Basic Bank Accounts (Scotland)

Yvonne Fovargue Excerpts

Wednesday 19th January 2011 Westminster Hall

[Sheila Gilmore]

I very much do. At present, only two of the mainstream banks allow undischarged bankrupts to open a basic bank account, and that creates a difficulty in Scotland in particular. One is the Co-operative bank, but it has few branches in Scotland, even with the merger with Britannia; the other is Barclays, which does not operate in many places in Scotland. In Edinburgh, there are only two Barclays branches. They are near each other in the centre of the city, so it is difficult for people to access any bank in Edinburgh that would enable them to have a basic bank account if they are an undischarged bankrupt.

There are also issues around high bank charges, which can lead people to abandon their bank accounts. For instance, a direct debit comes in at a time when there is no money in the account. They are unaware of that, and a bank charge is levied. Ironically, some people found that doorstep lenders who would be more expensive in the long term were more sympathetic and easier to use. They would allow a payment to be missed occasionally. We know that that is an expensive way of working, but the inflexibility of banks and an automatic bank charge when one is on a marginal income anyway put people off.

[Yvonne Fovargue (Makerfield) (Lab)]

Recent research has found that 60% of people go to the high-cost pay-day lenders to consolidate their borrowing. Does my hon. Friend agree that access to a bank account may prevent some of that from happening?

[Sheila Gilmore]

I agree that we need to stop that happening, and bank accounts are one way of doing so, although we must also take other measures.

How can we make further progress? My submission is that banks should be legally required to offer a basic bank account when an application for a current account has been refused. That was proposed in the March 2010 Budget and was a commitment in Labour’s 2010 election manifesto.

The Government also have a role in encouraging mainstream banks to use all the best practice and not to introduce obstacles such as those that several of my hon. Friends and I have discussed. That includes ensuring that undischarged bankrupts are allowed to open bank accounts and that people with no credit history are given access. Banks should market such basic accounts fully, and staff should be trained and encouraged to do so. The ID requirement should be reviewed and, again, staff should be clear about what is necessary; they should not over-ask, which puts people off. If, even with such changes, banks have to or feel that they have to refuse an application, they should at least be obliged to give people information about alternatives.

The Government need to support alternative providers for people on low incomes, including credit unions and community development financial institutions such as Scotcash in Glasgow, which not only offers loans but has been giving people assistance with basic bank accounts. In its second year of operation, Scotcash assisted 553 individuals to open a basic bank account. However, such organisations depend on a relatively high degree of public support, and it is important to consider ways of helping those institutions to grow further. Many were able to get started because of the previous Government’s £100 million growth fund. If that fund does not continue, many will have to reduce their operations in future years. Reforming community interest tax relief would assist them, as would keeping mainstream banks to their previous commitment to help such community financial institutions—most have not kept that commitment. The debate is not primarily about savings or credit, but such points illustrate how all the issues are linked and how the Government need to have an overall financial inclusion strategy and to act upon it.

I have some specific questions for the Minister. First, will the Government commit to establishing a universal right to a basic bank account? Secondly, will they continue the work of the Treasury’s Financial Inclusion Taskforce after the end of the current financial year, because it has been behind so many measures? Thirdly, how will they encourage banks to remove current obstacles to securing a basic bank account, as outlined? Fourthly, how will they support alternative mechanisms for those for whom a bank account may still be impossible or undesirable?

I have a couple of specific proposals for the Minister. What practical and financial support can be given to enable post offices and credit unions to enter partnerships? In the short time that I have been in the House, there has been much discussion but no specific action allowing that to happen. If post offices do that, there is a cost, which the post office network perhaps feels is difficult to meet at this stage in its operations, but the Government could assist.

Savings Accounts and Health in Pregnancy Grant Bill

Yvonne Fovargue Excerpts

Monday 22nd November 2010 Commons Chamber

[Paul Maynard]

I thank the hon. Lady for that intervention. One of the joys of the Bill is that I have learned so much from her about progressive universalism. She is right that the progressive element is being removed. However, it has struck me that it is as though I have been locked away on Moonbase Alpha for the past fortnight, because there seems to have been no recognition on the part of the Opposition that we are operating in a much more stringent financial climate. The hon. Member for Wirral South (Alison McGovern), who is no longer in her place, dismissively said at one point in Committee, “I recognise that there has been a debate about the deficit and all that sort of thing.” I found that regrettable.

We are operating in a situation in which we have to make financial savings. Rather than having a discussion about whether the child trust fund is the most appropriate use of public money, we have continually debated why we should do this, and this, and this, and then something else, and something else again. At no point did we discuss the crux of the issue: whether the child trust fund was the best use of public money to help those most in need in our society.

I welcome the fact that the Minister is having discussions with the right hon. Member for Wythenshawe and Sale East (Paul Goggins). I hope something comes of that, but I remain concerned that the Opposition’s determination to try to save child trust funds is based on an outdated notion that only those savings vehicles provided by the state can provide a solution. That is not the case.

[Yvonne Fovargue (Makerfield) (Lab)]

The child trust fund has a dual purpose—not only to give the young person a lump sum, but to nurture in them a savings habit for life. Some 74% of those eligible have taken up the responsibility of the child trust fund account. It is the most successful savings product on the market; ISAs and pensions fall well behind that figure. It is simple—much simpler than opening a deposit account—and it gives people a nudge to save.

Nearly a third of parents and grandparents have added to the fund, and the poorest 20% have added a higher proportion of their income to it. However, even for young people whose families do not contribute, the practical demonstration of saving in the account is invaluable. Organisations such as the Personal Finance Education Group, which works in schools, structure their lessons around it, certain in the knowledge that all pupils will have received a statement annually on their birthday, and that all pupils have such an account.

The very universality of the scheme provides a useful and practical foundation for learning and for influencing behaviour. In addition, it is especially useful for looked-after children and children with disabilities, who receive extra premiums. For looked-after children, it is a practical example of the state acting as parent and attempting to improve their prospects at 18—an ambition that all parents have for their children—by providing a lump sum at one of the most difficult periods of their lives, a time of transition that is difficult for any teenager, but especially for those leaving care.

For children with disabilities, the scheme provides an asset that allows them to take advantage of life opportunities or to invest in whatever they see as their priority. It is unfair to remove the scheme without a full impact assessment of groups who may be disproportionately affected, such as families with disabled children and people with disabilities, especially as the Demos report showed that the emergency Budget had a substantial financial impact on families with disabled children.

It has been suggested that a junior ISA may replace the child trust fund, but I cannot believe that it will provide an adequate replacement, even if a seamless transition in January 2011were possible, which has been disputed by a number of experts in the savings field. An ISA primarily benefits taxpayers and higher-rate taxpayers in particular, so what advantage does an ISA offer to a non-taxpaying family? Equally, the simplicity of the child trust fund product has been praised.

I have worked with people to whom ISAs and other financial products have little relevance, with people who need support to open a basic bank account and with people who have no notion of opening a deposit account. I urge Members, therefore, to retain the scheme in some form—even if only for looked-after children, children with disabilities and the poorest third of families—and not to scrap it completely. I urge Members to support the amendments.

[Kate Green]

I shall speak strongly in support of amendments 51 and 52, which my right hon. Friend the Member for Wythenshawe and Sale East (Paul Goggins) has tabled. As he says, Members from all parties share a deep concern about the continuing very poor outcomes that we, as corporate parents, deliver for children in the care of the state. Those children suffer difficult childhoods, often arriving in care in traumatic and traumatising circumstances. They are therefore significantly unsettled and disadvantaged in their childhoods, and that disadvantage continues, to our shame, into their adult lives.

Such children all too often achieve poorer outcomes in education and health: in adult life they are less likely to move into sustainable employment or further or higher education, and they are more at risk of poverty. I know all hon. Members feel deeply that that is wrong, so I shall speak strongly in support of my right hon. Friend’s amendments, because they open-mindedly ask us to address that endemic disadvantage. If Opposition Members are offered assurances that other financial instruments can meet those concerns, we will of course consider them, but we are clear about what those alternative instruments must deliver if they are to receive our approval tonight. They must deliver some of the advantages that the child trust fund was able to deliver for looked-after children—advantages that sought to some degree to adjust and compensate for the disadvantages that such children face as they embark on adult life.

The first important thing about a payment mechanism specifically designated to meet the needs of looked-after children is that it represents a signal from us as a community that we care about such children—that they are valued, and as precious as any child living with his or her family is to his or her parents. Too often, looked-after children feel that our society does not value or recognise them and that nobody has an interest in them, so a financial contribution to a savings fund for them is one of a number of steps that we can take to show that those children and their futures are important and matter to us all.

The child trust fund, in its design, also delivered much more hard-edged benefits to looked-after children. As Members have said, it put extra money aside for children through double payments, and in responding to my right hon. Friend’s questions it is important that the Minister should address how we ensure that those children do not suffer further financial disadvantage and inequality in adulthood by embarking on adult life with a significantly smaller asset than many other children. Adjusting wealth and asset inequality was one of the intended bonuses of the child trust fund—one that was particularly important for looked-after children, and one that I hope the Minister will address.

My hon. Friend the Member for Makerfield (Yvonne Fovargue) pointed out that the fund sought to meet costs at a time of transition, and reaching 18 is a particularly difficult time for children leaving care, because we leave them at the mercy of adult life as no familial parent would with her or his child. No mum or dad would throw their child out of the family home without so much as a kettle or an offer to underwrite the gas bill if they struggle as they set up home, but that is what we do to too many children who leave the state’s care. By providing those children with a financial asset, the child trust fund helped to smooth some of the extra costs that they faced at transition points, with which no other family member might have been available to help them. The fund therefore enabled those young people to embark on their adult life with the confidence, certainty and stability that other young people often draw from family support.

I hope the Minister will reassure me that any alternative financial model will replicate two other in-built advantages of the fund, one of which is the product’s relative simplicity. It was fairly clear what sums were going in, and it was fairly clear when they could be drawn out. Junior ISAs might offer more flexibility and allow more contributions and different points of withdrawal, and that might bring some advantages, but we must not set up a product that is too complex for corporate parents and others who might wish to donate to the funds of looked-after children to access readily and save within. I look forward, therefore, to the Minister’s assurances about how the product will prove accessible to anyone who wishes to save for a looked-after child or young person, and in particular how a corporate parent will be able, without unnecessary bureaucracy and expense, to make contributions for children in their care.

Right hon. and hon. Friends have mentioned how the child trust fund offered consistency throughout the country, between local authorities and in all four parts of the United Kingdom, ensuring that every looked-after child left care with the same opportunity of an asset with which to start adult life. Can the Minister assure us that the alternative mechanisms and products that he might bring forward will deliver such consistency? We do not need to perpetrate inequalities among children leaving care as we do between children leaving care and other young people as they start out on adult life.

My hon. Friend the Member for Makerfield rightly pointed out that the junior ISA offers little that is intrinsically attractive to savers who do not benefit from a tax break. By definition, that includes corporate savers who invest for the future of children leaving care. I very much want to hear how the Minister will at least incentivise, more than that exhort, and—preferably—insist that corporate parents save adequately and equally for every child who falls within their care. If those assurances are forthcoming this evening, like my right hon. Friend the Member for Wythenshawe and Sale East, I will be able to look again at his amendments. If we do not receive satisfactory assurances, however, every young person and every child who has been in care will expect the House to support the amendments, and I for one certainly will.

--- Later in debate ---

[Paul Maynard]

Unfortunately, the hon. Gentleman’s point was not borne out by the evidence of Mark Lyonette of the Association of British Credit Unions Ltd. He was quite clear when he said of the saving gateway:

“None of the credit unions built their business plan around it, so I don’t think its withdrawal is a threat to the health of credit unions.”––[Official Report, Savings Accounts and Health in Pregnancy Grant Public Bill Committee, 2 November 2010; c. 52, Q149.]

It is important to ensure that we give credit unions what they want, and that is why we are seeing reforms to the Credit Unions Act 1979 enabling them to work with more than just individuals—they will now be able to work with interest groups, social enterprises and the like. We should not therefore allow the Opposition’s statement that credit unions have to be involved to obstruct the fact that this scheme will cost £300 million to continue. This might cause some Opposition Members to roll their eyes and shake their heads, as they did earlier in response to my hon. Friend the Member for Truro and Falmouth (Sarah Newton), but we are now living in a very different fiscal situation. The shadow Minister was quite right: the Government have changed, and we now have to take tougher financial decisions. We cannot justify spending £300 million on a saving gateway that will not be universally accessible across the country because there simply are not enough commercial providers willing to provide it. This is not a debate about a group hug, or about trying to encourage everyone to save more. We all know about those things.

I have been delighted to hear the hon. Member for Makerfield talk about Brighthouse, of which there is a branch in my constituency. I almost thought that she must have sneaked into my surgeries, because her tales about her voters’ problems with Brighthouse were the same as mine. However, I do not think that the saving gateway is the answer to the problems that many poor people face in getting access to cheap credit. It is not the answer to the problems we have been discussing. It fails the test that I raised on Second Reading—a test that I call my rhododendron test. The Opposition have a tendency to fixate on a single item of legislation that they believe will somehow solve all the problems in the world, but I am afraid that the saving gateway, however popular the pilots might have been, has not been popular enough with the providers that we need to ensure its success. That is why I support the Government’s decision to remove the scheme.

[Yvonne Fovargue]

I want to talk about the abolition of the saving gateway and the disappointment felt not only by the putative savers but by the credit unions, which thought that it would have a massive impact on the sector. The credit unions put a large amount of time and money into designing and introducing their product because they believed that the scheme had cross-party support. While matching the money is important in incentivising savings, it is not the only factor involved; in fact, it is not always the most important factor in influencing people to save. As we have heard, ease of access to a financial institution cannot be overstressed, and to use the existing credit unions at the heart of the community and to encourage the growth and development of the sector via this product was seen as vital. Indeed, Mark Lyonette said that encouraging people to save with credit unions was the issue. People are used to credit unions giving out loans, but the important thing is to provide them with products that encourage people to save.

The message that has been endorsed by the Government via the scheme is that even a small amount of savings matters, and that cannot be overstated. Most people do not deliberately set out to be in debt, but life events—such as the loss of a job, accidents, disability or even something as simple as the cooker breaking down—can cause debt. A small amount of money saved can act as a buffer, and people can then feel more in control and have more confidence. The value of that feeling cannot be overestimated.

It might be conventional wisdom that people should pay off all their debts before they start to save, but I take issue with that, as do people from the credit unions. As I said, events happen. The washing machine might break before someone has paid off the cooker, and if there is nothing to fall back on, the spiral of debt gets faster and deeper. That is when people turn to the legal loan sharks who charge more than 2,000%, or the actual loan sharks who prey on the vulnerable who have no resources. It is vital to provide a mechanism to remove people from the spiral of debt and make it easier to save. We know that people want to save for such events. Otherwise, why would so many people have saved with Farepak, a scheme that they believed was safe? If we could provide a trusted, easily accessible, local savings vehicle to encourage saving, we would prevent a considerable amount of human misery as well saving the health service a considerable sum for the treatment of depression and, in some cases, attempted suicide due to debt. A small amount of investment now could prevent a huge amount being spent later, and I urge the Government to reflect on that.

[John Hemming]

The Government have to look at what can be done when resources are limited. It is generally accepted that we need to enable people on lower incomes to save, and access to bank accounts and credit unions are important in that regard. We had an evidence session in Committee, which was quite useful. The Institute for Fiscal Studies has no axe to grind in this regard, but its acting director, Carl Emmerson, said that

“perhaps the £115 million should just be spent on boosting the incomes of these individuals.”

I then asked him:

“Or potentially on a system with more crisis loans?”––[Official Report, Savings Accounts and Health in Pregnancy Grant Public Bill Committee, 2 November 2010; c. 19, Q47.]

His response to that question was yes.

There is no question but that people need to balance their costs when they have to replace a washing machine, for example, and need the resources to do that. There is an issue there, but the Government need to look at the best way of helping people in those situations.

VAT (Charities)

Yvonne Fovargue Excerpts

Tuesday 19th October 2010 Commons Chamber

[Mr Gauke]

I am grateful to the hon. Lady for raising that specific point. I can assure her and other hon. Members that the Government will continue to look at options for cost sharing within the VAT system where these are available to us and where they represent an effective and efficient means of delivering support to the sector. We are currently looking at the implementation of the EU VAT exemption for cost sharing. The Government recognise efficiencies that can be achieved by organisations such as charities working together efficiently, but we also recognise the potential VAT barriers such organisations face when they share services in exactly the way the hon. Lady mentioned. We said in the Budget that we would work closely with charities and other affected sectors to consider options for implementing the exemption, which would help to remove some of the barriers ahead of a formal consultation that we will launch later in the autumn. I hope that that provides some reassurance to the hon. Lady.

Returning to the issue of zero rates, as the hon. Member for Wrexham will be aware it is not open to us under our European agreements to extend or amend the zero rates, but we recognise how valuable they are to charities, so we are committed to retaining the zero rates that we already have. Charities also benefit from certain specific VAT exemptions that apply to goods and services used in connection with fundraising events, providing further support for all charities.

VAT reliefs are just one element of the support that the Government provide through tax. Within the wider tax system, existing reliefs for charities are worth something like £3 billion a year, of which gift aid is the largest single relief. Gift aid is now worth nearly £1 billion a year to charities, and such payments to charities are increasing. Gross donations made under gift aid amounted to almost £4.6 billion in 2009-10—an increase of 6.5% over the previous year. We fully recognise the importance of improving gift aid. Charity representatives have been exploring proposals for reform with Treasury and HMRC officials on the gift aid forum. We will be exploring the forum’s recommendations before deciding on the best way forward.

The hon. Member for Wrexham wants us to go further and provide support for all charities to relieve them in respect of their irrecoverable VAT. As I have already explained, there is realistically very little that can be done within the VAT system itself. It is possible in principle to introduce a measure that would deliver refunds of VAT to charities in respect of their non-business activities. However, such refunds, which are a matter of Government expenditure rather than taxation, would represent a very significant cost to the Exchequer, especially given the current fiscal position.

We also have to consider that many charities are engaged in activities where they are in direct competition with private sector organisations, such as in the provision of care and welfare services, and it would be difficult to refund VAT that charities incurred in respect of those activities, as that would represent an unfair distortion of competition. Any scheme that could be devised might well be complex and administratively burdensome for charities to operate. In our view, it is far better for the Government, instead of introducing further complexities for charities, to focus on improving charities’ capabilities to improve their own affairs, and I will turn to this in more detail shortly.

[Yvonne Fovargue (Makerfield) (Lab)]

The charities that are engaged in competition with the private sector tend to be the larger ones, which go for contracts and are registered for VAT on their services It is the smaller charities which cannot get the VAT exemption that need the VAT to be paid back, because they are the ones that are suffering.

[Mr Gauke]

The hon. Lady is right to suggest that the problem is most acute for the smaller charities, but I do not think that that entirely detracts from the fact that in some circumstances those charities may well be in competition with the private sector in the delivery of welfare and care services. There may be a distortion of competition, and we ought to examine that very closely.

We fully recognise that the increase in the rate of VAT is unwelcome, but it is necessary to sustain public finances and ensure long-term fiscal stability. The burden of deficit reduction must be shared. It simply would not be right to single out one sector over another for special treatment, especially in view of the generous tax reliefs that have already been provided.

The hon. Gentleman and his party oppose the increase in VAT to 20%—which will raise £13.5 billion—but want to do more to reduce the deficit by raising taxes, which leads to the question of how those taxes should be raised. The last Government’s proposed solution in the form of a tax rise—which has been reversed—was the increases in national insurance contributions, which would also have affected charities.