Clause 16
Saving Gateway Accounts Bill
9:00 am
Mark Hoban (Shadow Minister, Treasury; Fareham, Conservative)
I beg to move amendment No. 36, in clause 16, page 7, line 9, at end insert—
‘(1A) Funds in the account will be transferred into an Individual Savings Account as set out in the Finance Act 1998 (c. 36) of the kind prescribed by regulations and operated by the provider of the Saving Gateway account in question.’.
One of the debates that we had in the morning evidence-giving session last week was about what would happen to the money in the saving gateway account when the account matured and the account-holder received the matching maturity payment, as it is described in the Bill. We had quite an interesting debate on that point with the various witnesses and it was a subject that we returned to in the afternoon evidence-giving session.
It is an important issue, because the Bill’s objective is to try to develop a savings culture in the target group and we want that savings culture to extend beyond the end of the two-year period. Therefore, it is important to understand what will happen to the balance at the end of that period.
I propose in my amendment that the balance on the account should be automatically transferred into a cash individual savings account and that that would, in effect, be the default setting. The Government, following discussions with various potential providers and the savings industry, have already said that if amounts are transferred from a saving gateway account into a cash ISA they will not count towards that year’s subscription. That is a welcome move. The amendment takes things one step forward from that, making the automatic default setting a cash ISA. That will help potential savers.
Cash ISAs, on the whole, tend to pay a much more generous rate of interest than most instant access accounts; they are a product that the Government have supported and they would provide the right default setting in such a situation. However, that was not a universal view in the evidence sessions. There was some suggestion in the afternoon session with the potential account providers that they might prefer another option—they said that some accounts might provide a higher rate. I suspect that they would prefer a default option into an account that perhaps offers a lower rate than a cash ISA, because such accounts tend to offer higher rates than most instant access accounts.
Matt Wakefield from the Institute For Fiscal Studies, who did a lot of the relevant evaluation, said:
“I do not see why, if it is possible to organise, it should not be an ISA that is tax free—just a cash ISA that operates as a cash savings account.”——[Official Report, Saving Gateway Accounts Public Bill Committee, 27 January 2009; c. 16.]
There is some debate about whether a cash ISA is difficult or complex to explain to someone who has had a saving gateway account. We could surmount that barrier by ensuring that, alongside the saving gateway programme, there is financial education for people who take out such accounts. The national money guidance scheme, which we are committed to, would provide such guidance to people who have a saving gateway account.