point the finger of blame at the Government for introducing this Bill and at every Member who is prepared to go through the Lobby tonight to support the Bill. Dwell on the example I gave where someone earning £25,000 per annum saving 4% of their salary could be as much as £53,000 worse off after 42 years. Who can honestly support that? That is not in consumers’ interests. It is de facto committing a fraud on savers in this country.
Today research has been published by True Potential. A poll of 2,000 employees showed that 30% of people aged between 25 and 40 would chose a LISA instead of a pension and that 58% of 25 to 34-year-olds would use their LISA for retirement savings. These statistics are the early warnings of the potential for mis-selling. Tonight, the House must vote to protect the consumer interest by backing new clause 7 to put in place an advice regime; failing that, Members should support amendment 15, which would delete LISAs from the Bill. Failure to do so will be a failure to take responsibility by each and every Member of this House.
I said on Second Reading:
"We would resist any further attempts to undermine pension saving and, specifically, to change the tax status of pension savings. That would be little more than an underhand way of driving up tax receipts—sweet talking workers to invest after-tax income in LISAs when their interests are best served by investing in pensions.”—[Official Report, 17 October 2016; Vol. 615, c. 620]
The sheer fact that the use of LISAs for retirement savings will be encouraged will confuse the public that this is a pension product and could disincentivise retirement savings in what should be traditional products. The Government's response that an amendment on advice would not work in practice, as it would create a barrier to accessing the LISA, is another quite extraordinary argument, as all that advice would do is make sure that consumers can make informed decisions. If there are consumers who choose to invest in a pension rather than a LISA product, I would be delighted, and so should the Government be.
The Government said it would be the role of the Financial Conduct Authority to ensure that sufficient safeguards are put in place. Specifically on advice, we welcome the FCA’s proposed protections: firms will be required to give specific risk warnings at the point of sale, which include reminding consumers of the importance of ensuring an appropriate mix of assets is held in the LISA; they will also have to remind consumers of the early withdrawal charge and any other charges and they will have to offer a 30-day cancellation period after selling the LISA. However, still the risk is simply too great for the Government to treat it as an afterthought. There must be a formal mechanism to assist those seeking to increase saving, particularly where they are looking for a retirement product.
Even the Association of British Insurers, which cautiously welcomes the LISA, has said:
“LISA (and other ISA products) receives savings from money that is already taxed. This keeps the burden of taxation with working age people and takes money out of the real economy”.
This takes us back to why we are here and what the Government are proposing and why it is wrong.
As I also said on Second Reading:
“SNP Members welcome any reasonable proposals that encourage savings—we will work, where we can, with the UK Government to seek to encourage pension savings—but we very much see the Bill as a missed opportunity for us all to champion what we should be focusing on, which is strengthening pensions savings. Instead we have another wheeze that emanated from the laboratory of ideas of the previous Chancellor, the right hon. Member for Tatton (Mr Osborne), and his advisers, who had form on constantly tinkering with the savings landscape. The right hon. Gentleman may have gone from the Front Bench, but his memory lingers on with this Bill.
Let us recall what the former Chancellor said in his Budget speech this year:
‘too many young people in their 20s and 30s have no pension and few savings. Ask them and they will tell you why. It is because they find pensions too complicated and inflexible, and most young people face an agonising choice of either saving to buy a home or saving for their retirement.’”—Official Report, 17 October 2016; Vol. 615, c. 618-19.]
The Financial Secretary to the Treasury (Jane Ellison)
This has been a wide-ranging debate, albeit with a relatively small number of speakers. Many of the arguments today were given a good airing during our Bill Committee discussions. I will try to address the key points raised by hon. Members, and will also set out why we think the Government amendments are necessary.
First, however, I want to touch on a point of policy that is of some relevance to the debate: a change to charges in the first year. We are making a small change to charges on early withdrawals from the lifetime ISA in its first year of operation, for the benefit of consumers. Although these rules will be set out in regulations, so do not affect the substance of the Bill before the House today, as a courtesy I thought some hon. Members would be interested, given the points raised in oral evidence to the Bill Committee.
The 25% Government charge on unauthorised withdrawals from the lifetime ISA recoups the Government bonus and applies a small additional charge. This is fair as it reflects the long-term nature of the product and ensures that individuals save into it for the intended purposes, protecting Government funds and taxpayers’ money. However, in 2017-18 only, the bonus will not be paid monthly, as it will be from April 2018 on, but will be paid as an annual bonus at year-end. This could create a difficult case where people face a 25% Government charge up to 12 months before they receive the bonus. We have listened to representations on this point, and so, to improve the product for consumers, I can confirm that there will be no Government charges in 2017-18.
If people want to withdraw from their lifetime ISA in 2017-18, they must close their account, and there will be no Government charge to do so. No bonuses will be paid on such closed accounts.
An individual who has closed their account will be able to open another lifetime ISA in 2017-18 and contribute up to £4,000 into it, if they wish to. From April 2018 the Government bonus will be paid monthly. This means that the 25% Government charge on withdrawals other than for a first-time house purchase, in the event of terminal illness or when the individual is over 60 will apply as per the overarching policy intention.
Government amendment 3 is about data sharing, and I wrote on this issue to the hon. Members for Bootle (Peter Dowd) and for Ross, Skye and Lochaber (Ian Blackford) and copied in the rest of the Bill Committee. We have heard that the lifetime ISA will provide an eligible first-time buyer with a new choice in saving for their first home, in addition to the existing help to buy ISA scheme. Both schemes provide that generous Government bonus of 25% that can be put towards a first home.
As we set out when we first announced the lifetime ISA, we intend that individuals will be able to save into both a Help to Buy ISA and a lifetime ISA, but they will only be able to use the bonus from one of the schemes when they buy their first home. Amendment 3 introduces a new paragraph to schedule 1 to allow HMRC and the administrator of the Help to Buy ISA to share information about bonus payments and charge-free withdrawals so that those rules can be policed. It also provides appropriate safeguards and sanctions in relation to the use of account holders’ information, including a criminal offence for unlawful disclosure of that information, in line with HMRC’s established duty of taxpayer confidentiality. The amendment is straightforward and will ensure that the scheme rules on Government bonuses can be effectively administered. I hope that the House will accept it.
Government amendments 4 and 5 concern residency conditions for Help to Save. That is a targeted scheme, as we have heard, that will support lower-income savers by providing a generous Government bonus on their savings. It is only right that that Government bonus should be available for savings made while an account holder is in the UK or has an appropriate connection with the UK, such as Crown servants serving overseas. The Bill already provides that, as well as meeting conditions in relation to working tax credit or universal credit, an individual must be in the UK to open an account. However, it is currently silent on the rules that apply where an account holder leaves the UK during the four-year lifetime of an account.
The amendments address that situation by allowing regulations to provide that the monthly payment limit for Help to Save can be set at nil in certain cases. We intend to use that power to provide that an individual cannot make payments to an account, and cannot thereby earn additional Government bonus, when they are not in the UK or do not have the appropriate connection to the UK. That will be supported by a requirement to notify the account provider if an account holder’s circumstances change and they will be absent from the UK. That approach broadly mirrors the arrangements currently in place for ISA accounts. The amendments also provide for a penalty where there is a failure to notify the account provider of such a change. However, that penalty will not apply where there is a reasonable excuse for the failure, and any person who receives a penalty will have the right to appeal. The House will have the opportunity to consider regulations dealing with eligibility for an account before the launch of the scheme.
These amendments allow an effective targeting of the generous Help to Save bonus, so that it can be earned only on savings made by individuals in the UK, or with an appropriate connection. On that basis, I hope that the House will accept them.
I will now respond to the non-Government amendments and new clauses. Again, we debated most of these issues at length in Committee. I will try not to recap all the arguments and to summarise the main ones.
New clause 3 and new clause 7 both concern advice for people opening either type of account. We have heard concerns that people may not get all the advice they need. I have been clear that the regulation of providers is the role of the independent Financial Conduct Authority, which regulates ISA providers and will likewise set the framework for the Lifetime ISA. It is consulting on its approach at the moment. On 16 November, it set out its suggested approach.
The Government of course want to ensure that people have the information that they need to make important financial decisions. We will provide clear information on gov.uk as well as work with the Money Advice Service and its successor to ensure that they make appropriate and impartial information available. The risk of mandating that people receive independent advice is that it makes investing in these products prohibitively expensive for many people. In Committee, we talked about the cost associated with mandating financial advice of that nature. Therefore, although I understand the sentiment behind those new clauses, I urge hon. Members not to press them and instead look at what the FCA has recommended in its initial suggestions to us.
Jane Ellison
I will, although the hon. Gentleman spoke for 20 minutes on this subject. I will take a brief intervention.
Ian Blackford
Speaking for 20 minutes when consumers are exposed to risk is not unreasonable. Can the Minister tell me which workers who have access to auto-enrolment will be better off under a LISA than they would under a pension?
Jane Ellison
I accept entirely, and it is evident from the hon. Gentleman’s speech, that he objects in principle to the lifetime ISA, but the matter before the House is whether we legislate for it, and the new clause I am addressing at the moment concerns financial advice. I have given examples of where the Government will be steering people towards advice. We are as keen as anyone that people have access to advice, but I urge him to look at the FCA consultation and what it has said, because it is the FCA’s job to steer us in that regard.
Richard Fuller (Bedford) (Con)
I listened with interest to the points made by Labour Members about credit unions. I am a member of the Bedford credit union. Will the Minister look specifically at this issue? I think the hon. Member for Walthamstow (Stella Creasy) was saying that the Bill was an opportunity to expand the role of credit unions—they could be given almost a preferred provider status. When the Minister considers expanding the provider model beyond NS&I to include alternative providers, will she look specifically at expanding it solely to credit unions, rather than more broadly?
Jane Ellison
I hope that my hon. Friend will understand that it would be pre-emptive of me to make such a commitment at this stage. However, we have been clear that we think that credit unions have a big role to play. The primary legislation does not preclude them from being part of a multiple provider model in future. Indeed, my officials have been in constructive discussions with the credit union movement throughout the passage of the Bill. We are working with the credit union sector to ensure that the final design of Help to Save meets the needs of the target audience. I know that the Economic Secretary to the Treasury is looking forward to meeting the hon. Member for Harrow West and my hon. Friend the Member for South Ribble (Seema Kennedy) to discuss the issue further with the Association of British Credit Unions. Therefore, this is not about excluding the credit union movement. We are in regular, constructive discussion with credit unions. We just feel at this stage that the amendment would not allow us to offer that simple nationwide model on the introduction of Help to Save.
Stella Creasy
I thank the Minister for what she is saying. Our concern is that savings are a critical part of credit unions’ ability to deliver the services that they provide. Her argument does not preclude the amendment that Co-op MPs have tabled. The conversations that she is talking about could then happen. There has been no suggestion that there would be any legislative bar. She is making the case for accepting the amendment in saying that it is exactly what she wants to do in future.
Jane Ellison
I am just saying that nothing in the Bill precludes that from happening now, so the amendment is unnecessary. We are in constructive discussions with the credit unions. They are not precluded from being part of a multiple provider model in future. I have laid out that, throughout the consultation, we identified that that was not a suitable model for the starting point. However, I honestly think that we are essentially coming at this from the same point of view. I hope that, in the light of what I have said, hon. Members will not press the amendment. As I say, we will continue to have those constructive discussions.
Amendment 7 seeks to pay the bonus every six months, rather than at the two and four-year mark of the Help to Save product. We believe that paying the bonus at two years and at account maturity strikes the right balance between giving people enough time to build up their savings and develop a savings habit and allowing them to access the bonus within an appropriate timescale. That is supported by evidence from similar savings schemes. Some Members will be aware that the savings gateway pilots showed that the optimal period for the saving habit to be embedded is two years.
I emphasise that people will still have full access to their savings with Help to Save, so even if they are able to save for only six months, they will still be entitled to receive a bonus at the two-year point or at maturity. I hope that that reassures hon. Members that we have looked carefully at the issue. I accept that it is, to an extent, a judgment call, but evidence from the savings gateway pilots, as well as from other peer-reviewed research, shows that the optimal time for the saving habit to be embedded is about 19 to 24 months. We think that we have struck the right balance, so I hope that the amendment will not be pressed.
Amendments 8 to 11 centre on the contribution limits. Not many Members spoke specifically about the issue and we explored it well in Committee. It is about being able to contribute a two-monthly average of £50. Our consultation specifically addressed the question of whether individuals should be able to pay in more than the £50 limit in certain circumstances. Respondents were very clear that that would add complexity to the scheme, both for savers and for account providers. It is worth noting that the Office for Budget Responsibility-certified forecast suggests that people will deposit £27.50 into their accounts each month on average. The £50 monthly limit is adequate, so I hope that the amendments will not be pressed.
Amendment 12 centres on eligibility for under-25s. The issue was explored in Committee and it has been touched on briefly today by the hon. Member for Ross, Skye and Lochaber. Our intention is to passport people into eligibility for Help to Save from working tax credit and universal credit. That is a well-established way of targeting people on lower incomes, and we think that it is the most simple and effective method for determining eligibility. Importantly, it removes the need for people either to complete a further means test to prove that they are eligible for an account or to contact the Government, both of which deter people from opening accounts. It also avoids additional costs associated with developing a new and complex eligibility checking system.
The hon. Gentleman also touched on amendment 13, which seeks to exempt bonuses from bankruptcy proceedings. Our approach is consistent with what we have done elsewhere. In the benefits system, for example, deductions are sometimes made to claims to repay debts. We think that, in reality, any accrued bonus represents an asset to the account holder and should be treated as such during any insolvency proceedings. Again, I urge Members not press the amendment.
The hon. Member for Harrow West began by speaking to new clause 1, which focuses on save-as-you-earn and the payroll reduction, which is also the subject of amendment 14. Both proposed amendments seek to introduce rules to allow people to deduct automatically amounts from their salary into a Help to Save account. In fact, amendment 14 goes further by proposing the introduction of auto-enrolment for Help to Save, allowing employers or benefit-paying bodies to divert money from employees’ pay into a Help to Save account, unless they opt out.
As I said in Committee, we want the decision to save into a Help to Save account to be an active choice made by eligible individuals at a time that is right for them. For many, that will mean saving flexibly, putting aside what they can afford each month, rather than committing to having a fixed amount deducted each month from their salary. There is nothing in the Bill to stop an employer offering payroll deduction for Help to Save to their employees, but we do not intend to make it a statutory requirement for employers to offer payroll deduction for Help to Save. Automatic enrolment into workplace pensions must remain the priority for employers.
New clauses 2, 4, 5 and 6 seek to place a duty on the Government to review or publish analysis on certain aspects of the policies. In all cases we have already conducted an impact assessment, published alongside the Bill. At the time of the autumn statement, we published a cumulative distribution analysis of all the policies implemented during the 2015-20 Parliament, including of the lifetime ISA and Help to Save. We believe that it is important to look at the cumulative impact of tax and spending decisions, rather than the impact of individual measures in isolation. The distributional analysis that the Government have published since 2010 has always taken that cumulative, rather than measure-by-measure, approach.
As with all Government policies, we will, of course, keep the lifetime ISA under review to ensure that it is meeting its objectives. Indeed, we already regularly publish a wide range of detail about the take-up of Government-supported savings accounts such as ISAs. We intend to take a similar approach to the lifetime ISA, so we have already done a lot in that regard.
We discussed the interaction with the housing market in Committee, as the hon. Member for Bootle (Peter Dowd) has said. In essence, any impact that the lifetime ISA has on the housing market is likely to be very difficult to detect among other factors. As was said in Committee, the accusations that this product benefits only the wealthy do not bear scrutiny, given that the Help to Buy ISA has been used to buy homes worth on average £167,250, which is well under the property price cap. The accusations are not fair.
The interaction with automatic enrolment dominated the contribution of the hon. Member for Ross, Skye and Lochaber. We covered the issue in detail in Committee, and I once again stress the Government’s absolute commitment to automatic enrolment. It is wrong to say that we are seeking to derail it. The lifetime ISA—the Treasury is clear on this—is designed to be a complement to automatic enrolment and workplace pensions, not a replacement. Our costings do not assume that people will opt out of their workplace pension in order to pay into a lifetime ISA. Encouragingly, the figures show that the opt-out rate is very low so far. Taking all those things together, we do not think that the proposed new clauses are necessary, so I urge hon. Members not to press them.
Amendments 15 to 22 would effectively cancel the lifetime ISA from the Bill. It is evident from my comments so far that I have no intention of accepting the amendments. It is clear that we have a disagreement in principle. The hon. Gentleman’s accusations against the measure bordered on hyperbole. He said that he is prepared to look at any reasonable proposal that helps people to save, but we know from the consultations on the complex subject of saving for the future that this is a product that will help many people save. It is a direct response to the comments made in response to a public consultation about the complexity of savings options.
Jane Ellison
No. We have had a good debate, both in Committee and here, and I am going to press on. I have to date taken slightly less time than the hon. Gentleman—
Mr Speaker
Order. The Minister is clearly not giving way. It is apparent to everybody else in the Chamber and I am sure that it is now apparent to the hon. Gentleman.
Jane Ellison
Amendments 15 to 22 seek to cancel half the Bill—I am not going to accept them. I refer the hon. Member for Ross, Skye and Lochaber to the FCA’s consultation; I do not think that it would recognise his comments, and neither do I.
Amendment 1 would change the normal maturity period for Help to Save accounts from 48 to 24 months. In practice, people would be able to save into a Help to Save account for only two years rather than four. We designed the scheme so that people can save into a Help to Save account and get a Government bonus after two years, and then continue to save and receive a further bonus when the account matures after four years. We have done that because we want the target group to be able to save as regularly as other people and they may take longer to save towards that vital rainy day fund. It also provides an incentive for people to continue saving beyond two years, which fits with our objective to encourage people to develop a long-term saving habit. I hope that the amendment will not be pressed.
Finally, amendment 6 would delay commencement until April 2019, when automatic enrolment into workplace pensions will be fully rolled out. We have been very clear that we do not expect lifetime ISAs to drive opt-outs from pension saving. There is, therefore, no reason to delay. In fact, such a delay would disadvantage those who wish to open a lifetime ISA and who have been preparing for a 2017 launch. The hon. Gentleman completely disregarded the fact that self-employed people do not have the option of access to a workplace pension scheme. That came out in evidence to the Bill Committee. There was not a word about the self-employed.
Jane Ellison
No, I will not.
The proposal would also delay Help to Save for a year, disadvantaging the savers on low incomes who will benefit from the scheme. Like many hon. Members, I am passionate about the Help to Save scheme and want to see it go ahead as planned. I intend to work with all who have been mentioned—the credit unions, many financial inclusion charities, and the Churches—to ensure that we exceed the take-up target for Help to Save. I will be delighted if we vastly exceed the target, and that is my intention.
Mr Speaker
The final words in respect of this group of amendments are for the hon. Member for Harrow West (Mr Thomas).
Mr Gareth Thomas
This debate has been short but interesting. I hope that Members will forgive me if I confine my brief remarks to the three amendments tabled in my name. My hon. Friend the Member for Walthamstow (Stella Creasy) made a characteristically excellent speech dwelling on the debt tsunami coming our way. She rightly alluded to the challenges that many credit unions face in providing a service through local employers to their employees.
My hon. Friend the Member for Bootle (Peter Dowd) made an excellent speech from the Front Bench—perhaps inspired by listening to the works of Shostakovich, of whom he is a devotee. Given the numbers who might be eligible, he is rightly worried that the number of people who sign up for Help to Save will not be as great if credit unions are not included among the providers that can offer Help to Save.
I was interested by the Minister’s response, and I hear her concerns about new clause 1, which I look forward to exploring more in a meeting with the Economic Secretary to the Treasury. I was grateful to hear the Minister offer some reassurance on amendment 1 and the possible reduction to 12 months from 24 months. As a result, I will not press amendment 1 or new clause 1 to a Division.
I will, however, seek a vote on amendment 2 because I gently suggest to the Minister that she did not make a convincing case as to why credit unions should not be allowed to offer this product. It is clear that NS&I will be a good national provider, but it is unclear why credit unions cannot be given the opportunity to offer the product at the same time. Given all the effort and expense that the Treasury is going to, it seems odd not to take advantage of the opportunity that credit unions can provide to get more people signed up. In that spirit, I intend to press amendment 2 to a vote, but I will not press new clause 1 or amendment 1.
Clause, by leave, withdrawn.
New Clause 2
Impact review: automatic enrolment and pensions savings
‘(1) The Treasury must review the impact of Lifetime ISAs on workplace pensions automatic enrolment and pensions savings within one year of this Act coming into force and every year thereafter.
(2) The conclusions of the review must be made publicly available and laid before Parliament.’—(Peter Dowd.)
This new clause would place a duty on HMRC to review annually the impact of Lifetime ISAs on automatic enrolment.
Brought up, and read the First time.
Question put, That the clause be read a Second time.
Jane Ellison
I beg to move, That the Bill be now read the Third time.
I thank all right hon. and hon. Members who have taken the time to scrutinise the Bill during its passage through the House for the good, constructive debates, which have been very helpful. We want to make it easier for everyone to build up savings, to meet their ambitions and to feel secure in their personal finances, and we have already set to work to make that the case. We put an end, for example, to 17 million people having to pay tax on the interest they received on their savings and we announced the biggest ever increase in the ISA allowance, to £20,000 from April next year. This Bill, legislating as it does for the lifetime ISA and the Help to Save account, carries on that hugely important work.
As we have heard, the lifetime ISA provides a new option for young people looking to save for the long term. It is a positive move for savers that complements pensions and is yet another way in which we are supporting people who are doing the right thing and putting money aside.
Help to Save has received cross-party support in the House. We know why this is so important. Research from the Centre for Social Justice estimates that 3 million low-income households have no savings at all, so we can be in no doubt that moving forward with this account is a hugely important step.
The Savings (Government Contributions) Bill is important, and its passage through the House has been met with thoughtful and constructive challenge. We have debated a number of important principles during our deliberations, but the Bill is fundamentally about people who are trying to save for the future so I have no hesitation—indeed, I take great pleasure—in commending it to the House.
Peter Dowd
I echo the Minister’s sentiments about the scrutiny the Bill has received. I am grateful to the witnesses who came to our sessions, as well as for all the written evidence, informal information and contact that we received.
Of course, the provisions are in two parts: the lifetime ISA and Help to Save. No one has any objection to helping people to save; it is a question of how to do it. We are not convinced that the Bill will help people to save. We do not think that there is sufficient evidence to back up what the Minister said and we do not think that it sorts out the problem with the shortage of housing. It sets aside £1.8 billion by 2019-20, there are questions about its value for money, and we think that it complicates the market and might introduce a Trojan horse. Not everybody is convinced about it.
I am not sure that Help to Save does the business for those on a low income. It comes in the wake of major cuts to tax credits and only puts a little drop back into a very big ocean. The Government should listen to what many people, including our witnesses, have said. Nevertheless, we accept that we need to help people save for the future, and all the information that has been provided to us sets the scene for continued future debates. I thank the Minister for her helpfulness and civility throughout the process.
Ian Blackford
I must say that I think we will repent of this legislation in due course. We cannot get away from all the evidence that was presented to us. The evidence from the Association of British Insurers makes it abundantly clear that anyone who has the opportunity to invest in a workplace pension will be worse off investing in a LISA than investing in their pension. I listened to the Minister talking about those who are self-employed and who do not have the opportunities and advantages of auto-enrolment when what we should have been doing was introducing legislation to deal with that problem.
We have the opportunity to do that when we review auto-enrolment next year. There is no need for this legislation for ordinary people; they will not benefit from the LISA. I put it to the House that this will reward those who have already maxed out their pension schemes by giving them another opportunity that will help them through this Government bonus. It is not so much a LISA as what we would call a “Rupert”—a really useful perk for extremely rich Tories. They are the only people who will benefit from the Bill.
When it comes to what is really important, I am delighted that True Potential has published its evidence today. Let me give two statistics from that. First, 30% of people aged between 25 and 30 would, if given the opportunity, choose a LISA instead of a pension, and 58% of 25 to 34-year-olds would choose the LISA for retirement savings. We know that those with the opportunity to invest in a pension will always be better off. As I said on Second Reading, the Government have wilfully created circumstances in which young people in this country will be mis-sold LISAs. The Government should be utterly ashamed.
Kelvin Hopkins (Luton North) (Lab)
I was a member of the Bill Committee and I made many of the points I wish to make at that time. I was not able to be in the Chamber for the first part of this debate, but I wanted to say a few words in support of what we have heard from the Opposition Front Bench. My hon. Friend the Member for Bootle (Peter Dowd) and the hon. Member for Ross, Skye and Lochaber (Ian Blackford), speaking for the Scottish National party, have expressed strong words of scepticism about the Bill. I reinforce those words.
The very poorest need a much bigger state pension. For many people, a compulsory earnings-related state pension scheme would be much better value and would guarantee that everybody saved some of their earnings for a decent old age. That would be a much more positive way forward. I echo what has been said by the Opposition Front Benchers and am grateful for this opportunity to speak.
Mr Gareth Thomas
It is a pleasure to follow my hon. Friend the Member for Luton North (Kelvin Hopkins). I did not have the privilege of serving on the Bill Committee, but I spoke on Second Reading and on Report. I welcome Ministers’ commitment to continue to engage with credit unions, which was the primary issue I sought to raise.
There is one issue we did not address in relation to Help to Save. With a national provider—National Savings & Investments—it would be relatively easy to disaggregate the data on who is taking advantage of the Help to Save product and to publish them in an anonymised form. We could track the postcodes to see where people are taking advantage of it. I raise that issue in the context of work that the Treasury is doing with the British Bankers Association to encourage banks to publish data about what financial services products are being offered to whom and who is taking advantage of them. The banks have been forced, reluctantly, to reveal where they are lending, but the information being provided is not yet perfect—we are on a journey with the banks.
One thing the Treasury could do once it gets this Bill through both Houses, as it seems likely to, is to require NS&I to publish on a postcode basis where people are taking up the Help to Save product. I commend that point to Ministers, and I hope they will take it up. I also hope that Members of the other House will explore this additional issue in a little more detail.
Question put and agreed to.
Bill accordingly read the Third time and passed.
Savings (Government Contributions) Bill
Tuesday 13th December 2016
(7 years, 4 months ago)
Lords ChamberRead Full debate Savings (Government Contributions) Act 2017 Read Hansard Text Amendment Paper: Consideration of Bill Amendments as at 12 December 2016 - (12 Dec 2016)
Savings (Government Contributions) Bill
Thursday 12th January 2017
(7 years, 3 months ago)
Lords ChamberRead Full debate Savings (Government Contributions) Act 2017 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Consideration of Bill Amendments as at 12 December 2016 - (12 Dec 2016)
The Commercial Secretary to the Treasury (Baroness Neville-Rolfe) (Con)
My Lords, I am delighted that the first Bill I am taking as Commercial Secretary is about supporting people to save. As we know, saving is a hugely important topic and a very personal one for people up and down this country.
The reality is that families in the UK are not saving enough. The saving ratio is near a record low and it is estimated that 21 million people in the UK do not have £500 in savings to cover an unexpected bill. In the current economic climate it is important that households keep setting aside what they can afford to build their financial resilience and save for the future. Saving benefits the economy, helping to create stable, long-term economic growth, and it benefits individuals, helping them meet their aspirations and prepare sensibly for the future. So we want to make sure that all people in this country, no matter their circumstances, have the tools at their disposal to save money in a way that works for them.
There have been a number of initiatives in this area over recent years. The personal savings allowance put an end to 17 million people having to pay tax on the interest they received on their savings. There have been substantial increases to the ISA allowance: from April people can save up to £20,000 in this tax-advantaged wrapper. The Autumn Statement announced further support for savers with the introduction of a new market-leading three-year savings bond from NS&I in spring 2017.
To help even more people save for the future, this Bill brings in two new schemes: the lifetime ISA and Help to Save. I will introduce them in some more detail. First, the lifetime ISA provides a new option for younger people who are looking to save for the long term. Essentially, this is designed to offer people more flexibility in how they save. For some people, the existing support that is available will be sufficient. There is already, for example, a good level of support provided through the pensions system, particularly thanks to automatic enrolment, a policy that has attracted support, rightly, on all sides of this House. It makes it compulsory for employers to enrol people into a pension scheme and contribute towards it.
However, when we did a consultation on pensions tax relief back in 2015, we found that younger people in particular could find pensions inflexible. So we looked at what more we could do to provide more choice and flexibility for them. That is why we designed the lifetime ISA to offer that as a complement to the pensions system. Adults will be able to open an account from the age of 18 to the age of 40, and carry on saving up to the age of 50. They can save up to £4,000 a year. They will earn a 25% tax-free bonus on their contributions from the Government, paid straight into the account, which represents a clear and attractive incentive to save.
The flexibility comes in how the lifetime ISA can be used. Savings under this scheme can be used to supplement your income in later life because you can withdraw funds, including the bonus, any time from the age of 60. But you can also use your savings to get on to the property ladder for a first home costing no more than £450,000. We know how important that is for many young people today. We were clear in our manifesto that we believe the chance to own your own home should be more widely available. Through the Bill, from April next year, people will have a new and more flexible way to save, which may be more suitable for their individual needs.
The other policy introduced in the Bill is Help to Save. This is another way in which we are looking to help people build up their savings, and this is specifically targeted at people on low incomes, for whom it can be a particular struggle to do so. In fact, research from the Centre for Social Justice estimates that 3 million low-income households have no savings at all. This is a serious statistic and one that we cannot ignore. Instead, we need to support and encourage more people to build up their resilience and become more financially secure. That is why it is the Government’s view that we should support those on low incomes who are trying to do just that by putting money aside on a regular basis. This Bill would therefore introduce a new Help to Save scheme no later than April 2018.
The scheme will be delivered by National Savings and Investments, building on its reputation as a trusted savings provider and ensuring that accounts are available nationwide. It would be open to any adult who is getting working tax credits, or who is getting universal credit and working enough to earn the equivalent of at least 16 hours pay at the national living wage. This means that there are around 3.5 million people who would be eligible for the scheme. Those eligible will be able to save up to £50 a month for two years—£1,200 in total—and then receive a 50% bonus on what they have saved. If, after those two years, they want to do that again for the next two years, they will be able to do so.
Help to Save offers a flexible way to save which we know that people value. First, there are no restrictions on what people are able to do with the bonus once they get it. Secondly, people will be able to take the money out at any time. There will not be any charge or penalty for doing so. That is why we see Help to Save as an attractive new scheme that would support and encourage people to save what they can. Having savings to fall back on can make all the difference to how well people can cope with unforeseen events that come their way.
Money Advice Service research in 2013 showed that 71% of UK adults faced an unexpected bill during the previous year. Research from the debt charity StepChange suggests that if a family has £1,000 in the bank, it is almost half as likely to fall into problem debt, by which is meant being in arrears with at least one bill or credit commitment. It is therefore really important that we take forward this scheme to help more people on low incomes build up a pot of money that can be spent however they want, but that might be particularly important in case of a rainy day.
The lifetime ISA and Help to Save are designed to do the same thing—namely, to reward those who are trying to save for the future and to encourage more people to follow their example. Whether it is young people saving flexibly for their futures or people on low incomes trying to set aside a bit of money each month, they deserve to have the tools to do that in a way that works for them. That is what these two new products offer. It therefore gives me pleasure to commend this Bill to the House.
Baroness Drake (Lab)
My Lords, increasing saving in the UK is good for people and for the economy. In recent years, the Government have introduced a raft of reforms to incentivise saving. Freedom on accessing pension saving and LISA are just two. The Explanatory Notes observe that this,
“range of reforms”,
is needed,
“to ensure that the right incentives and products are in place to meet savers’ needs”.
Unfortunately, it is increasingly difficult to understand exactly what the Government’s strategy is for savings, and for pension savings in particular. What are the “right incentives”, and why? What outcomes are they intended to achieve? What are the characteristics of the “right products”? Do they differ for different groups? What is the Government’s intention on tax relief to support savings? For employers, providers and consumers, the answers are increasingly confusing, complex and uncertain.
A LISA is another new savings product, but its introduction raises two fears that the Government have not addressed. The first concerns the risk that some people will opt out of a workplace pension in order to save into a LISA, believing that it offers a better proposition when it does not. The second is that the LISA is a government stalking-horse to trail the reform of pension tax relief and replace current workplace pension arrangements with a pension ISA. That would mean that the current pension saving regime—whereby income paid in pension contributions and investment growth on savings are both tax free and on retirement when savings are withdrawn, the first 25% is tax free, the rest being subject to tax—would be replaced with an ISA regime where contributions are made from taxed income but investment growth on savings and future withdrawals are tax-free.
Those fears germinated when, in July 2015, the Government issued Strengthening the Incentive to Save: Consultation on Pensions Tax Relief. Concerns grew that the Government wanted to address current fiscal demands and reduce the current budget deficit by heavily reducing pension tax relief at the point of saving, which, for those who had those concerns, would be at the expense of building an adequate level of pensions savings, undermine the momentum in workplace pension saving, have a negative long-term impact on the Exchequer, and mean that people retiring in the future would make a limited tax contribution but consume high levels of public services, which would be deeply unfair on future generations. Pensioners on modest retirement incomes would lose out from the removal of tax relief at the point of saving and gain little from tax-free withdrawal of savings as they would not be paying tax anyway.
A fairer distribution of pension tax relief from the higher to the lower-paid saver is desirable. What is a sustainable level of fiscal support for long-term savings, given today’s public deficit and debt, is a legitimate question. Tax relief for private pension contributions through incentives to employers and employees is big—£48 billion last year, although that is a noticeable fall on previous years, with the lion’s share going into defined benefit schemes. But there is a real tension that the Government are not acknowledging between a Treasury that sees tax relief at the point of saving as an undesirable cost, given the current state of public finances and Brexit anxieties, and those who believe that tax relief at the point of saving is an integral part of supporting people in building an adequate and sustainable pensions system for the future.
Under current arrangements, an individual choosing a LISA rather than a workplace pension may end up with a smaller savings pot in later life—50% smaller. For a basic rate taxpayer saving into a workplace pension, 50%—half—of the minimum 8% contribution would come from the employer contribution and tax relief. If they opted into a LISA, they would receive only a 25% bonus from the Government on their savings from taxed income. The more generous the employer pension contribution, the greater the potential loss from saving into a LISA rather than a pension.
The LISA is a long-term saving product, with penalties for early access, with the exception of the add-on access for house purchase, but ISAs do not have the governance, value for money and regulatory requirements that workplace pensions have. Mis-selling risks abound. The Financial Secretary to the Treasury commented in the other place that,
“we heard that the pensions system on its own is too inflexible for young people”,
so the LISA is,
“giving people a new option that has been designed with flexibility in mind”.—[Official Report, Commons, 17/10/16; col. 606.]
But the DWP evidence contradicts her. It reveals that young people have the lowest opt-out rate from auto-enrolment of any group. If there is a problem with accumulating savings for house purchase, Help to Buy schemes are the answer, not a new, long-term saving product.
The Treasury costings do not assume that people will opt out of their workplace pensions to pay into a LISA. That may be right: the majority of people save into a pension by inertia. But if the Government turn pensions into an ISA into which employers auto-enrol their workers, workers will save into an ISA through inertia too. The concern is that that is exactly what the Government intend to do. A LISA is likely to be of benefit to people who have reached the limit of their allowance in tax-free pension saving, or who earn sufficient to save in both a LISA and a workplace pension. That may well increase the UK’s savings rate—there may be an element of substitution. It will provide a new option for the younger self-employed—40 is the age limit for opening a LISA—but, given that the average age of self-employed people is 47, it will not be accessible to the majority.
The real concern with the LISA is that the Government are further blurring the line of vision on savings. The distinct concept of pensions saving is at risk. The Minister may well dismiss my concerns, but if employers are not confident in the direction of government policy on private pensions, that will influence their behaviour and put a downward pressure on employer contributions into workplace pensions. I believe firmly that it is already happening.
Financial capability in the UK is persistently low, so measures to tackle persistent undersaving are welcome. The Money Advice Service 2015 Financial Capability Survey highlighted that lack of saving is a key risk to the financial resilience of households. The statistics make depressing reading: 17.3 million—44% of the working-age population—do not have £100 in savings; only four in every 10 save something every month; low income is a barrier to saving for families with children and those paying down debt; 44% of working-age people in the UK with no savings are classed as overindebted. But some on lower incomes do save: 26% of working-age adults in households with incomes below £17,500 are saving every month. A buffer against financial shocks helps to avoid inappropriate debt. For a mum in a low-income household with young children, replacing a broken washing machine is her financial shock. Some 71% of adults experienced an unexpected bill in the past 12 months, resulting in unexpected costs of some £1,545, yet of the people with no savings, 76% could not spare the money to pay an unexpected bill of even £300.
The Government’s Help to Save scheme is welcome as a measure to help boost the resilience of low-income households. I just wish that the Government were more ambitious, particularly given their recent high-profile commitment to address the challenges faced by those who are just about managing. The Help to Save scheme is targeted at 3.5 million people in lower-income households, costing up to £70 million in 2020-21. This compares with the expected cost of £850 million a year by 2020-21 of the LISA bonuses and increase in ISA limits. A fairer distribution of those incentives should have been considered.
The intended government match on savings up to £50 per month could be greater than 50%. Many of the target population will not be able to save £50. If they save £30, with a match, it will take them two years to save the £1,000 figure which StepChange, the debt charity, says is the minimum amount needed to reduce the number in problem debt by 500,000. Why is it necessary to wait two years before the match is paid? Financial shocks can hit people every year. The Government argue that two years is the optimal time to embed a savings habit, but their own evidence suggests it can be nearer 18 months.
Only one in seven, 500,000 of the target 3.5 million, are expected to take advantage of the scheme. That is low. The Government have a lot of contact with this group through the social security system, so I conclude by asking the Minister whether the Government will commit to bringing forward a plan, no later than six months after Royal Assent, which targets achieving a 50% participation rate by the eligible population in the Help to Save scheme.
Baroness Altmann (Con)
My Lords, this important debate has significant implications for younger generations. First, I congratulate the Government on the tremendous improvements they have made in recent years to the UK pensions landscape. As defined benefit schemes are on the brink of extinction in the private sector, I am delighted that the Government have made improvements that ensure defined contribution pension saving is now more user-friendly than it has ever been. Of course, if people have the opportunity of a good defined benefit pension, underwritten by their employer, that is hard to beat. However, some people with very small deferred entitlements in a final salary-type scheme may well be better off transferring their pension into a modern defined contribution scheme. We could not have said this a couple of years ago, but it can now be a sensible strategy for part of people’s past pension accruals.
Of course, defined benefit guaranteed pension income will not normally meet the costs of social care that many citizens will face. There is virtually no pre-funding of social care, either at public or private sector levels. Families are suddenly finding that a pension income is not all they need for a decent retirement. If you need looking after and have enough income or assets to be above the draconian care means test, you have to fund all your care costs yourself. That is why having some money saved up in case you need care is sensible advice for most families, especially baby boomers in our ageing population. But they do not know this. Most think the NHS will look after them from cradle to grave, as Beveridge’s national insurance scheme was often believed to achieve.
I am proud that this Government have acted to reform defined contribution pensions so that they can provide much better and more appropriate support for millions of people in later life. Some people will be able to use them to help to pay for social care, once the new pension freedom system is better understood, and perhaps with a little extra nudge from the Government. That would be a worthwhile focus of new saving incentives.
To be frank, I do not think the public or even the Government themselves, including my noble friend the Minister, have yet realised how positive the defined contribution pension changes are, how much better the landscape now is and how much more suitable for 21st-century realities. This is evidenced by last week’s astonishing infographic purporting to educate the public about retirement saving, which does not even mention the word “pension”, only lifetime ISAs, other ISAs and premium bonds. It is vital that the Government urgently revise this public guidance and recognise the important difference between short-term saving and long-term investment. Young people saving for retirement require the latter and also need extra money for care. Defined contribution pensions can offer more than just a guaranteed income. Of course, a pension is typically thought of as a lifelong income in old age but that is not necessarily enough to look after today’s or tomorrow’s elderly people.
With the new pension freedoms that ensure all pension savers should have flexibility and choice to use their pension savings as best suits themselves, the Government have already achieved the kind of flexibility that the Minister was talking about for younger people. Rather than effectively requiring most defined contribution pension savers to buy an annuity, pensions can better fit in with people’s changing lives.
The new regime does not stop anyone buying annuities if that is the right product for their circumstances, but they do not now have to do so and especially not when they are still relatively young. Most people reach their defined contribution scheme age and are still working. They will be best served by being in a pension and keeping it intact to grow, paying in more each year, so that they will have more money to support them after they finish working. That is also an important potential purpose of pension saving—to provide as much private resource as possible to support individuals during their retirement years.
There are also new behavioural nudges for people so that they do not have to worry about leaving money in their pensions for as long as possible. Under the old regime, with a 55% death tax, people would not want to die with money in their DC pension, because more than half would be lost in tax. Now, they can just leave the money there into their 80s and 90s. As I have said, if they need to pay for social care, they may have money in their pension fund. If they are lucky enough not to need care, the money passes on tax free to the next generation.
Pensions are now a product that we can be proud of and that can help people in different ways with the retirement costs they may face, rather than focusing only on ongoing income. We should be building on this success, not putting it at risk with the measures in this Bill. Of course, most people may not yet have enough money saved up, but as we look to the future and as the baby boomer generations reach later life, many of them will have—or could have—money that they could keep, rather than spending it too soon as will be encouraged by the lifetime ISA.
The combination of reforms we have seen since 2010 fits well with the theories of behavioural economics too. Behavioural science has proven powerful in driving much wider coverage of pensions across the workforce. The policy of auto-enrolment is just starting, bringing in millions more people to pension-saving, often for the first time, supplemented by a good employer contribution. The theory of inertia is ensuring that opt-out rates are far lower than anyone predicted, especially, as the noble Baroness, Lady Drake, said, among the young. The vast majority of those who are automatically enrolled into a pension are staying there. The young are clearly willing to stay in pensions, and this is a massive success so far. So it is simply not correct for Ministers to assert, as in the past, that people do not like pensions. That is yesterday’s story and is also partly a function of the fact that many do not yet understand just how good pensions are these days.
We are on the cusp of a major success in extending pension coverage for millions of people, but the measures of this savings Bill put us in danger of snatching defeat from the jaws of victory. Auto-enrolment is only just beginning, and has been a great success so far. Once again, the noble Baroness, Lady Drake, through her work with the Pensions Commission, can be rightly proud of sowing the seeds of this success. But it is work in progress—auto-enrolment will not reach all relevant workers and the full minimum contributions until 2019. Even at that stage, contributions will still be too low for most people, and millions, especially lower-paid women and the self-employed, will be left out altogether. More needs to be done, but the programme is working, and I and other former Ministers have had to battle to keep auto-enrolment in place. I congratulate the Government on doing this, but I truly fear the lifetime ISA in the Bill could derail the project before it is properly up and running.
As the state pension is being cut—the new state pension will mean lower pensions in the long run for most younger people in this country—it is vital that we ensure more people have more private income to add to their basic level of state support. That is why it is so important to continue to incentivise saving for retirement and help people build up as much money as they can to see them through their ever-lengthening later life. Using pensions could best achieve that. Distracting them with a lifetime ISA risks it.
Pensions have the right behavioural nudges. Individuals are automatically enrolled, to take advantage of initial inertia, and they receive extra from their employer to add to their own contributions, and hopefully even more money in tax relief from the Government. So the individual who puts £1,000 of their own money into a workplace pension scheme where the employer matches their contributions could receive a further £1,000 from their employer and an extra £250 in basic-rate tax relief—or even more if they are on higher-rate tax—and possibly even more from salary sacrifice. This means their own £1,000 can be more than doubled on day one.
When they reach later life, the money they have saved up will be waiting for them. They can take a quarter tax free and can leave the rest invested. Any money withdrawn will be taxed as income in that year, so there is a built-in tax brake on taking the money out quickly. The pension tax structure deters early unnecessary spending. Future Governments should therefore have fewer poorer pensioners to support. Is that not what we incentivise retirement saving for? It is also important to mention that the new state pension does not just lift all pensioners above means testing; it only lifts them above pension credit. But if all they have is a new state pension, a future Government, and younger taxpayers, could still have to provide housing benefit, council tax benefit and other means-tested help. So those who have no other private resources will potentially fall back on the state.
That is why I am so concerned about the introduction of this so-called lifetime ISA and why I beg your Lordships’ indulgence for my long speech today. This is the only opportunity to put on record the strength of feeling on this matter. We do not have an opportunity to amend the Bill, but it is important to make these points. It is a dangerous distraction that could undermine pensions and increase future poverty. There are many concerns and all I can do is put on record what the problems are and hope that the Government will take notice before it is too late. This is a money Bill, so I cannot change it, but I believe that it needs radical rethinking.
If used for house purchase, this lifetime ISA is okay—but we already had a help-to-buy ISA, so why did we need something new to complicate the ISA landscape further? However, when masquerading as a pension, this product is dangerous. It is also a complex product and should not be sold carelessly—although I fear there will be inadequate suitability checks. “Lifetime” ISAs will not last a lifetime, even though the purpose of giving a taxpayer bonus is supposed to be to ensure that people can support themselves privately in their old age. Today’s taxpayers are subsidising the under-40s to build up a fund that is likely to be spent at around age 60. This new product has the wrong behavioural structure and I am warning now that it risks becoming a new mis-selling scandal in coming years.
I cannot see who will be better off in their old age saving in a lifetime ISA than if they had put the same money into a pension instead. But people will be confused. Young people I have spoken to—some of whom are on higher-rate tax and have access to a generous workplace pension—have already been attracted to the idea of using a lifetime ISA instead of a pension. Only when I explain that they will lose their employer’s contribution and higher-rate tax relief do they realise this could be a mistake. How many people will be misled and may come back in future years and complain about being mis-sold this product? I have spoken to 30-somethings who clearly misunderstand. Here are some further examples.
Workers on basic-rate tax mistakenly believe that the 25% Government bonus is better than 20% tax relief. Of course, they are exactly the same. A 20% grossing up is equivalent to a 25% extra bonus, but who will explain that to customers? I urge the pensions industry to do more to help people to see the extra money from government, or other taxpayers, which is paid into their pension.
Some people have been attracted to the idea that they can get their money back if they need to, whereas pensions are locked until age 55. What they do not understand is that the Government take a heavy “withdrawal charge” from their fund if they want to spend it before 55. Unless they are buying their first home or are terminally ill, they face this so-called 25% penalty. But people think that that is merely taking back the 25% bonus. Once again, who will explain that it is far worse than that? They will lose far more than the government bonus and, indeed, some of their original amount. If they put in £1,000 and saw no investment growth at all, it would be worth just £937.50—which is another big danger of using the lifetime ISA for saving for retirement.
The dual purpose of this lifetime ISA will confuse people. Just when we have the opportunity to capitalise on the success of pension reform—auto-enrolment, pension freedoms—and the Pension Wise service, which offers real value to people and can help them save money until their 80s and 90s, along comes a new product that adds complexity and is unlikely to last so long.
Using a lifetime ISA instead of a pension will mean less money being put in on day one, less money growing, especially as much of it will be in cash—we know that that is what ISAs are predominantly used for—and more money spent more quickly in later life. Indeed, this lifetime ISA seems such a waste of taxpayers’ money. It will be good for those who have already filled their pension pot or their annual allowance, but it will not be good for those younger people saving for retirement. LISA contributions must stop at age 50. Fifty is only the start of the second half of one’s adult life, when pension savings could be stepped up, rather than suddenly stopping. I know that the FCA will try to impose regulatory requirements to protect customers, but with the best will in the world, reams of new disclosure documents are hardly going to help in practical terms. I believe that the LISA product introduced by this Bill is a—perhaps inadvertent—mistake. I have studied, managed and advised on pensions and pensions policy for nearly 40 years, and I share with noble Lords today my fears that this Bill risks worse retirement outcomes for generations to come.
Baroness Greengross (CB)
My Lords, having just heard from two fantastic acknowledged experts on this issue, I shall be much more general and very brief. We ought to start by looking at the total lack of knowledge of financial services that the general population in this country have. They have no idea how long they are going to live or about what their savings are going to provide for them when they retire. There are worries at the moment as well about what will happen to our economy in the shorter term.
I congratulate the Government and their predecessor on introducing auto-enrolment, which is a great success. However, I share the worries that have been put forward about these being early days and we cannot really estimate at the moment quite what the benefits are.
The International Longevity Centre UK, which I am privileged to head up, recently published a report called Consensus Revisited. It elaborates on the ignorance that the general public have, saying that even with the planned changes to state pension age, people will still require sufficient savings to fund up to one-third of their adult lives in retirement, which is over 20 years. In 2012, women left the workforce at 63 while men left slightly later, which means that men are going to fund 21 years in retirement and women 26, which is a long time. I do not think the public really understand that or have grasped those figures.
In future, therefore, adequate retirement income will hinge on people saving enough through defined contribution schemes, but as yet we know that is not the case. Projections suggest that unless contributions into DC schemes rise, fewer than half of median earners will be able to secure an adequate retirement through auto-enrolment. On average, employees contribute just 2.9% of their salary to a DC pot, whereas members of defined benefit schemes put in 5.9%, so there is a big difference. The difference in the employer contribution is even starker: just over 6% for DC schemes but over 15% for DB schemes. So there is still quite a lot of worry, and there are many things to sort out before we get this right. Given the lack of knowledge about longevity and what the two previous speakers have so wisely said, I agree that we must be careful with the LISA because it could be a threat to pensions, damage pension saving and, at any rate, cause quite a lot of confusion.
I was privileged to attend a meeting of experts, who all agreed that we need to promote pensions and explain them much better. I hope the Government have plans to engage in that. User-friendly communications, more education and much more engagement are essential.
The other thing we ought to note is that there is quite a lot of feeling that more employer engagement is necessary. It is important to ensure that employers become more involved in pension provision and get engaged in retirement savings for their staff. I do a lot of work with Business in the Community, as I know the Minister has done for many years, and I have chaired the CSR All-Party Group for years and now do so jointly with a Member of the Commons. Perhaps through that we can do more to promote the best of this. At the moment, though, it is important that we wait and look again at the LISA threat. I agree with the noble Baronesses about its dangers. Perhaps there is a chance to look again in some detail at what we are discussing.
Lord McKenzie of Luton (Lab)
My Lords, I share the frustration of the noble Baroness, Lady Altmann, that procedures on money Bills allow us only a Second Reading on the Bill. Although I see the noble Lord, Lord Young, blanching a bit at the prospect of a Committee stage on this Bill, we are not going to have one anyway.
I start by acknowledging the importance of encouraging individuals to save and accepting that there should be a role for incentivising saving through the tax system—although not necessarily exclusively through that—recognising always that support given through the tax system invariably does nothing for those at the lower end of the income scale. The Minister in introducing the Bill talked about the increase to £20,000 of the annual ISA allowance or the increase in the personal allowance, but those are so far beyond the circumstances of millions of our fellow citizens that it is difficult to see in this context how they will help.
I will concentrate most of my remarks on the lifetime ISA but first I have a few comments about the Help to Save scheme. This is targeted at those in receipt of universal credit and with household earnings at least equivalent to 16 hours at the national living wage, or to those in receipt of working tax credit. Entitlement to the latter—as I understand it—requires an individual aged over 25 to work at least 30 hours a week. If they are aged under 25 they will get it if they work at least 16 hours a week but have a disabled worker element or certain responsibilities for children. Can the Minister explain the differential working requirements for eligibility?
As other noble Lords have said, the impact assessment expects that around 500,000 people will open accounts in the first two years, saving an average of £27.50 a month. This will be from a potential eligible population of 3.5 million from 2.5 million households, 90% of which will have annual income below £30,000. As we have heard, the scheme will cost £70 million. Can the Minister say—or perhaps write to me if she cannot—what proportion of these individuals, who will be individuals in work, are likely to be within the scope of auto-enrolment? Can the Minister also say how the administration of the scheme will seek to ensure that the necessary savings have come from the eligible individuals and not been provided by family or friends, with the opportunity of sharing the government bonus when it arrives? That would seem to be potentially defeating the system.
Given the woeful level of personal savings in this country, the opportunity to build a small nest egg is important. The impact assessment cites the Family Resources Survey, which suggests that half the households with income below £30,000 have no savings at all—no wonder, given the battering they have endured under this Government. We have heard other figures as well leading to the same conclusion. The StepChange Debt Charity published research in 2015 which found that 14 million people had experienced an income or expenditure shock in the previous 12 months. This might have been a job loss, reduced hours, illness, a business failure, a relationship breakdown or even a washing machine breakdown—but without any savings they had to resort to debt to try to cope. The extent to which Help to Save will provide some small level of savings which can be available in such emergencies is to be supported—although, as my noble friend Lady Drake pointed out, the Government’s own ambition for the scheme seems modest.
A year ago, the FT carried a story that the then Chancellor was planning to overhaul the pension tax relief system. No wonder, perhaps, when the annual cost to the Exchequer was running at some £35 billion, including the national insurance issue, but netting for tax receipts on pension income. Moreover, two-thirds of pension tax relief was going to higher and additional rate taxpayers—a wholly unjustified distribution of outcome—notwithstanding a succession of tightenings of the annual and lifetime allowances.
The Chancellor was reported to have his sights on abandoning the current system, by which tax relief is given at somebody’s marginal tax rate, in favour of implementing a flat tax, suggested at between 25% and 33%. Since then, matters have moved on, including the Chancellor himself. The consultation on pensions tax relief has concluded, with no clear support for the Chancellor’s position, but it was expected that Budget 2016 would produce fundamental changes. What we got was the announcement of lifetime ISAs and Help to Save—hence the Bill before us.
The rationale advanced by the Government was that they wanted to help young people save flexibly and ensure that they did not have to choose between saving for retirement and saving for their first house. The lifetime ISA can be used to buy a first home at any time from 12 months after opening the account, and can be withdrawn with government bonuses from the age of 60 for use in retirement. Amounts can be withdrawn at any time, but with a 25% charge to recoup the government bonus—the equivalent of which was referred to by the noble Baroness, Lady Altmann.
For retirement savings, the structure of the lifetime ISA is effectively a TEE system: individual contributions paid from taxed income—no tax relief on contributions—investment income tax-free at the fund level and retirement income tax-free. That is a wish of the Treasury secured and some of us—pretty much everyone who has spoken—fear that it is the thin end of the wedge. Despite the impact assessment assuming that individuals will not opt out of workplace pension schemes to save in a lifetime ISA, I share concerns voiced in another place and by my noble friend Lady Drake and the noble Baroness, Lady Altmann, that it could undermine the progress of auto-enrolment and add confusion to an already complicated pension system.
The impact assessment identifies several groups who are expected to save in the ISA, but there seems to be no encouragement to see whether needs currently unmet by auto-enrolment can be brought into that fold. Of course, this is the year of the auto-enrolment review. It is encouraging that opt-out rates have been below original expectations, but we should recognise that these are still early days, as the noble Baroness, Lady Greengross, said, and that, with increased employer and employee contribution rates, they are still due to increase.
Compared to the current pension tax arrangements —an EET system—individuals will typically get a poorer deal from the Treasury by using the ISA route to secure a retirement income. This is particularly because of the tax-free lump sum currently available, and because an individual’s tax rate in retirement will typically be lower than when they are in work. What the individual loses, the Treasury gains. Of course, these matters are not set in stone, and the tax system is likely to change—indeed, it should—but currently, an individual saving for retirement via an ISA rather than an occupational pension scheme, notwithstanding the limited 25% bonus, is likely to be worse off. How are these issues to be communicated to consumers?
As a retirement vehicle, it should be noted that contributions to the lifetime ISA must cease when someone reaches the age of 80. That is hardly a lifetime. The noble Baroness, Lady Altmann, made the point that that is just the age where one would expect pension contributions to be ramped up. Retirement income cannot be accessed tax-free until the age of 60, although there is an opportunity to access savings at any stage with a 25% tax cost.
There is little in the impact assessment about the extent to which it is envisaged that individuals will draw down on their savings for a house purchase or leave it for retirement. One might just comment that contemplating the purchase of a first home at up to £450,000 is a sign of the times.
The Budget 2016 document indicated that the Government would explore the prospect of borrowing against lifetime ISAs, provided the funds were fully repaid. Has any progress been made on that? One can see some merit in having an incentivised savings product that can be available to cover a number of circumstances, but this should not be used to apply a regime, particularly a tax regime, which is less favourable than the stand-alone arrangements would be for any particular component. That is particular mischief of this Bill.
The Bill is a missed opportunity. It was certainly a chance to address anomalies in the tax system and the skewed benefit to the better-off. It was an opportunity to address some of the access issues for auto-enrolment, but perhaps also to move away from tinkering with individual housing initiatives to do something more fundamental. It was also an opportunity to do much more to build resilience for the poorest in our communities.
Lord Sharkey (LD)
My Lords, the provisions in the Bill appear at first glance to be quite straightforward. The Bill sets up the mechanisms to create lifetime ISAs and a Help to Save scheme. As the noble Baroness, Lady Drake, noted, the total cost to government in 2020-21 of the LISA is estimated at £830 million. The total cost to government of the Help to Save scheme in the same period would be £70 million. This is a very small amount. Can it really be correct? I would be grateful if the Minister could confirm that the impact assessment has this right. If it is right, does it not say something about the scale and ambition of the scheme? Does it not amount to tinkering?
According to the impact assessment, both schemes are driven by a desire to increase the level of household savings. In particular, the LISA will help young people to save flexibly for the long term and provide help with buying a first home. Help to Save will help working families on low incomes build up a rainy-day savings fund. All this sounds laudable, but there are some obvious questions and worries about both schemes.
The first worry is that neither scheme seems particularly likely to have much real impact. Both could be characterised as yet more confusing tinkering with the housing market and the tax system. Both are ways of avoiding directly addressing fundamental problems and both add to the complexity of an already very complex system. Neither scheme faces up to what is a major problem for households; namely, the level of debt that they already hold.
This debt is now again as high as it was in 2008. In the year to 30 November 2016, consumer debt rose by 10.8% and there are fears that, especially among less well-off households, some of this rise is being used to fund normal living costs when real wages are declining. The expected rise in inflation would make this problem worse. It may be true that increased debt-fuelled consumer spending is driving current economic expansion, but this is not a sustainable position. And it is true that for many households, particularly the low-income households targeted by Help to Save, paying down debt is a better option than saving.
The Government have correctly identified two real problems: the difficulty that most people now have in buying a first home and the lack of any financial cushion for those on low incomes. But the solutions to these problems need to be systemic and enduring; they need to be more than tinkering. To solve the housing problem, we emphatically do not need more demand-side schemes; we need more supply. Nothing else will have, or has had, any significant effect.
In July last year, your Lordships’ Economic Affairs Committee, of which I am a member, published a report which addressed the housing crisis. The report was called Building More Homes and, unsurprisingly, that is what it recommended. In particular, it noted that the private sector, as currently incentivised, would not build the number of homes needed, that the Government had no real prospect of reaching its target of 1 million new homes by the end of the Parliament, and that this target was itself much too low. The Committee recommended among other things that the cap on local authority borrowing to build homes be lifted. Only by doing this did we see any prospect of any real relief to our housing crisis. We did not feel that the many existing demand-side initiatives were likely to have much real effect. Most of these initiatives simply push those near the ownership threshold over the line. They probably contribute to price inflation and certainly do not provide large-scale or comprehensive help across tenure types.
I feel that this will be true of the LISA scheme in the Bill before us. It is not just that the measure is more demand-side tinkering, which it is; there is another serious problem and it is one of confusion. This issue was raised frequently as this Bill went through the Commons. The potential for confusion arises, as many noble Lords have said, from making a choice between a LISA, an employer’s pension scheme and auto-enrolment. How is this important choice to be made? Who will offer impartial guidance?
On 9 October last year, the Government announced their intention to create a new, single public financial guidance body to provide debt advice, and money and pensions guidance. This new body will replace the Money Advice Service, the Pensions Advisory Service and Pension Wise. The consultation was launched on 19 December last year and closes on 13 February. This new replacement single body will not be in place before autumn 2018. The LISA will be introduced next April and Help to Save a year later, at the latest—both before the new financial guidance body is in place. This seems like bad timing.
The Government clearly do not believe that the current financial guidance system is working well, and they will replace it. But in the meantime, it creates further financial complexity for individuals by introducing these new products. This is surely dangerous, especially if it leads to individuals making wrong decisions about pension provision or if low-income households are encouraged to take up Help to Save when they would be better off paying down debt. This is not a small or trivial problem. For many low-income households, saving may be an unsatisfactory and expensive substitute for debt repayment. Who will these households turn to for impartial advice?
The Bill itself is silent as to who will manage the LISA and Help to Save schemes, although it says that LISA account holders will be able to transfer their holdings between plan managers. It also talks of “account providers”—plural—for the Help to Save scheme. This all sounds as though there will be more than one provider for each scheme. However, in the Commons, on 17 October, Jane Ellison explained that both schemes would in fact be administered by,
“a single provider, National Savings & Investments”.—[Official Report, Commons, 17/10/16; cols. 607-8.]
Why is this? Why are the Government introducing a monopoly supplier across both these products and what is the point of the transfer provisions in this Bill if there is no one to transfer anything to? I would be grateful if the Minister could tell us why the Government have chosen to establish these monopolies. Can she say whether the Government considered commercial or mutual alternatives? If they did, why did they reject them or, if they did not consider them, why not?
It seems to me particularly important that we have answers to these questions in view of the provisions in paragraph 3(2) of Schedule 1, which seems to give the Treasury unlimited powers over claims for LISA bonuses and—more alarmingly—allows delegation of these powers to HMRC. This seems intrinsically unhealthy and probably not acceptable to potential commercial or mutual providers. Can the Minister say whether the Government have discussed these provisions with potential commercial and mutual plan managers and if so, what the response was? Schedule 2 gives the Treasury more or less the same powers to amend by regulation the details of the Help to Save product. It is extremely odd that Schedule 2 contains an entire section—part 3, paragraph 9—that defines an authorised account provider for Help to Save when there is to be only one monopoly provider. Is this a case of the Government changing their mind as the Bill progressed through the Commons, or of the Government preparing the ground for the introduction of multiple providers? I hope that it is the latter. The Minister was asked about this situation in the Commons, in particular why credit unions could not be providers of Help to Save schemes. There was no convincing or clear answer. When challenged, the Minister asserted that multiple providers would not offer value for money. As Gareth Thomas observed, no costings were produced to justify this claim; in fact, no evidence was given for it at all.
Rather confusingly, however, in the closing stages of the Bill in the Commons the Minister displayed an evident sympathy for using credit unions and a willingness to reflect on the idea. Can the Minister, therefore, update the House on the Government’s thinking on alternative providers for both schemes, and in particular on credit unions as providers for the Help to Save scheme? Can the Minister commit to allowing credit unions to be providers, and to allowing and encouraging alternative providers for both schemes?
Lord Tunnicliffe (Lab)
My Lords, I start by welcoming the Minister to the esoteric world of Treasury legislation. In the light of the debate so far, she is no doubt taking some comfort in the words in parenthesis after “Second Reading”, which read “and remaining stages”. The noble Baroness will not always be quite so lucky.
I thank the Minister for introducing this Bill and those who have spoken in this debate. I will do my best to follow the pension experts and my noble friends Lord McKenzie and Lady Drake, who did a far better job than I could ever hope to do in mapping out the implications of this Bill for the pensions landscape.
Labour supports measures that allow more people to save for the future. At a time when household debt stands at record highs and when having tens of thousands of pounds of debt is regarded as the norm for many young people, policies that can contribute to bringing about a culture change towards saving must be welcome. That being said, we are not sure that the two measures outlined in the Bill—the establishment of a lifetime ISA and the Help to Save scheme—will do what they are designed to do. More worrying is the concern from some sectors that they will undermine the progress that has been made, specifically on auto-enrolment.
I will pick up on three points that have attracted cross-party consensus and discuss some of the issues that have arisen since this Bill left the other place: how lifetime ISAs will impact the pensions market, appropriate advice services and the factors involved in the Help to Save scheme.
One of the most contested aspects of the Bill is the impact that these measures, particularly the lifetime ISA, will have on the broader pension savings market. The Minister in the other place has said that the new ISA and traditional pension products are complementary, but pension experts do not share that confidence. Indeed, in the case of one or two pension experts, particularly the noble Baroness, Lady Altmann, that is something of an understatement. We must avoid adding to the already complex quagmire that is the pensions landscape. These proposals came out of a government consultation on reforming pensions tax relief in July 2015, which seemed to acknowledge the scale of the challenge that reform would present without providing conclusions on how to tackle these challenges. Instead, the then Chancellor, George Osborne, stated that it was clear that there was no consensus.
We are concerned that these policies have been thought up without full consideration of the short and long-term implications. The FoI request by New Model Adviser confirms that the DWP has not carried out its own assessment of auto-enrolment opt-out rates caused by the lifetime ISA because there is a Treasury assumption that people will not opt out of workplace pensions. Therefore, it did not feel the need to carry out its own separate evaluations.
My colleagues in the other place asked the Government to consider reviewing annually the impact that the lifetime ISA was having on the rate of auto-enrolment. The response to the FoI request said that the DWP regularly meets the Treasury to discuss pensions and savings policy, but I wonder whether the Minister can expand on that and explain, in the light of this new information, why a review would not be appropriate. I believe that many of the fears voiced about the impact of this scheme on auto-enrolment could be sensibly assuaged if we knew that a regular review was being carried out. As Tom Selby, senior analyst at AJ Bell, said:
“At this stage we are totally blind to the number of people who could opt out of a workplace pension ... Ideally the government would have tested how the lifetime ISA will interact with auto-enrolment ahead of the product’s launch next year”.
The Work and Pensions Select Committee was unambiguous when it said:
“Opting out of AE to save for retirement in a LISA will leave people worse off”.
A review would ensure that if such trends were identified, the worst effects could be mitigated. It is difficult to understand how the Government can disagree with something that seeks to safeguard one of the few positive changes to have taken place in the pensions industry in recent decades. I would be grateful if the Minister could address these concerns.
I now turn to the issue of appropriate advice which should accompany the rollout of lifetime ISAs and the Help to Save schemes. The Work and Pensions Select Committee, which I have just quoted, was clear about the possible negative impact that switching to a lifetime ISA could have on a person’s finances. Therefore, it is crucial that such implications are widely known and that information about these products is easily accessible. The FCA has stated that investors in the lifetime ISA should be given a specific risk warning about incurring the early withdrawal charge, which would lead to them receiving less from their lifetime ISA than they paid in. There are clearly concerns about how the product will work in practice. I think that the following quotation speaks volumes:
“I consider myself moderately financially literate. Yet I confess to not being able to make the remotest sense of pensions. Conversations with countless experts and independent financial advisers have confirmed for me only one thing—that they have no clue either. That is a desperately poor basis for sound financial planning”.
That was Andy Haldane, the Bank of England’s chief economist. When he admits that pensions have become so complex that even he cannot make the remotest sense of them, I think it is time to reflect on the quality of the service being provided.
In Committee in the other place the Financial Secretary to the Treasury stated that people would be able to access the relevant information about these products through government websites, as well as by working with the Money Advice Service and its successor. What materials do the Government envisage that the MAS will produce, and how do they intend to ensure that, once the MAS is abolished, continuity in the accessibility and accuracy of information will be ensured? Furthermore, what correspondence have the Government had with the FCA regarding communication requirements? This concern has been echoed by a number of speakers in this debate. Surely we are entering an ever-more complex scene, with less and less assurance that the right advice will be available.
I turn finally to the Help to Save scheme, which has been designed for those in receipt of universal credit or working tax credits. As the IFS has stated:
“Key issue is whether those who use Help to Save will be the under-savers”.
The saving gateway scheme, piloted in 2010, offered similar support. However, the IFS evaluation found,
“no evidence of an increase in overall savings”.
Can the Minister explain how the Government have used this lesson and adapted the current scheme appropriately? Furthermore, can the Minister expand on the rationale for the two-year limit? It would be useful to get a better understanding of the Government’s thinking on this matter.
I will close as I began, by thanking those who have spoken in this debate. I look forward to the Minister’s response.
Baroness Neville-Rolfe
My Lords, I thank all noble Lords who have contributed to the debate today, and I thank the noble Lord, Lord Tunnicliffe, for his very kind welcome. I certainly look forward to working with him and other noble Lords in this esoteric and interesting area and bringing light to the issues.
I think we all agree on the importance of people having effective tools to help them save money. As the noble Lord, Lord McKenzie of Luton, suggested, saving is important and we need the right quiver of incentives—and I welcome his support for Help to Save. I think there is an equal consensus around the need to encourage more people to save. I take the point that there may be more to do to publicise the progress that we have made on defined benefit pensions, described by my noble friend Lady Altmann—who is in a great position to encourage pensions saving and to explain how valuable it can be. However, I do not agree with her conclusion on the lifetime ISA: it has been supported by many, including the ABI, individual members and, indeed, Martin Lewis.
I turn to the link between the lifetime ISA and automatic enrolment, which was first raised by the noble Baroness, Lady Drake. I am well aware of her great expertise on pensions and, indeed, her role in the seminal Turner commission report—I remember well that huge report, which was very authoritative, arriving on my mat when I was responsible for pensions at Tesco, where we really cared a lot about helping people both to have a good pension and to save for their retirement. Those of us who care about pensions can be champions, as the noble Baroness, Lady Greengross, said. I share her respect for the work of Business in the Community, as she well knows.
I stress that we are fully committed to supporting people through the pensions system. Automatic enrolment will help 10 million people to be newly saving or saving more by 2018. The lifetime ISA is designed to complement that. It gives young people more choice in how they save for the long term. It is not a replacement for pensions. The Government’s policy towards employers reflects this. Employers have a statutory obligation to contribute towards pensions under automatic enrolment, as well as a direct incentive. Neither is the case with the lifetime ISA. Our impact assessment, based on an OBR-certified costing note, is clear that we do not assume that anybody will opt out of a workplace pension to save into a lifetime ISA—as the noble Baroness, Lady Drake, said.
The Help to Buy ISA is similar to the lifetime ISA in that it gives a 25% bonus to support people to buy a first home.
Lord Tunnicliffe
May I check the logic of that? Is the Minister saying that the OBR has certified that it is a reasonable assumption that nobody will opt out as a result of a lifetime ISA, or merely that it took that as an input assumption in doing its analysis?
Baroness Neville-Rolfe
As with all impact assessments, it is an estimate. We looked at the Help to Buy ISA, which is similar to the lifetime ISA in that it gives a 25% bonus to support people to buy a first home. That has not led to a surge in opt-outs. Instead, opt-out rates for automatic enrolment are still much lower than the Government expected, as several noble Lords said; they are currently 9%. The overall programme assumption was, I understand, 28%. We will of course regularly monitor the lifetime ISA going forward to make sure that it is achieving its aim—as the noble Baroness, Lady Greengross, suggested, and indeed as we do with all important policy areas. But I am not convinced, to respond to the point made by the noble Lord, Lord Tunnicliffe, that we need a formal annual review.
The noble Baroness, Lady Greengross, asked how many people using Help to Save were eligible for automatic enrolment. We set out our expectations of take-up of Help to Save. I am afraid that, as with all forecasts, there is uncertainty, so at this stage we are not able to say how many of these people will also be eligible for automatic enrolment.
Several noble Lords talked about guidance and communication. The Government announced in October 2016 that they plan to replace the three government-sponsored financial guidance providers—the Money Advice Service, the Pensions Advisory Service and Pension Wise—with a new, single financial guidance body, which I welcome. Through creating a single body we intend to make it as easy as possible for consumers to access the help they need to get all their financial questions answered. For example, this could be through helping families to balance their household budget or for individuals considering their options in retirement. Consultation on the precise design of the single guidance body is currently live and closes on 13 February. MAS, TPAS and Pension Wise will continue to provide guidance to consumers until the new body goes live.
The noble Baroness, Lady Drake, raised the issue of pensions tax relief, as did other noble Lords. Our responses to the Treasury’s pensions tax consultation indicated that there was no clear consensus for reform and, therefore, that it was not the right time to undertake fundamental reform to the pensions tax system. But obviously the Government have moved, with the Bill, to encourage younger people to save through the lifetime ISA—and that was a key theme that came out of the consultation.
The noble Baroness, Lady Drake, raised the question of mis-selling risk, which was also a concern of my noble friend Lady Altmann. I agree that it is very important for individuals to have clear information on their products. That is why we will publish factual information about the lifetime ISA on GOV.UK, as well as working with the Money Advice Service and its successor to ensure that they make appropriate and impartial information available. As was said, it is the independent Financial Conduct Authority’s role to regulate account providers, including how they sell a product to consumers. It is currently consulting on the approach and has set out its proposals.
Having said all of that, the communication issue has come up under several different headings. If noble Lords would find it helpful, I will undertake to look through Hansard at the various points that have been made on communication and set out in a letter to noble Lords who have taken part in this debate just what our plans are. That will enable me, for example, to check with the FCA about its current plans and take account of any consultation responses that may already be available. We need to make sure that at the point of sale providers are transparent about risks, including any potential early withdrawal charge and with information on automatic enrolment. That theme came through from almost all noble Lords who spoke. It is a very important area. As has been said, this is a Money Bill, but that does not mean that we cannot set out how we see these things being properly communicated.
The noble Lord, Lord Sharkey, questioned the impact assessment. I understand, from checking with the experts, that it is correct. I was glad that he raised housing because it is an important area. The OBR has noted that the effect of the lifetime ISA on house prices is highly uncertain and its predicted impact is significantly smaller than overall house price movements. As we know, a number of factors can affect house prices, which will be subject to change in future years. For example, we are taking steps to boost housing supply. Following the announcement of £5.3 billion additional investment in housing in the Autumn Statement, we expect to double our annual capital spending on housing during this Parliament. We will publish a housing White Paper shortly, which I hope will address some of the supply issues the noble Lord raised and allow this House to have further exchanges on this incredibly important issue for the future of our economy and our industrial strategy. I believe the lifetime ISA is one way to make sure that first-time buyers have the support they need to get on to the housing ladder.
I will address a number of technical points raised by the noble Baroness, Lady Drake. She asked whether the Government would commit to a 50% participation rate for Help to Save. The Government are not setting any specific target around take-up of Help to Save because we want opening an account to be an active decision by those who feel Help to Save is right for them. However, we will continue to work with the account provider and other interested parties to ensure that people are made aware of the scheme and receive the right support and guidance.
The noble Lord, Lord McKenzie, talked about eligibility for the under-25s. A person aged under 25 is eligible for working tax credit if they work a minimum of 16 hours a week and have a child or a disability—I am learning a lot from this debate. Our intention is to passport people into eligibility for Help to Save. This is a well-established way of targeting support at people on lower incomes. Importantly, it removes the need for people to complete a further means test to prove that they are eligible, which we know could deter people from opening accounts.
Lord McKenzie of Luton
Perhaps the Minister will write in due course. There seems to be a disparity between the requirements for universal credit and for working tax credit. In universal credit you must have 16 hours at the national wage. For working tax credit, unless you fall within the disability or childcare categories, you need 30 hours of work. Why have the Government used those particular thresholds?
Baroness Neville-Rolfe
It is an important but esoteric point. If I may, I will write to the noble Lord. I am sure that in time I will understand these arrangements better. On his point about saving on behalf of others, individuals will pay into accounts and receive a government bonus. There will be no restrictions on what individuals do with the bonus or savings, or where the money has come from. However, HMRC will carry out additional checks on a number of accounts and will respond to any intelligence it receives from third parties where this gives rise to doubt about a person’s eligibility.
The noble Lord asked about the Government’s latest position on borrowing from lifetime ISAs. The Government continue to consider whether there should be flexibility to borrow funds from an individual’s lifetime ISA without incurring a charge if funds are fully repaid, but have decided that it will not be a feature when it becomes available in April 2017.
The noble Baroness, Lady Drake, said that the Help to Save scheme was not generous enough. On increasing the 50% bonus, our pilots for the saving gateway showed that a higher match rate of 100% made people only 5% more likely to open an account than a 50% match, and the amount of money saved into accounts was not significantly affected. On the two-year bonus period, I can make it clear that no one will be penalised for early withdrawals if they need to make any. The rationale of the scheme is to encourage people to develop a regular savings habit that will last beyond their participation in the scheme because it is valuable more generally.
Baroness Drake
I appreciate that this is a money Bill, but on the noble Baroness’s last point—I really do want the Help to Save scheme to work—the fact that the evidence shows that a matching contribution from the Government raises the participation rate by only 5% is not a reason not to match, because for those who are participating, their resilience is greater. A sort of apples-and-pears argument is being deployed here. A more generous match increases the resilience of those who do participate.
On the participation rate, all the behavioural evidence is that simply having good information does not necessarily deliver the level of behavioural response. More of a nudge, more of an active plan, may deliver more than a one-in-seven participation rate.
Baroness Neville-Rolfe
I take note of the noble Baroness’s point. There is a balance here. I have set out why we have got to where we have got to. Indeed, I look forward to debates on the statutory instruments for this Bill in the fullness of time. I am sure nobody has ever said that before.
The noble Lord, Lord Sharkey, asked about other providers. He referenced a discussion in the other place about the involvement of credit unions. We have appointed NS&I as the scheme provider to remove significant administrative and compliance costs associated with allowing different providers to offer accounts. An option where we fund NS&I to provide accounts while allowing other providers to offer accounts on a voluntary basis would not provide value for money, but—this answers his question—we shall not rule out the option for a range of providers to offer accounts as long as they deliver national coverage. We felt that the credit union did not do that. That is why the Bill has been drafted to accommodate different models of account provision, although other models are not in the current plan.
Lord Sharkey
I am grateful to the noble Baroness for that answer and I understand the position the Government have taken. Are there ongoing conversations with credit unions and other commercial suppliers of both these schemes?
Baroness Neville-Rolfe
I believe that the Economic Secretary to the Treasury has had some discussions of which the noble Lord may be aware, but I should not want to suggest that we are about to change the situation. I have made it clear that the provision is written in an appropriately broad fashion. I can also confirm that the Government are not restricting the number of lifetime ISA providers. Provision will be open to any provider with the appropriate HMRC and FCA approvals.
When it comes down to it, this money Bill is all about supporting people who are trying to save, whether through increased support to those on low incomes through Help to Save or through the increased flexibility and choice for younger savers offered by the lifetime ISA. This is a Bill that supports people trying to do the right thing—those who want to save and to be financially prepared for the future. I am therefore pleased to commend this Bill and to ask the House to give it a Second Reading.
Royal Assent
Monday 16th January 2017
(7 years, 3 months ago)
Lords ChamberRead Full debate Read Hansard Text Amendment Paper: Consideration of Bill Amendments as at 12 December 2016 - (12 Dec 2016)