New Clause 2
Saving Gateway Accounts Bill
9:45 am
Mark Hoban (Shadow Minister, Treasury; Fareham, Conservative)
I beg to move, That the clause be read a Second time.
I am not sure whether new clause 2 would add anything to the Bill. However, it would make it explicit that it is permissible for interest to be paid on saving gateway accounts, but that it is not a requirement to do so. In part, the permissive nature relates to a comment that I made in the debate on clause 15: if interest was required to be paid on the accounts, they would not be sharia compliant. That would close off the accounts to a significant part of the population with whom we want to engage in terms of financial inclusion.
We had a debate with the various witnesses who gave evidence to us on that point. There were two extremes—perhaps that is not the right word, because I do not think that I would ever accuse Teresa Perchard of being extreme. Teresa took the view that interest should be paid on the accounts. Her perspective was that it would educate people on the sort of terms that they could expect an account to have in the future. I put a question to her about the requirement to pay interest and she said:
“I have strong views on this. If this product is designed to get people who have not been saving into the savings habit and it does not include the key feature that you would find in a standard savings account, you are losing the opportunity to engage people with the idea that they earn interest on the money that they put aside.”
So, notwithstanding the fact that, with today’s interest rates, the amounts involved might be relatively small, the educational benefit that comes with seeing how much interest is payable on one of these accounts is important. People would also see that the matched amounts were much more generous than the interest, and when they came to the end of the two-year period, they would understand that they were moving on to lower rates. That is what they should expect. They should not expect another 50p-in-the-pound match in other, standard savings products. Teresa saw this issue very much from the educational aspect.
Brian Pomeroy, who chairs the Government’s Financial Inclusion Taskforce said that he agreed in principle with the idea that interest should be paid. However, he also made an important point when he said:
“It would be unfortunate if the Treasury were to mandate a rate of interest and as a result killed off interest in being a provider.”——[Official Report, Saving Gateway Accounts Public Bill Committee, 27 January 2009; c. 20, Q40.]
We touched on this dilemma on Tuesday. Do we encourage as many people as possible to provide this product by making the cost of provision as low as possible, or do we set high standards—whether on savings, transferability or, in this case, the payment of interest—that force up the cost of the product, thereby restricting the number of providers? The question is whether we want a monopoly on provision by default or design.
In the afternoon sitting, it was interesting that one of the people who expressed the need for a permissive Bill was Mark Lyonette, from the Association of British Credit Unions. He understood the points about the financial education benefit, but he said that, for this marketplace, the motive was not necessarily the matching contribution or the interest. Mark’s experience of working with credit unions suggested that many people save to provide a buffer for a rainy day. I know from my discussions with the credit union to which I belong that many people put aside relatively small amounts to provide that buffer. They are not looking to earn interest, but simply want to put money aside.
Adrian Coles, from the Building Societies Association, felt that the interest rate would not be relevant to a saver’s decision on where to save or, indeed, whether to save. A variety of views have been put forward, and although I argued in favour of compulsion in the context of the product defaulting to an ISA when it matures, I favour a more permissive regime. I am mindful, however, of Teresa Perchard’s point about education, as that is part of the overall package.
We have talked about this being a stand-alone product, but we need to ensure that people will understand what the saving gateway product entails and what they will move on to afterwards. One lesson that was learned from the second pilot was the importance of having financial education alongside these products and the value of using third sector groups and others to help to encourage people to save.
I am content with the permissive nature of the Bill, but I thought that the new clause would give the Committee an opportunity to debate this issue, as there is no other opportunity to do so.