Savings (Government Contributions) Bill

Peter Dowd Excerpts

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

[Peter Dowd (Bootle) (Lab)]

I thank my hon. Friend the Member for Harrow West (Mr Thomas) for his indefatigable pursuit of the issues he has raised today, particularly on the role of credit unions. He is supported by other Members, such as my hon. Friend the Member for Walthamstow (Stella Creasy). No reasonable person could disagree with anything articulated by my hon. Friend the Member for Harrow West in his usual coherent, cogent and reasonable way. He has the support of Labour Front Benchers and of many other hon. Members in the Chamber.

My hon. Friend is in line with organisations such as StepChange Debt Charity, which welcomes the concept of Help to Save, but feels that the Government have not gone far enough in their commitment to facilitating saving. It says that only one in seven people eligible for the scheme are likely to take it up, and it supports the payroll deduction concept suggested by my hon. Friend.

Before I deal with the Opposition new clauses and amendments, I will first summarise our overall view. Although we fully support any measure that will encourage people to save, particularly young people and those on lower incomes, we feel that the proposed lifetime individual savings account will do little to help those two groups. In the Public Bill Committee, we heard a raft of expert evidence in support of that view, with many experts citing their concern that this may be simply another product in an overcrowded market. The products are not necessarily complicated per se, but the market is.

The Opposition will not stand in the way of the Bill, but we want to make a number of reasonable changes to ensure that the proposed ISA and right-to-buy scheme proposals do what they say they will do. Those with low incomes are already struggling to make it through the week, and they have seen the Government drastically cut in-work benefits. I do not see how people will meet the minimum threshold, particularly given the reports showing that half of UK adults have set aside less than £500 for emergencies. Some families will simply not be able to save £50 every month, as was raised by Scottish National party Members in Committee.

On the impact review of auto-enrolment, the Opposition’s wider concern is that the new savings scheme will interfere with and perhaps even have a negative impact on the automatic enrolment of people into pensions. Do the Government really want to gamble that, with 6.7 million people already auto-enrolled across 250,000 employers, they will not reach their target of 10 million by 2020? The Opposition new clauses and amendments are designed collectively to address the concern expressed across the board, including by the pensions industry, the trade union movement, Select Committees of this House and the Office for Budget Responsibility, which is that the lifetime individual savings account poses a threat to traditional pension savings and, most significantly, to auto-enrolment.

It is self-evident that automatic enrolment, which was mandated by the previous Labour Government, is an outstanding initiative that, as time passes, is starting to achieve the objective set for it. Hence our new clause 2, which proposes to place a duty on Her Majesty’s Revenue and Customs to review the impact of lifetime ISAs on automatic enrolment annually. Auto-enrolment is one of the few success stories in the pension landscape, and it is widely acknowledged in all sectors to be right. We fear that, intentionally or not, the Government’s policy may put the wider landscape in jeopardy and be a dangerous path to follow. Pensions history suggests that this will only be recognised in years to come. We want the Government to review the situation and the impact on the auto-enrolment scheme annually to ensure that the introduction of lifetime ISAs does not have a negative impact on the success of automatic enrolment.

Similarly, not all employees will be auto-enrolled until February 2018, and the increase in minimum contributions to 8% will not be completed until April 2019. The level of drop-outs is relatively low among younger people, but we do not want anything whatsoever to jeopardise the maximum possible number of people enrolling or to provide any incentive for them to opt out. That is not an unreasonable position to take, given the implications of getting things wrong. We have therefore tabled amendment 6 to delay the commencement of the Bill until the end of April 2019, when all firms will have been auto-enrolled and the increase in minimum contributions to 8% will have been completed. The simple truth is that many people cannot afford to pay into both a pension and a LISA. In fact, many can do neither. The Work and Pensions Committee has warned the Government:

“Opting out of AE to save for retirement in a LISA will leave people worse off.”

Government messages on the issue have been mixed. The DWP has been very clear that the LISA is not a pension product, but the Treasury has proffered an alternative view.

New clause 3 is on independent financial advice. If the Government cannot get their position on the lifetime ISA clear, how will ordinary people in the street be clear about it? Compared with those of other pension plans, the benefits of the LISA are relatively confusing and unclear when set in the context of the wider market. That is why we have tabled the new clause, which would place a duty on the Secretary of State to make regulations that ensured that all applicants for a lifetime ISA

“have independent financial advice made available to them”.

In other words, the new clause’s purpose is to ensure that those opening a lifetime ISA for retirement savings receive independent financial advice.

Advice is crucial in purchasing any expensive product, in particular one involving post-retirement income. The advice would be offered automatically—through an opt-in service, for example—and the service provider would sign a declaration outlining the advice the applicant had received. Any provider would have to confirm the status of the applicant, whether they were enrolled in a workplace pension scheme, whether they had signed a declaration of financial advice and whether they planned to use the lifetime ISA for a first-time residential purchase.

Independent financial advice does not have to be expensive. In fact, to give an example, the Government could mandate a robo-advice scheme, which is an online platform where an individual can get independent financial advice. Given the putative simplicity of LISA that the Minister has championed, experts inform me that having a robo-advice scheme would be a reasonable course of action, although such a scheme would need safeguards. First, it should be backed up by accredited financial advisers. Secondly, the Government should take steps to ensure that no one company has the contract, something that is all the more important to avoid a repeat of the Concentrix scandal.

The Opposition believe that it is only right that anyone considering a lifetime ISA be given the opportunity to see its benefits compared with those of other schemes on the market. New clause 3 would ensure that people could make an informed choice with the benefit of independent financial advice. It would enable parity in the quality of advice for all those entering the scheme and mean that much-needed oversight and education about the benefits of the scheme would be in situ.

It goes almost without saying that a pension is perhaps one of the most important purchases a person makes. That issue has exercised the minds of many people in government, in the regulatory sector and in the products sector. The history of mis-selling has left a long, deep shadow across the financial products sector. We must take that into account—we cannot ignore it. With so many bodies from across numerous industries outlining their concerns that there is a risk that people will save into a lifetime ISA when it is not the most beneficial retirement savings option, I cannot see a reasonable argument against ensuring that applicants receive independent financial advice before opening an account.

Millions of people have lost confidence in much of the sector to some degree or other. As witnesses in Committee alluded to, that is partly why when people are saving they do so in cash ISAs. They are not sure about stocks, shares and other products and so put their savings into products that give them a return of 0%, 0.1% and so on—up to 1% if they are lucky. We must create an environment in which people save and feel confident that they will get a reasonable return on their investment, especially if that investment is for their later years. That, too, is perfectly reasonable.

On new clause 4, the Opposition recognise that many people want to own their own home, and would encourage people to do so if that is what they wish, but we are concerned that the Government’s housing policy will only inflate housing prices further, and that the lifetime ISA will make things even more difficult in a housing environment that is already strained because of the limited numbers of houses being built nationwide. I will not even mention the huge cost of housing, particularly in London and the south-east. The average figure nationally is as much as £250,000 and over £500,000 in the capital. That is why new clause 4 would require the Government to conduct a review, within a year of the Act coming into force, of the potential impact of the lifetime ISA on house prices in the UK. It would also require that the review be made publicly available and be laid before both Houses of Parliament.

Evidence received in Committee, from the likes of Martin Lewis of MoneySavingExpert.com, acknowledged the potential popularity of the lifetime ISA but highlighted concerns about its potential impact and argued that unintended consequences of the scheme were a possibility and a concern. Worryingly, fewer homes were built in the last Parliament than under any other peacetime Government since the 1920s. The lifetime ISA might help to overheat a market already short of capacity. The Government’s priority should be to try to mitigate, not to add to, the problem. I do not consider that an unreasonable point either.

People are increasingly chasing a product in a market that has low supply levels. As I indicated in Committee, it so happens that that product is housing. The facts speak for themselves: the Government are almost two years through their five-year housing plan—not counting the previous five years—and still falling badly behind on their targets. If I recall correctly, the OBR’s assessment suggests a 0.3% inflationary effect on the housing market from products such as lifetime ISAs. If there are 100,000 house transactions a year, at £750 a time, that will add about £70 million a year to prices. If we are to implement policies that will affect an already overheating sector, it is important that we take into account their overall impact.

New clause 5 calls for a distributional analysis. As mentioned earlier, the Opposition’s underlying concern about the lifetime ISA is that it will do little to help those on low incomes to save. That is why we would like the Government to produce, within six months of the Act coming into force, an analysis of the distribution of benefits of lifetime ISAs and Help to Save accounts, including of the distributional effects between households at different income levels, genders, people with disabilities, and black and minority ethnic groups.

We should not forget that the Government’s huge cuts to universal credit will see 2.5 million people in working families lose as much as £2,000 a year, even after the Chancellor’s recent minor adjustments. It is difficult to imagine that such families will have a spare £50 a month to put into a Help to Save account. I made a point earlier about the low take-up. Those who can afford to save are generally better off, so the lifetime ISA will deliver subsidies to those who least need them. Meanwhile, the danger is that the Help to Save measure, which is specifically for universal credit and tax credit recipients, might encourage those on low incomes to save money when it is not, at that point, necessarily in their best interests. According to the Women’s Budget Group,

“Incentives to encourage saving—via the ‘Help-to-Save’ and ‘Lifetime ISA’ measures”—

are

“likely to disadvantage women”

and tend to represent

“a move away from collective provision of welfare”.

It is concerned

“that in the future such individual accounts are used to provide an income during periods of caring, illness or disability…As women are both less likely to have funds to save and more likely to require time out for caring, they would be significantly disadvantaged by such an individualized approach as opposed to a collective system that enables redistribution.”

New clause 6 feeds into the overall debate about whether the lifetime ISA and Help to Save measure will be good value for money, particularly if they do not help those on low incomes and minority groups to save. We welcome the sensible measures to address the thorny issue of the low retirement savings of the less well-off, and anything that puts money into the pockets of middle and low earners is welcome, but I wonder how that aim sits alongside the Conservatives’ planned cuts—they are more like a heist—to universal credit. According to the OBR, the various pensions and savings policies introduced since 2011, including the lifetime ISA, will create a £5 billion lacuna in the public finances.

It is therefore imperative that the scheme benefits everyone in society, not disproportionately those who are already in a position to get on the housing ladder and save. It would be a real shame if the beneficiaries of the scheme were limited to those who were already able to afford to save and afford the deposit for a house. Given that the two policy announcements come at more or less the same time as cuts to tax credits, the juxtaposition of an investment of £1.8 billion in housing support for those in a better position to afford to buy against the significant cuts for those in lower-paid work will be seen at the very least as insensitive, and by some as crass and unfair.

--- Later in debate ---

[Peter Dowd]

I echo the Minister’s sentiments about the scrutiny the Bill has received. I am grateful to the witnesses who came to our sessions, as well as for all the written evidence, informal information and contact that we received.

Of course, the provisions are in two parts: the lifetime ISA and Help to Save. No one has any objection to helping people to save; it is a question of how to do it. We are not convinced that the Bill will help people to save. We do not think that there is sufficient evidence to back up what the Minister said and we do not think that it sorts out the problem with the shortage of housing. It sets aside £1.8 billion by 2019-20, there are questions about its value for money, and we think that it complicates the market and might introduce a Trojan horse. Not everybody is convinced about it.

I am not sure that Help to Save does the business for those on a low income. It comes in the wake of major cuts to tax credits and only puts a little drop back into a very big ocean. The Government should listen to what many people, including our witnesses, have said. Nevertheless, we accept that we need to help people save for the future, and all the information that has been provided to us sets the scene for continued future debates. I thank the Minister for her helpfulness and civility throughout the process.