Mark Hoban (Shadow Minister, Treasury; Fareham, Conservative)

I beg to move amendment 28, in clause 4, page 3, line 20, at end insert—

‘(d) The Maturity Period shall not be less than 2 years.’.

Clause 4 contains two key parameters in determining how the account will operate. One is the maturity period—the period over which the matching contribution will be calculated—and the other is the maximum monthly contribution. In keeping with the general spirit of the way in which this Bill has been put together, these important details have been relegated to secondary legislation. My amendment probes—at this stage, rather than waiting for the discussion of secondary legislation—the rationale the Government have used to justify a maturity period of, say, two years. In considering the next amendment, I will talk about why the figure of £25 a month has been suggested.

The argument about the maturity period made in the evidence session last week by people such as Teresa Perchard and Sharon Collard was that if someone had not learnt the saving habit in two years, it was very unlikely that they ever would and that two years was reasonable. I wonder whether the Economic Secretary gave consideration to a period longer than two years to enable people to learn the saving culture—say, three years—to get it embedded. One point discussed last week was the likelihood that people would continue to save after the two-year period expired. There was evidence that a significant minority of people did continue to save, but not the majority.

There are reasons why people would want to take money out of their account—perhaps they had saved with a particular purpose in mind, perhaps there was an urgent need to meet an unexpected expense—so there may have been good reasons why the participation did not continue beyond two years. However, it does raise the question—given that it was only a significant minority, rather than majority—whether a longer period would be needed to encourage more people to save, to ensure that the saving habit is fully inculcated. That is the thrust behind my amendment as, other than that, there is not much to say about inserting two years as a maturity period.

Ian Pearson (Parliamentary Under-Secretary (Economic and Business), Department for Business, Enterprise & Regulatory Reform; Dudley South, Labour)

These are obviously matters of judgment. From the experience of the pilots and the interviews conducted, and discussions with interested parties, we concluded that two years was the most appropriate time period. That account duration will best help potential account holders to open an account and kick-start a saving habit. It strikes the right balance between giving people sufficient time to develop a saving habit and build up a reasonable match, and allowing them access within a sensible time scale.

Clearly, the participants on the 18-month trial had a range of views about the appropriate length: some were in favour of extending the period beyond 18 months and some thought that it should be less. Annuality makes sense because people generally understand the date when they open something and the date when it is likely to mature. Of course, we want to evaluate the policy when it is implemented, but at the moment we think that two years is appropriate and that it strikes the balance we are trying to achieve.

We do not believe that the amendment, which says that the maturity period should never be shorter than two years, is appropriate, because we might find that, for a significant group of people, that saving habit can be kick-started in a shorter period. It should not be put in the Bill, but I appreciate that it is a probing amendment to explore our thought processes. I hope that my comments this morning clearly outline to the hon. Gentleman and to the Committee why we have chosen a period of two years.

Mark Hoban (Shadow Minister, Treasury; Fareham, Conservative)

The Economic Secretary says that the right period is a matter of judgment. Given the relative generosity of the match that the Government are offering—50p per pound saved, based on the maximum account balance over the two years—we need to encourage people to keep their savings in the account for as long as possible. We have tabled other amendments that explore that issue in more detail. I agree with him—it is not something that we necessarily want to put in the Bill.

I am not going to press the amendment, but it is important that we assess the policy’s long-term effect on savings, and the Economic Secretary was right to comment on that. Two pilots were evaluated and, in the sprit of having an evidence-based policy, we want to ensure that there are longitudinal surveys to see whether two years is sufficient time—or too much, or too little—in which to encourage people to develop a saving culture. With that flexibility in mind, I beg to ask leave to withdraw the amendment.

Mark Hoban (Shadow Minister, Treasury; Fareham, Conservative)

I beg to move amendment 29, in clause 4, page 3, line 21, leave out subsection (3) and insert—

‘( ) The limit on the amount which may be paid into the Saving Gateway account in a month (excluding any interest or other sums paid by the account provider under the terms of the account) shall be £25.’.

This amendment has been tabled in a similar probing spirit. There is no reference in the Bill to the maximum monthly amount that can be saved, which the amendment would remedy. The explanatory notes suggests that the amount will be £25, and I suspect that that is in the regulations that were circulated to us earlier. For many people, £25 will sound like not very much to save, but it was interesting that Teresa Perchard from the CAB described it as

“a huge amount for many to find”.——[Official Report, Saving Gateway Accounts Public Bill Committee, 27 January 2009; c. 10, Q20.]

There is a balance to be struck. Clearly, for many people, that would be a huge amount to find, as it might be a significant part of their family income, and they will need to make sacrifices to save anyway near that amount. However, there are others, as we touched on earlier, who might, through contributions-based JSA, have a reasonable amount of money and who would be quite happy to pay £25 a month, and perhaps transfer money from other savings to the saving gateway account to benefit from the 50p in the pound match. Has the Economic Secretary given any thought to whether £25 is too generous a limit, given the potential loss to the Exchequer from people who are more than capable of saving that amount, who do so already, and who just want to take advantage of the great returns that the saving gateway account will offer them?

Jeremy Browne (Taunton, Liberal Democrat)

I rise briefly to support the spirit of the amendment. It is important that the amount is stated in the Bill, and that is crucial for one’s approval of it. There is understandable concern in some quarters that the 50p that every pound attracts is a very generous provision—20 times more generous than a commercial scheme would typically offer. Therefore the maximum amount that could be put aside each month to attract that amount from the Government is an important consideration. It is unsatisfactory for the Bill simply to say

“Regulations may, in particular, impose a limit on the amount”,

as if it were some casual detail that would have to be dropped at some point when the Government were considering these matters in the round. If we were being  asked to approve a much higher, or even much lower, sum, it would have an impact on the willingness of Committee members or the House in general to support the Bill as a whole.

Ian Pearson (Parliamentary Under-Secretary (Economic and Business), Department for Business, Enterprise & Regulatory Reform; Dudley South, Labour)

Thanks to this Government’s strong management of the economy, we have had low and stable inflation for a considerable period. It is right to have the opportunity to update limits on potential savings. It would not be normal to prescribe an amount in a Bill and then to introduce future Bills to update it regularly. For that reason, I strongly resist what the hon. Member for Taunton says about this.

The hon. Member for Fareham tabled the measure as a probing amendment. He suggested that some people who were on contributions-based JSA could be on relatively high incomes and so there might be a deadweight effect to our policies. We discussed that earlier. As I indicated, the number of people in such circumstances would be extremely low.

For the target group whom we are trying to encourage to save, £25 a month is certainly a stretching savings target. Some will be able to achieve that, while others will not. Both pilots certainly showed that the participants thought that £25 was about the right sort of figure. It was potentially an achievable target, but very difficult for many. Obviously, we would want to keep these matters under review. That is why it is appropriate not to put a figure in the Bill, but to set it out in secondary legislation.

I can confirm that the draft regulations set out savings of £25 a month. That is our best view on an appropriate figure. In all such cases, there is a matter of judgment, but I think that our judgment is widely supported by the range of agencies that look into these matters, with which we have worked closely.

Mark Hoban (Shadow Minister, Treasury; Fareham, Conservative)

I am grateful to the Economic Secretary for his comments.

The £25 limit is a target that will stretch people. It will be good to encourage people to save as much as they can. One of the advantages of the scheme is that it will enable people to withdraw, so if they have stretched themselves too far by trying to achieve that £25, there will be flexibility to enable them to withdraw some of that money and to rebalance their expenses and savings.

People might need to look at this. If the scheme proves to be a success, it might be decided in 10 years’ time that £25 is not enough. It would be very tedious to have to introduce primary legislation to lift the limit from £25 to an inflation-linked figure. With that in mind, I beg to ask leave to withdraw the amendment.