Economy: Personal Savings

Lord Davies of Oldham Excerpts

Thursday 12th July 2018 Lords Chamber

[Lord Davies of Oldham (Lab)]

My Lords, first, I extend my congratulations to the noble Lord, Lord Lilley, on his maiden speech. The noble Baroness, Lady Altmann, reflected on the fact that we will benefit from his contributions in the years to come. However, with the present level of national debate on Brexit, I imagine that we will be hearing from the noble Lord in our debates in the slightly shorter term.

Secondly, I congratulate the noble Lord, Lord Leigh, on introducing this debate—not only because the topic is of such significance but because of the extensive way in which he covered some very real issues relating to savings that need to be faced by the Government. He is slightly more bullish on the economy than I will be when I make my general comments, but I agree with him entirely that people’s propensity to save relates very much to their earning power and their level of security with regard to the economy. Therefore, the Government’s first task is to do better than they have in recent years.

The noble Lord emphasised that there were some advantages from the development of workplace pensions. We all recognise that and welcome it on this side of the House. However, our anxiety, which has been clearly expressed in the debate—the noble Baroness, Lady Altmann, referred to it—is that workplace pensions might detract from people’s approach to saving in other respects, yet that depends on two things. One is the nature of employers’ schemes. Those vary a great deal and it would be a mistake if we attributed to the pension schemes that are evolving the features of the best examples of those provided in the past, often by companies with extensive resources which could and did afford to look after their workers’ pensions, having been much more generous than is likely to be the case at present.

The second is the number of people in employment. We all know that the Government constantly boast that employment is at a high level, and it is true that a high level of people have a full-time or part-time job that provides resources for them. However, many who are in the gig economy are employed and therefore come up on the bright side of the Government’s employment ledger but, when it comes to the employer’s contribution or even the worker’s ability to save, the earnings level that they are operating at in many instances—we have seen how even substantial employers treat people in the gig economy and those in part-time work, easily reducing their hours at will—means that a substantial section of our population cannot be expected to benefit from the new proposals for the development of pensions.

We welcome the substantial increase in the number of those who have taken up these schemes, as they will play an important part in the future, but the anxiety is that they might direct resources away from other schemes with greater advantages. The noble Lord, Lord Palmer, indicated that an awful lot of the saving that currently goes on in our society is negative saving—that is, the returns are lower than the rate of inflation—and that encouraging people to save is encouraging them to reduce their overall assets. Therefore, we must be very concerned about the rate of inflation but we also need to recognise that people are currently extremely wary of saving because of the persistence of low interest rates, which means that they do not expect to get significant returns from many of the offers to save. Of course, we in the Opposition support the measures that enable people to save for the future and the genuine incentives to encourage saving, but we need to ensure that people pay due regard to the fact that there will come a time in life when the costs are high and earnings are very low, and that it will be necessary to have adequate resources.

I have much appreciated the contributions from noble Lords, particularly the extent to which the right reverend Prelate, the noble Lord, Lord Lilley, and others emphasised that we need to prioritise financial education and understanding. Far too many people in our society are still largely ignorant of the financial situation they face. People get into debt because they pursue potentially the worst route for borrowing. That happens through ignorance and through the desperation of approaching debt, but it is also due to a lack of knowledge of how adequately to resolve that debt. I appreciated the number of speakers who emphasised that.

I also recognised what the right reverend Prelate said when he referred to the fact that an obvious form of saving is buying a property, and he spoke about the development of home ownership through mortgages. We all accept that in the past such assets were more easily achieved, but these days a substantial number of our younger population have no chance at all of reaching the level of savings necessary to undertake a mortgage against the house prices they are confronted with. We have a rent generation and we need to think about the support that that generation will need when they do not have the obvious support that comes with buying a house with a mortgage, as the right reverend Prelate emphasised.

The Chancellor has sought to emphasise that he wants to increase the level of saving. However, we are worried about the extent to which certain initiatives, particularly the lifetime ISA, which has been referred to by several noble Lords, will be a deterrent to individuals pursuing better strategies in the long term. ISAs have an element of glamour about them but that glamour can be appreciated only by people who are already reasonably resourceful and in a position to take them up. We recognise, however, the incentives that support them.

The lifetime ISA and the Help to Save scheme have shown that the Government are concerned about the long-term position of people in our society, but I am not so sure we are all convinced that there is a level of fairness attached to these provisions. We see a lack of government measures to address the problems faced by those on much lower incomes than those to whom ISAs are addressed. We understand that the Government have recognised that people have great difficulty saving when they are getting help from universal credit. Given the enormous difficulties the Government have had in rolling out their universal credit proposals, it is not surprising that people’s confidence has been shaken, along with their ability and proclivity to save.

Quite a significant percentage of our population are in work and yet still have recourse to use foodbanks. I note that the Government purported to recognise that with regard to the health service, when they were shocked to discover that nurses had such low pay that they were going to foodbanks. But it is more extensive than nurses, and it is an indication that this debate is about not just the improvement of savings but fairness. We need to be fair to those who have the greatest need in our society and who have to manage budgets in such extreme circumstances that they have very little excess to address to savings.

We in the Labour Party are particularly concerned about levels of credit and credit cards. It has now reached proportions where the Government ought to act and, if they do not, the next Labour Government certainly will. We think there should be a cap on the charges that credit cards attract, because we are all too well aware that many people can get into real difficulty using them. It seems obvious that it is necessary for some limitations on this. The Government have seen the extensive growth of credit card usage and know the significant number of people who have regular debts that they are just not, at any time, paying off, and therefore that debt is increasing. The Government need to act in these areas.

Part of the problem for people trying to save is that they face great difficulties in this economy. There is an indication that, this year and next, there may be some improvement in wage growth. It follows seven years of Governments, led by the Conservative Party, under whom wages have not risen at all. That is a phenomenon that we have not seen for very many years. I have in the past suggested that it goes back to Napoleonic times—it certainly goes a long way back. We must recognise that people’s confidence is bound to be shaken in circumstances where their incomes do not improve.

It would be churlish if we did not recognise the extent to which the Chancellor is seeking to address savings overall, and we give credit to the attempts to put forward initiatives. However, we share with many others reservations about the strategies being pursued, as have been identified in this debate. In fact, I tore up a third of my speech after the noble Baroness, Lady Altmann, made such detailed challenges to the Minister. In replying to the debate, he will have to spend all his time dealing with the points that she alone made. Other points have been made by other noble Lords, however, and I know the Minister will address them.

This has been an interesting and constructive debate. It is an indication of a fundamental problem in our society. We are talking about the long-term necessity of savings against a background in which the present position of the economy, and the predictions of where we will be in the next five years, are such that it will be a very difficult case for the Government to convince people that the future is sufficiently secure for them to take steps towards significant savings.