Draft Individual Savings Account (Amendment No.2) Regulations 2017

Jane Ellison Excerpts

Wednesday 15th March 2017 General Committees

[The Financial Secretary to the Treasury (Jane Ellison)]

I beg to move,

That the Committee has considered the draft Individual Savings Account (Amendment No. 2) Regulations 2017.

It is a pleasure to serve under your chairmanship, Mr Evans. Much of the detail under discussion will be familiar to the Committee. At Budget 2016, the Government announced a new lifetime individual savings account to help incentivise young people to save for the future. I will refresh hon Members’ memories on a few of the details. It is designed for adults under 40 and lets them save for up to two things in one ISA—for their first home and for later life—but there is no need to choose which at the time of opening the account. It is therefore a flexible way of saving that will be a welcome addition to the range of savings options open to younger people.

The lifetime ISA, with its introduction secured by the Savings (Government Contributions) Act 2017, will be available from 6 April. The regulations will amend existing ISA regulations to take the lifetime ISA into account. The schedule to the regulations sets out the detail of how the lifetime ISA will operate and be administered, dealing with questions of eligibility and qualification for the Government bonus. It also details how people can transfer funds from other types of ISA to the lifetime ISA.

It is worth pointing out that during the 2017-18 tax year there will be something of a special transfer window. Any funds built up previously in a help to buy ISA can be transferred into a lifetime ISA without that counting towards the lifetime ISA annual contribution limit. As with all new products, the Government will keep the window under review throughout the first year.

As we launch the lifetime ISA, we know that there will be a small number of providers. We wanted to give people the opportunity to take advantage of the product as soon as possible and to start building their accounts. We can expect the number of providers to grow steadily as more join over the course of the year after developing their products and internal systems. That is also something that we will watch carefully.

We are close to the start of the lifetime ISA, which will be a positive new option for any younger person looking to save responsibly for the future. I therefore hope that hon. Members will support the draft regulations.

--- Later in debate ---

[Jane Ellison]

I am grateful for Members’ contributions. I will respond to some of them. Some of the issues raised relate to the principles that we explored during the passage of the 2017 Act, so I will not spend too much time on them, although I note that those concerns have been expressed.

There is widespread agreement on both sides of the House that encouraging saving is good. The idea behind the lifetime ISA emerged from a widespread consultation on long-term savings that was conducted a few years ago.

Before I move on to some of the more detailed questions, let me say that this statutory instrument is narrow in nature and about just the lifetime ISA, so I am going to confine my comments to that and not be tempted down the route of commenting on some of the other issues that were raised, important though they are.

On the advice and information for consumers, the Government absolutely want to ensure that people have the information they need to make important financial decisions. I recognise that that is a priority for Members. We published factual information about the lifetime ISA on gov.uk. That website went live recently, and we will publish more in the run-up to the launch. We will also work with the Money Advice Service and its successor to ensure that it makes appropriate and impartial information available.

It is, of course, the independent Financial Conduct Authority’s role to regulate account providers, including how they sell the products to consumers. We now have the final regulatory framework for the LISA, based on that for other ISAs, with some exceptions. Those include that providers give people information about automatic enrolment in workplace pensions.

That important subject came out in the debate on the 2017 Act, and I hope I can give some comfort to the hon. Members for Bootle and for Paisley and Renfrewshire South. Let me stress again that we are fully committed to supporting people through the pension 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 the pension system.

The Government’s policy towards employers reflects that. Employers have a statutory obligation to contribute to pensions under automatic enrolment, as well as a direct incentive. Neither of those apply to the lifetime ISA. Our impact assessment, based on the Office for Budget Responsibility-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.

Let me deal with the accusation from the hon. Member for Paisley and Renfrewshire South that this is not a product for every man and woman. It is certainly not just a product for wealthy people or higher earners who aspire to own a home or save for later life. Everybody who works hard should have the chance to achieve those goals. If we take the example of the help to buy ISA, against which similar accusations were made, we will see that more than 720,000 accounts have already been opened, and the average house purchase price through that scheme has been below the UK average. We have not set a minimum amount that people can save into a lifetime ISA. They will get the 25% bonus on any contributions up to £4,000 of savings a year.

The hon. Member for York Central asked about the issue of age, which we also debated to some extent during the passage of the Act. The average self-employed person is in their 50s and she asked whether this product is for them. We have been clear: this product is specifically targeted at supporting younger people more. It is a mass-market product. We expect a wide range of people to find it attractive, and some younger self-employed individuals may find it particularly useful as a savings vehicle for later life, depending on their tax status.

There are, of course, a range of other savings products for people over the age of 50, including the self-employed. Those include other ISAs, where they will be able to make use of the much-increased allowance, which is going up to £20,000 from next year. They will also benefit from the personal savings allowance, which for basic rate taxpayers means that the first £1,000 of income from savings returns is tax-free. That has taken the vast majority of people out of paying tax on their savings interest.

This product is aimed at a particular market. One always has to draw a line in terms of age somewhere, and we think we have struck the right balance. We look forward to the start of the lifetime ISA on 6 April. It is a positive new choice for young savers planning for their future and it provides flexibility. People can save for their first home as well as for later life. It also provides an alternative; for some people, it will be a better way to save than other routes available to them. I am pleased to present the regulations and commend them to the Committee.

Question put.