Savings (Government Contributions) Bill

George Kerevan Excerpts

2nd reading: House of Commons & Money resolution: House of Commons & Programme motion: House of Commons & Ways and Means resolution: House of Commons
Monday 17th October 2016 Commons Chamber

[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.