Clause 16
Saving Gateway Accounts Bill
9:00 am
Mark Hoban (Shadow Minister, Treasury; Fareham, Conservative)
That is a good point. Some people will not be paying income tax, but they would be in the same position if the default was a savings account that paid them a lower rate of interest net, whereas at least the interest on a cash ISA at maturity is paid gross. The interest rate on a cash ISA is higher as well. We should think not just about ISAs in the context of their tax treatment but about their characteristics in terms of the interest that they pay. People can exit a cash ISA before its maturity period ends and they will benefit from a higher rate of interest on that. Yes, interest may be deducted, but under our plans we would ensure that that interest was paid gross rather than net and if people did not pay tax they would receive the full benefit of that. From our perspective we have squared that circle in our policy. Perhaps the plans that the Chancellor seems keen to bring forward in the Budget will also help people in this situation, by exempting them from payment of the basic rate of income tax on their savings income. If the Chancellor does that, we will support that measure.
There is a clear benefit to savers from the saving gateway account defaulting into a cash ISA, where returns tend to be higher. Cash ISAs are well marketed, are increasingly better understood by consumers and offer the best deal to savers. The better option is for the saving gateway account to default into a cash ISA, rather than simply defaulting into a current account, where it is available to spend. The fact that the money is not locked away but set in a separate account might encourage people to leave it alone for a bit longer, help them build up that nest egg and continue to pay sums into that account, whereas if it defaults into a current account the temptation might well be to spend it. We would all want to see more and more people who have had a saving gateway account continue to save. Therefore, defaulting to a savings account will help further to develop the saving culture that we are seeking to achieve through the Bill.