Savings (Government Contributions) Bill

Baroness Neville-Rolfe Excerpts

2nd reading (Hansard): House of Lords & 3rd reading (Hansard): House of Lords & Committee: 1st sitting (Hansard): House of Lords & Report stage (Hansard): House of Lords
Thursday 12th January 2017 Lords Chamber

Moved by

[Baroness Neville-Rolfe]

That the Bill be now read a second time.

[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.

--- Later in debate ---

[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.

Bill read a second time. Committee negatived. Standing Order 46 having been dispensed with, the Bill was read a third time, and passed.