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

I beg to move amendment 32, in clause 8, page 4, line 31, leave out from ‘is’ to end and insert ‘50 pence’.

Clause 8 deals with the maturity payments that will be available to people who have opened savings gateway accounts and the payment that would be made at the end of two years. The familiar theme over the course of  today’s scrutiny is to insert one of the key features of this, which is the amount of the maturity payment which, we are all clear, is 50p in the pound. Rather than repeat the debate about why the Government want flexibility and why it is appropriate to specify the rate in regulations, rather than in the Bill, it might help the Committee to reflect on last week’s evidence sittings, in which witnesses gave their justifications as to why the amount should be 50p. That rate appeared to be sufficiently attractive to encourage people to save, although one witness suggested that it was extremely generous.

It would help if the Minister put on record the Government’s rationale behind the 50p rate. He was not a witness last Tuesday, so this is the first chance since Second Reading that the Committee has had to probe his rationale. I sensed from last week’s witnesses, with the exception of those comments about 50p being extremely generous, that they thought it a sufficiently attractive rate to encourage people to save and to keep their money in the accounts for as long as possible. It would help if the Minister set out clearly the Treasury’s thinking behind that amount.

Jeremy Browne (Taunton, Liberal Democrat)

I rise to give my wholehearted support to the amendment for both reasons that the hon. Gentleman touched on. First, it is unacceptable to invite the Committee to endorse a Bill with all the numbers and details stripped out, leaving them able to be adjusted at any point by the Minister. That makes a mockery of the entire process of parliamentary scrutiny that we are sent here by our constituents to undertake. If the rate is to be 50p, and that is the amount of public money that the Government are committing, it seems reasonable that we should be able explicitly to endorse that.

I should also be interested to know how much the Economic Secretary thinks the overall scheme will cost. I appreciate that that will be an estimate, but it is necessary for us to be able to tell our constituents, and others who are interested, what the implications are for public spending, so that they can make a judgment, if they are interested in these matters, about whether the 50p rate is appropriate, not only as an incentive to savers, but in terms of cost to the taxpayer.

The hon. Gentleman’s second point about the 50p rate is whether it is the minimum level at which we can maximise incentive. Is it providing value for money, or could we persuade as many people to save if it were 40p, therefore doing so at lower cost? Would there be a noticeable bounce in the number of people who would save if it were increased to 60p? If so, the scheme could be made much more attractive without reaching much further. That territory has not been explored sufficiently.

My final point, which I shall address in more detail when we discuss my amendments to this clause, is about how the 50p is triggered. That 50p, when put against a pound in the 24th of the 24 months, provides a good return in comparison with the 50p matched against a pound in the first of the 24 months. It might be possible for the Government to devise a scheme, which would admittedly be more complicated, whereby a pound that stayed in an account for the duration of the 24 months attracted the 50p, whereas a pound that was there for a shorter period would accrue at a monthly rate and therefore would not make up the full 50p. That system  might or might not have merit, but we are currently being invited to endorse a measure that contains no figure whatever. We therefore cannot discuss the merits of the Government’s proposal because they have not deemed it suitable to give us a proposal to support or vote on.

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

At the risk of starting a competition on how many music titles one can get into a speech, let me say that the song remains the same when it comes to whether matters are put into the Bill or are contained in secondary legislation. We think as a matter of principle that the match rate is more appropriately dealt with in secondary legislation, because in the light of events, as we evaluate how the saving gateway programme develops, we might want to increase or reduce it.

Jeremy Browne (Taunton, Liberal Democrat)

The Economic Secretary said that he might wish at some point to increase or decrease the 50p match rate. Just to be clear, would that apply to new account holders, or would it be possible for someone to embark on a saving gateway account with a 50p match rate and then, at some point during that two-year period, for the Government to decide that it was wise to reduce it, for example, to 25p?

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

Again, the song remains the same. We do not want to speculate on what a future Government might want to do. I am just saying that as part of sensible contingency planning, any Government would want to include the match rate issue in secondary rather than primary legislation so that if circumstances and evidence indicated that the match rate was not generous enough or too generous, they could alter it without the need for primary legislation. We want to be clear that that would not be done retrospectively, particularly if a lower match rate was being introduced.

To return to the basic question about the 50p match rate—whether it is too high or too low, and why the Government came up with that figure—the first point to make is that our overall policy objective is to kick-start the savings habit. Then it must be asked what the most effective way is to do that. What level of incentive is required to encourage people to save? As the Committee will be aware, we gained information on that matter from the pilots. The second pilot showed that savers found a match rate of 50p for every pound to be a strong incentive to save. A lower match rate would clearly provide less of an incentive to save and would be likely to lead to lower take-up of saving gateway accounts.

The second pilot appears to show that a match rate of 50p for each pound saved made people 10 to 15 percentage points more likely to open an account than a match rate of 20p. Again, in designing saving gateway accounts, as a matter of policy, we had to make judgments about what level would be most likely to get people to participate. As hon. Members will be aware, one pilot looked at a pound-for-pound match rate. I do not think that the evidence suggested that the more generous match rate would produce significantly more savings. We thought that it was poorer value for money for the taxpayer in terms of encouraging our policy objective.

We are at the 50p rate, we believe that that is attractive and we want to continue on that basis. It will be in secondary legislation, which we will debate in due course.  Undoubtedly we can rehearse the arguments again, but on the best evidence available from the pilots, our judgment is that 50p is the rate most likely to help kick-start the savings habit.

The hon. Member for Taunton finally asked how much it is likely to cost. That will clearly depend on take-up rates, but we currently score the cost of making the match payments at £130 million in 2012-13, £110 million in 2013-14 and £100 million in 2014-15. I hope that that provides him with the information he requested and that I have been able to clarify some of the Government’s thinking behind our decision to have a 50p match rate. We continue to believe that that will be attractive to the target group, which is people of working age on low incomes. We want them to save and we believe that this will help them to do so.

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

I thank the Economic Secretary for his response. It is interesting to understand how the match rate incentivises people and the point at which the level of the match rate ceases to act as an incentive to people to save more. The fact that the pilots have confirmed that 50p is as effective in encouraging saving as £1 is useful evidence. That means that the cost to the Exchequer of introducing the measure will be less, and demonstrates that even at that lower cost, we still hope to have an effective result.

Jeremy Browne (Taunton, Liberal Democrat)

I would be grateful if I could draw on the hon. Gentleman’s greater experience as a Member of Parliament. His amendment asks the Government to put the 50p figure in the Bill and the Minister says that that will be dealt with by regulations and has justified the 50p level to the Committee. However, after the Bill has gone through all its stages in Parliament, will anything stop the Minister turning around and changing that figure to something else with a waft of his pen? If that is the case, why are we bothering to have this conversation about 50p, because we have been completely bypassed and the Minister need not pay any heed whatsoever to anything we say?

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

The hon. Gentleman makes an important point. Having raised the issue earlier about the difference between the first and second use of power in respect of an earlier debate, I have checked the matter. Each time the Government change the match rate they will have to bring forward a statutory instrument under the affirmative resolution procedure, so at least there is some parliamentary scrutiny in that way.

As the hon. Gentleman knows, we will not be in a position to amend the statutory instrument if we have different views about the level of the match rate, whereas if the measure were introduced through primary legislation, we could seek to make such an amendment. However, there is at least some parliamentary scrutiny through the affirmative procedure, which will ensure that the Minister cannot change the rate without having to come back to the House and explain his motives. A fail-safe is in place and we can take reassurance from that. I beg to ask leave to withdraw amendment 32.

Jeremy Browne (Taunton, Liberal Democrat)

I beg to move amendment 8, in clause 8, page 4, line 32, leave out from second ‘the’ to ‘the’ in line 33 and insert

‘final account balance at the end of’.

My amendments have been grouped so as to have a discussion on amendment 8, a separate discussion on 9 and 11 and a separate discussion on 10. I certainly wish to deal with amendment 10 separately because that is very much a different issue, but there is a degree of overlap between amendments 8, 9 and 11. I will try not to test your patience, Mr. Taylor, but if I touch upon those, I may not require to speak specifically to them when that moment comes.

The amendments are probing because what I am really seeking to explore is the incentive for people to save and feel that they are participating in a scheme that is “fair” in terms of their expectations. People should also feel that the scheme is fair when they make comparisons with other people in their community who they know are also participating, and it should offer the best value for money to the taxpayer.

Amendment 8 deals with the point at which the balance is calculated for the purposes of the 50p matching figure. If it is paid on the highest amount that was ever in the account, one could build up £300 in the first year, withdraw all of it or leave in a nominal sum of £1, put nothing in during the second year, and have the money coming later. However, that money would not be due until the whole two years have expired and a further unspecified period has lapsed, which is what we talked about in amendment 10.

However, if someone put £1 a month in for the first 18 months, for example, and then £25 a month in for the last six months, they would come up with a total of £168, which would provide an extremely generous return, given that the vast majority of the money had been tied up in the account for a limited period of time. That would not be a 50 per cent. annual return; it would be far more generous. That does not compare with how normal accounts reward people, because the £25 put in at the end of the last month would come up with a return of £12.50 within days of being deposited. The purpose of the amendment is to find the thinking behind how the Government calculate a reasonable means by which to calculate the 50p rate.

Amendments 9 and 11 look at a slightly different aspect. On Second Reading and at other points during our deliberations, we have said that the legislation has two related, if different, purposes. It tries to encourage people on low incomes to be more enthusiastic about making savings, even if they are modest. That gives people a stake in society, and allows them to build up some money to spend in their retirement or to make some other provision for the future. However, we also say that it would be inappropriate for that money to be tied down for the two-year period, not only because people might be disincentivised to participate, but because the money is meant to provide some sort of buffer against unexpected events. If a person’s washing machine breaks down six months into the scheme, they might think, “Crikey! I haven’t got any money to get this washing machine mended.” They might then think, “Wait a second. How fortunate. I’ve got £150 because I’ve saved up to the maximum for the first six months, and the washing machine repair man is charging £150 to put it right. Thank goodness I have that security that I  wouldn’t previously have enjoyed. What’s more, there are no restrictions on my ability to withdraw that £150 instantly.” In that way, the scheme does not encourage people to have a long-term savings mentality, but it guards against shocks to the system in people’s short-term finances.

However, someone could be disadvantaged if they take such an approach because of how the 50p matching rate is attracted. If the rate could be calculated on the amount in the account on a monthly basis, or if there was a halfway point at which people could in effect bank the money that they had attracted in the first half of the two-year period, the scheme would be more complicated, but it would have the virtue of being fairer or less anomalous when people in different circumstances compared how they are treated by the 50p payout.

Amendments 8, 9 and 11 are all intended to tease out the Minister’s thinking on that, and to give the Committee an opportunity to discuss the matter. I do not necessarily think that there is a right or wrong answer, or that I have arrived at such an answer, but I anticipate that if we do not explore the matter in some detail, some people may feel that the scheme is unreasonable when it comes into effect, and others may feel that they have benefited from it by rather more than the Government intended when the legislation was drafted.

David Taylor (North West Leicestershire, Labour)

Order. I allowed the hon. Gentleman to refer to other amendments in the interests of flexibility, but also in the expectation that when we come to those amendments, his contribution will be correspondingly reduced.

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

At the risk of the harmony between the hon. Member for Taunton and I, I am not sure that I support the amendment. One point that I have borne in mind from an evidence session last week—it crops up time and again from people working in the field of financial exclusion—is the need for simplicity. People need to understand what they are signing up to, and the terms. That rubs up against the issue of fairness and the anomalies that he raised, and we need to take on board the fact that there may be some unfairness about the way in which the account might work. At the same time, we want to ensure that people understand what they are signing up to.

The greater the complexity about the allocation, matching and such things, the harder it will be for people to understand and the less willing they will be to take up the accounts. Someone who, through force of circumstances, was required to withdraw their funds early might be encouraged to leave in just £1. The account providers might remind people of that. At least such people would still qualify for the matching contribution at the end of the two years, even if they had to withdraw their money after nine months. There are mechanisms in place to ensure that they would still benefit from the measure, and one obligation that runs alongside the Bill is the duty to ensure that the account provider, or the third-sector organisations that encourage take-up, explain to people how they can avoid losing all their matching benefit.

Jeremy Browne (Taunton, Liberal Democrat)

I seek clarity about the hon. Gentleman’s understanding of the Bill, because I have some sympathy with what he says about complexity being a disincentive to participation. If a person saved up £325 in the first 13 months, and then withdrew £324, it would not, as I understand it, be worth their putting in £25 a month for the subsequent 11 months, because they would never get up to a high enough figure to qualify for any additional money. So, they might as well leave the pound and, for the last 11 months, put the £25 a month into an interest-bearing account elsewhere. Am I correct in thinking that once one has reached one’s maximum limit and withdrawn money, it is not worth engaging in the scheme again?

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

The hon. Gentleman encapsulates the point neatly. We might say that the situation is a disincentive, but it is a possibility: someone might max out at 13 months, choose to withdraw all their money and recognise that there is no point in paying any more money into the account, because they will not receive any further matching contribution. That is one of the consequences of how the account is determined, because the matching is based on the maximum—the highest—balance on the account. If the hon. Gentleman had tabled an amendment stating that the match would be based on the amount deposited over the lifetime of the account, he would have got round the problem, but he has not.

Jeremy Browne (Taunton, Liberal Democrat)

This is where I sought to provoke debate. One could, for example, rather match 2p at the end of month, but that certainly would not sound like a big incentive, even though it would come to largely the same amount for the pound deposited in month one; or, as a simpler half-way house, introduce a 25p matching at the end of years one and two. That would reduce the total benefits, because the money in year two would attract only half the funds of year one, but it might iron out the potential anomalies that I have mentioned. I am not saying that the idea is necessarily superior to the Government’s proposal, but it is worthy of consideration.

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

I shall not attempt the maths on the hon. Gentleman’s proposals, but all parts of the House agree that the 50p match would be effective in maximising take-up. If that were converted into a monthly amount, or into a higher amount for one year than for another, it would take us back to the problem of increased complexity. There is a trade-off between fairness and simplicity. We could have a much fairer way of matching but make the scheme much more difficult for people taking out the accounts to understand.

There is some power in terms of attracting savers by having a match of 50p at the end of two years rather than 2p a month, which does not sound worth the effort, whereas 50p at the end of two years does sound worth the sacrifice that saving £25 a month will involve for some households. As I said, there is a trade-off between fairness and simplicity, but if we make the products simple we are much more likely to get take-up. We should try to focus on that when designing the system.

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

I fully understand the points that the hon. Member for Taunton made. However, amendment 8, and 9 and 11, which I shall refer to briefly—I guarantee, Mr. Taylor, that my contribution to a subsequent debate on them will be vanishingly small—are simultaneously less generous and more complicated than the Government’s proposal.

I have a great deal of sympathy with the comments of the hon. Member for Fareham when he says that we need to strike a balance between a simple system that people can understand and the potential dangers of a complicated, mathematical calculation that no one understands.

Clause 8(2) describes how the qualifying balance should be established. The Bill sets out that the qualifying balance will be the highest balance over the life of the account. We believe that that has the advantage of not penalising savers for making withdrawals, while simultaneously discouraging them from doing so. If a saver makes a withdrawal, the match payment they have earned so far will not be affected. However, they will have to pay the amount that they have withdrawn back into the account before they can earn any additional match payment, and, because of the monthly deposit limit, only accounts where no withdrawals are made will be able to earn the maximum match payment of £300.

The hon. Member for Taunton is right to say that if somebody saved the full amount for 13 months and then withdrew all but £1, there would not be an incentive for them to save in the saving gateway account because they would have already earned their full match. However, there will still be a strong incentive for them to keep the saving account open because they need to do so to qualify for the match.

The circumstances in which that situation might arise are likely to be rare. Less than 2 per cent. of participants in the pilots made withdrawals. Also, basing the qualifying balance on the highest balance over the life of the account has the advantage of not saying that if people have washing machines that break down, or if their financial circumstances change such that they desperately need the money, which is often the case, we should penalise them. In effect, the amendment would do that by saying that it is only the balance at the end of two years that is important. That is what it proposes.

The amendment may be designed to discourage withdrawals, but we do not think that they are likely to be common. Only 1 per cent. of participants in the first pilot and less than 2 per cent. in the second pilot made a withdrawal each month. The proposal does not make the calculation of the match simpler; it just makes it different and potentially less generous, which is why it should not be supported.

I will leave it there, because while I appreciate the hon. Gentleman’s intention, if he reflects on this he will realise that his amendment would make the measure less generous to savers, which no one wants. It would certainly be more complicated to introduce the sort of formula that he suggests. I hope that he will not push the amendment to a vote.

Jeremy Browne (Taunton, Liberal Democrat)

I attach great importance to the simplicity of the scheme, because even generous schemes that are difficult to understand disincentivise all people, particularly those who are not familiar with financial products of  that type. I take the Economic Secretary’s point; this was a useful short discussion. It would be simple to devise a better system with a more complicated mathematical formula, but we are dealing with regular human beings, rather than with people who might respond to circumstances that look good to a mathematician but might not work in the real world. The only caveat is that if, after two years with one of these accounts, people get into the savings habit, they might get a rude shock when they try to save with a normal institution and find that the system that they have become used to under the Government scheme does not apply in the real world of financial services. However, that is the Government’s decision. I beg to ask leave to withdraw the amendment.

Jeremy Browne (Taunton, Liberal Democrat)

I beg to move amendment 9, in clause 8, page 4, line 33, at end insert—

‘(2A) An account holder shall qualify for a reduced maturity payment where a Saving Gateway account is closed after a period of twelve months but before the end of the maturity period.

(2B) The reduced maturity payment in relation to a Saving Gateway account shall be specified in regulations.’.

David Taylor (North West Leicestershire, Labour)

With this we may discuss amendment 11, in clause 8, page 5, line 1, leave out subsection (5).

Jeremy Browne (Taunton, Liberal Democrat)

I have nothing further to add.

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

For the reasons I have previously outlined, we do not think that amendments 9 and 11 will add anything to the Bill. They detract from a simple way of calculating the matching rate. One key aspect of the matching rules for the saving gateway is that savers must wait until the end of the account’s two-year maturity period to receive the match payment, and nothing is payable if the account is closed before the end of that period. Account holders are therefore incentivised to continue saving for the full 24 months of the account. However, they can access their money at any time without losing any match payment that they have built up.

As we have just discussed, we believe that that is the correct approach. It is a simple rule that will help to foster the savings habit. I also remind the Committee that the experts who gave evidence last week were supportive of how the matching rules are likely to work, specifically that savers are able access to access their money at any time but can only access the match payment once the account has matured. On that basis, I hope that the hon. Gentleman will withdraw his amendment.

Jeremy Browne (Taunton, Liberal Democrat)

I beg to ask leave to withdraw the amendment.

Jeremy Browne (Taunton, Liberal Democrat)

I beg to move amendment 10, in clause 8, page 4, line 41, leave out from ‘within’ to ‘beginning’ and insert ‘one month’.

This amendment is slightly separate, so I will briefly speak to it. Subsection (4) states:

“The account provider must pay the maturity payment”—

that is the figure that we have just been discussing—

“to the account holder within a period, prescribed by regulations, beginning with the end of the maturity period.”

My amendment wants to replace “a period” with a specific period of one month. That seems to be a reasonable period to allow for the calculation to be made. After all, it is not a difficult calculation. We have just heard how simple it would be if the maximum figure were £300. It does not seem to be unduly onerous to ask someone to work out that half of £300 is £150 in a month. That money could then be given to the account holder.

People with restricted household finances who have saved quite small amounts of money may be suspicious of financial services products and be uneasy about participating in schemes even if they are Government schemes. They will be keen to see both the money that they have had tied up for two years and the rewards that the Government have promised as quickly as possible. A protracted delay will be deemed unacceptable, and it may discredit the scheme as a whole.

The hon. Member for Fareham said that if the 50p level was changed in the future, it would have to be done by statutory instrument. Although we would be able to decide whether the Government’s alternative figure was an improvement, we would not be able to modify it. I do not know whether in future we could change the stipulated period for payment, or whether the regulations could be changed without reference to the House. Either way, seeing that the calculation is so simple, it is sensible to specify a maximum period of one month.

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

Certainly, we do not think that the period should be longer than one month. However, we do not think that it is necessary to put that in the Bill. The hon. Gentleman will be aware that the draft regulations propose that there should be a shorter period of 14 days. No doubt that matter will be debated when we place the regulations that specify the time period before the House and the other place. We will still want to discuss the matter further with industry, but I share his view that there should not be any delay in doing that. A relatively straightforward calculation process is involved. All I am saying is that rather than it is better to specify the time in regulations. At the moment, the regulations suggest that it should not be one month, but 14 days.

I hope that that gives the hon. Gentleman the assurances that he seeks. People will get their match paid to them promptly, which is what we all want to see.

Jeremy Browne (Taunton, Liberal Democrat)

I do not doubt that the Minister and I, and probably all members of the Committee, share the same objectives. At the risk of sounding like a broken record, I will repeat the constant refrain that it is much more sensible for Members of Parliament not to decide on any of these matters in the Committee in which we have been sitting for four and a half hours. Such a forum is clearly inappropriate for making these decisions. They should be decided at a later date by Ministers in regulation.

Stephen Ladyman (South Thanet, Labour)

I think that I can help the hon. Gentleman. I do not think that he has read clause 27. When the Economic Secretary says that these things are done by  regulations, such regulations have to be put before Parliament and they are decided by a Committee, either by affirmative resolution, which means that the Committee has to discuss them, or by negative resolution, which means that the hon. Gentleman can pray against them and a Committee has to consider them, and they have to be passed by a resolution of both Houses of Parliament. It is quite clear and it is in clause 27, so I think that his concerns are met.

Jeremy Browne (Taunton, Liberal Democrat)

I understand that. However, we could have bypassed many of this morning’s deliberations, and those of this afternoon and later this week, and cut straight to the chase by voting on the figures that matter. At the moment, we are talking in more abstract terms, which I regret. Anyway, myself and others have made that point elsewhere in our deliberations. I share the Economic Secretary’s basic objectives, so I beg to ask leave to withdraw the amendment.