Savings (Government Contributions) Bill

Ian Blackford Excerpts

3rd reading: House of Commons & Report stage: House of Commons
Monday 12th December 2016 Commons Chamber

To be clear, this is not a scheme we would have initiated. We have huge reservations about any move by the Government away from a collective pension system towards an individualised payments system. That is a very slippery slope that the Government will not be here to regret. That is why we will continue to scrutinise the lifetime ISA—a potential Trojan horse for the current pension system—and the Help to Save scheme, which is an attempt to salve the conscience of a few Conservative Back Benchers after the chainsaw the Government have taken to tax credits. If the Government will not concede, we shall pursue new clauses 2 and 6 to a Division.

[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.]

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[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.

[Ian Blackford]

Will the Minister give way?

[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.

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[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.

[Ian Blackford]

rose—

[Jane Ellison]

No, I am going to press on.

[Ian Blackford]

rose—

[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—

[Ian Blackford]

rose—

[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.

[Ian Blackford]

Will the Minister give way?

[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.

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[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.