I beg to move,
That this House welcomes the success of TESSAs and PEPs in extending popular saving and deplores the Government's proposal to abolish them and replace them with Individual Savings Accounts (ISAs); condemns the retrospective taxation of the most prudent savers who have accumulated more than £50,000; believes that ISAs will involve high administrative costs, especially because of the unnecessary and unfair lifetime limit on tax-free saving; and urges the Government to bring forward new proposals that would not involve retrospective taxation, would build on PEPs and TESSAs, would reduce the costs of administering the schemes and would not involve a lifetime limit on the amount that may be invested.
This is the first opportunity that we have had to debate an issue that is of great and growing concern to our constituents since the Paymaster General shook millions of people by announcing that he planned to abolish personal equity plans and tax-exempt special savings accounts. People were shaken because they could not have guessed from what Labour had said before the election just what would hit them.
Last spring, the Labour party told us—and told the British people—that it had changed. This was new Labour: the people's party. Middle Britain was safe with new Labour, and so were its savings. It was the Prime Minister—"Trust Me Tony" himself—who said:
We want to extend the scope of PEPs and TESSAs, so the idea that the Labour party is going to take action against those is completely absurd.
Labour's manifesto reaffirmed that, stating:
We will … extend the principle of Tessas and Peps to promote long-term saving.
And it was the current Chief Secretary to the Treasury who was reported by the Investors' Chronicle as saying:
The party has pledged that anyone who invests in a PEP or TESSA before the general election … would not be penalised under a Labour Government.
The article went on to say that the Chief Secretary had reiterated Labour's promise that it would not retrospectively abolish tax incentives on PEPs or TESSAs.
It doesn't matter what the issue is with tax,
People are entitled to certainty.
If that did not reflect the Chief Secretary's remarks accurately, he could have written to deny it. Actually, he did write a letter to the Investors' Chronicle, in which he said:
You correctly quote me as saying, 'We support Peps and Tessas but we want to build on that.'
However the assertion in the article that 'Labour is examining proposals to abolish PEPs and TESSAs' is not true.
That was the height of deception. The Chief Secretary chose to deny the one assertion in the article that has since proved to be true, that Labour would abolish PEPs; but he chose not to qualify his clear assurances—which have since proved bogus—that Labour would do nothing retrospectively, that there would be no penalty for those with existing PEPs or TESSAs and that there would be no uncertainty in the tax regime.
It is the betrayal of those pledges which has caused so much fury among our constituents. That betrayal is why this debate is being held today, and why we have dragged back the Paymaster General from Guernsey. People had been reassured by Labour's pledges; now they are angry, and rightly so. We will hound the Government until they honour their pledges to savers.
People with longer memories might have known how little Labour cares for their savings. They will remember the deadly combination of socialism and inflation, which destroyed Britain's savings habit in the 1970s.
Conservative Members are proud to have rebuilt savings in the 1980s and early 1990s. We did it, first, by building up pension funds, to the point at which the United Kingdom has more money invested in pension funds than does all the rest of the European Community put together. We introduced PEPs and TESSAs, and now 3 million people have PEPs and 4.5 million people have TESSAs. Those schemes have massively extended popular saving.
We realise, of course, that more people need to save, and that many of those who already have savings need to save more. The Government would therefore have enjoyed our support if they had built on the success of our schemes. However, far from building on those schemes—building them up—the Government's proposals will mean cutting them back. Individual savings accounts will take away relief from those who have saved most prudently, giving less help, for less time, for less saving.
The only silver lining in the Government's proposals is that they have decided to open up the proposals for consultation. Ministers may rather regret that decision, because the reaction of savers, savings providers and expert advisers has been universally critical. It is not only that the plans were announced by Geoffrey Robinson; they were designed by Heath Robinson.
People's criticisms go to the heart of the Government's proposals. The best advice that Ministers could take would therefore be to listen to the thousands of small savers who are telling them, "Go back to the drawing board, and build on PEPs. In fact, do exactly what the Prime Minister and the Chief Secretary promised they would do. They should simply honour their pledges."
The public have been most infuriated by the retrospective impact of the Government's plans. My postbag is full of letters from aggrieved savers, who thought that they were safe and trusted Labour. I do not know whether the Paymaster General reads such letters, but he certainly does not reply to them. Perhaps we should forward them to him in Guernsey. Nevertheless, he will have to listen to one or two of them today.
A typical example is a letter from a pensioner in Abergavenny, who writes:
This punitive tax proposal, in my view, breaks a contract which we established with a previous Government and it is neither just nor defensible.
A gentleman from Chester sent me a copy of his letter to the Prime Minister. He wrote:
We have worked hard, saved and planned for our retirement on the assumption that whatever steps we have taken would be honoured by whichever party was in power at the time. We have paid our taxes and behaved as responsible citizens and now your Government—the one we were asked to trust remember—has broken the contract between the state and those people who have more than £50,000 in PEPs.
The Government said that education was to be their passion. Some teachers in Birmingham disagree. They write:
We are retired teachers who thoroughly enjoyed our chosen profession and who, during the later years of employment, made a conscious decision to save as much as we could from our salaries through PEPs and TESSAs towards our old age. Unlike the Paymaster General, we do not have a large offshore trust, a mansion in Surrey, a residence in Godalming or a villa in Tuscany.
We are just very ordinary members of the public who welcomed the opportunity by the Conservative Government to invest for our futures. Through careful planning and by putting prudence before pleasure we have been able to save in excess of the £50,000 limit now being proposed by Mr. Robinson.
I could go on. We have all received heaps of such letters.
Even if the Government will not listen, they must realise that to withdraw tax relief from savings that people made in good faith is not only wrong, but undermines the credibility of any future system. People will fear that if ISAs are successful, that regime too, could be changed. The Government must honour their contract with people who have saved in good faith.
Even if the £50,000 lifetime limit is not applied retrospectively, it remains the biggest problem in the ISA plan. There is no need for a lifetime limit, given that the annual limit on the amount that people can invest has been reduced, but if the Paymaster General insists on a lifetime limit, £50,000 is simply too low. The Paymaster General may consider it more than enough for humble folk not used to his style of life, but it is not a huge sum.
Another saver from Peterborough wrote:
I may have to spend the final years of my life in a nursing home where fees are approximately £20,000 per annum, so £50,000 will last just two and a half years.
The Paymaster General himself admitted in reply to my right hon. Friend the shadow Chief Secretary that £50,000 invested in equities yields an annum income of less than £1,500 after tax. The Lord Chancellor would not get many rolls of wallpaper for that.
We do not know how many hundreds of thousands of savers have already accumulated more than £50,000. The Government did not even bother to find out before launching the new scheme, but it is not just those who have already reached the limit who will be hit. We should be encouraging those with £30,000 or £40,000 to continue building up their savings, yet the Government's plans mean that after a few more years, they, too, will lose the incentive to save. Will the Government publish an estimate not just of how many people have already reached the £50,000 limit, but of how many will reach it over the next few years?
It is not just the public who oppose the scheme. The experts are virtually unanimous in giving it the thumbs down. That is not my assessment. A survey of finance directors carried out by the company of one of Labour's most prominent business supporters, Alec Reed, found that more than 70 per cent. were opposed to ISAs. The scheme is half-baked, ill thought out, unnecessarily complex and unlikely to achieve its stated objectives—in short, very new Labour.
Criticisms come from people who are well disposed to the Government. Richard Branson condemned it as "retrospective". The Financial Times said that it was
unfair … unattractive … and bureaucracy gone mad".The Sunday Times said:
ISAs will be the most complex instant access accounts ever.
The Consumers Association said:
We are struggling to see the point of ISAs. We see no real advantages but a lot of problems.
The only possible justification for persisting with the reform would be if it generated more saving. The National Institute of Economic and Social Research is unequivocal about that, saying:
The Government's proposed replacement of PEPs and TESSAs by Individual Savings Accounts would reduce the pool of savings available to finance investment in Britain.
that this could result in a reduction in the overall level of national wealth by as much as 4 per cent. of GDP".
ISAs could hope to attract extra savings, particularly from the less well-off, only if they offered either lower costs or better incentives, but far from reducing costs, the new rules will add to them. According to the management consultants OSI, setting up new systems to replace PEPs and TESSAs will cost nearly £1 billion. That is equivalent to an extra £30 a year for every ISA for the next five years. Running costs would also be higher than for PEPs and TESSAs because the lifetime limit is very costly to monitor, the profusion of annual limits adds to the costs and the absurd raffle will also cost money to run.
At the same time as driving up costs, the Government are reducing the tax relief in ISAs, particularly for small savers on the basic rate, whom they are supposed to attract. For such savers, relief from capital gains tax is likely to be of no importance, because they are unlikely to have capital gains greater than the £6,500 annual CGT exemption that they get outside an ISA. The tax relief that really matters to them is that on dividends.
Under the Conservatives' tax regime, for every £80 of net dividends, the fund manager could reclaim an additional £20 of tax credits. That was more than enough to cover the typical management charge. Under the ISA tax regime, the same dividends will give a credit of only £8.90. That is insufficient to cover the current costs of PEPs, let alone the higher costs of ISAs. Moreover, that tax credit will disappear after five years. I am glad to see that the Paymaster General is briefing the Chief Secretary, who was clearly unaware of the point. We know that he has been cut out of the circulation on welfare to work. He has clearly also been cut of the circulation of information on the debate that he is about to speak in.
The absurdity is that, whereas the majority of those with PEPs were basic rate taxpayers, ISAs will be attractive only to higher rate taxpayers. Does the hon. Member for Bolsover (Mr. Skinner) realise that the scheme that his Government are proposing will shut out from equity investment anyone on the basic rate of tax or paying no tax and that the scheme will be worth while only for those paying 40 per cent. tax?
I shall tell the right hon. Gentleman, a previous Tory Minister, what I think. The issue is marginal in the extreme. However, I remember that every pensioner in Britain-10 million of them, including some who were able to find money to put in PEPs or TESSAs—lost £20 a week because of the Tory Government's decision to change the method of calculation for the old-age pension, linking it to prices instead of wages. The result was that every one of them constantly told me about the rotten, lousy Tory Government. What the right hon. Gentleman is saying today is just a bout of hypocrisy. Why does he not get back to his chateau in France?
As I said, I am grateful for the hon. Gentleman's support. He says that a limit of £50,000 on tax relief is trivial. It is to him. He entered the House in 1970. I have had distinguished accountants calculate the cost of purchasing the pension that he is entitled to from the House of Commons. It would cost £356,000. He is worth even more than the pension scheme of the Paymaster General, and considerably more than the Chief Secretary, who is languishing at a mere £140,000, excluding his ministerial pension.
I never realised that it was that much. If someone has been advising me wrongly, I shall go to my hon. Friend the Economic Secretary to the Treasury, who is dealing with the mis-selling of pensions, to ensure that it is put right. I come here every day to earn my money, unlike many Tories, who, not content with their £40,000 salary as a Member of Parliament, are lining their pockets with moonlighting jobs, directorships and consultancies, picking up as much as £200,000 or £300,000 a year. Why does the right hon. Gentleman not direct his attacks on them?
I am not giving way.
I was pointing out that there will not be any incentive in five years' time, when it is planned that the tax credits in the scheme will disappear entirely. Can the Chief Secretary or the Paymaster General put their hands on their hearts and advise any basic rate taxpayer to invest in shares via an ISA? They will not. The Paymaster General is right not to, because he is sitting next to the Economic Secretary, who is in charge of pensions mis-selling. The Paymaster General knows that, if anybody gave such advice professionally, they would be guilty of mis-selling.
Where are the 6 million extra savers whom the Prime Minister tells us will be attracted to the scheme? The Prime Minister says that he sees them queueing up in Tesco, buying their corporate bonds with their Brooke Bond and getting their share tips with their PG Tips. The truth is that they are a phantom army. They do not exist; they had to be invented to pretend that tax relief was going to be spread more widely. In fact, tax relief under the scheme is being withdrawn wholesale. The effect of the scheme will be simply to raise extra tax revenue from savers. The Government's plans amount to a savings tax, to add to their pensions tax.
Do the Government accept that, as a very minimum, they must come up with a radically redrawn plan? Will they ensure that their final version fully respects those who have saved in good faith? There must be no retrospective taxation. There must be no lifetime limit—or at least a limit much higher than £50,000. The system must be simpler and have lower costs. Can the Minister give a guarantee today that those elements will be included in the final scheme?
If there is one characteristic that is starting to define this Government, it is that they practise the opposite of what they preach. When they say one thing, one can be sure that they will do another. They said that they wanted investment for the long term, so they introduced a £5 billion-a-year tax on pension funds—the country's main source of long-term investment. They said that they were pro-business, so they have imposed a £22 billion extra tax burden on the corporate sector in this Parliament. They said that they would stamp out abuse of offshore trusts, so they put in charge of the policy a Minister who has millions salted away in an offshore tax haven. When Labour spokesmen said before the election that they would not harm PEPs and TESSAs, the alarm bells should have started sounding for small savers. Under this Government, black is white, higher tax is a boost to investment, and the abolition of PEPs and TESSAs is to be sold as an opportunity for more people to save.
Whoever had announced this misbegotten plan, it would have provoked anger, but for it to come from the Paymaster General added insult to injury. The Chancellor has extraordinary insensitivity and arrogance. It was a cheek to put the Economic Secretary, Robert Maxwell's public relations spokesmistress, in charge of pensions mis-selling. It was brazen to put the Financial Secretary, who was taken to court for failing to pay her poll tax, in charge of tax collection. But it was an insult to put the tax-dodger general, with £12 million in an offshore tax haven, in charge of taking away tax relief from middle Britain. Power has simply gone to the Government's head.
I assure the House that we will not abandon this issue until the Government recognise that their scheme is mean, costly, complex, retrospective and a breach of trust. We will defend the savers of middle Britain.
I beg to move, To leave out from "House" to the end of the Question, and to add instead thereof:
welcomes the Government's commitment, set out in the pre-Budget report, to consult on tax proposals, including the proposed ISA; believes that the ISA will extend the opportunity to save and invest and that the Government's proposals will ensure a stable and fair savings environment; commends the Government for its commitment to long-term economic stability and low inflation which is good for savers; and rejects any return to the boom and bust policies of the past which were so damaging to those on low incomes, savers and investors.".
I wondered why so many Tories were here this afternoon; I suspect that it has not much to do with small savers, or any other sort of saver. In looking at the record of the previous Tory Government, we remember what they did to all those on low incomes and those who endeavoured to save, despite the difficulties visited upon them.
The Government have been consulting over the past few months on the new individual savings account. In the pre-Budget report, my right hon. Friend the Chancellor made it clear that it is this Government's intention—unlike what happened in the past—to consult, particularly where there are tax measures with long-term consequences. It is important to get the proposals right so that they endure in the long term. For that reason, we are happy to consult as many people as possible. The consultation period ended in January, and the Government will shortly set out our conclusions as part of the Budget process.
When the right hon. Member for Hitchin and Harpenden (Mr. Lilley), the shadow Chancellor, said that this was the first opportunity the Opposition had to debate this matter, he was not quite right. It was up to the Opposition to use any of their Supply days to discuss this matter far earlier than just two weeks before the Budget.
I am sure that the House will understand that it is necessary for me to confine my remarks to some fairly general principles, rather than pre-empting anything that may be part of the Budget process. If anyone has come to the House today expecting specific announcements—or if anyone is following our proceedings elsewhere—I advise them to switch off or to leave now, because I intend to make a short series of remarks, setting out the principles that underpin the Government's approach to the savings process.
The Tory party's claim to be the friend of small savers and those on low incomes simply does not add up. The shadow Chancellor referred to pensions and the mis-selling of pensions. The House and the country will recall that more than 600,000 people have cause to regret the day the previous Government took office, as many believe that their pensions were mis-sold. People remember the previous Government's advertisements—paid for by the public—showing a man in a straitjacket breaking free from his occupational pension into which he and his employers paid, as if the very act of going private and getting a personal pension was enriching, both in the spiritual and material sense.
We remember that many were mis-sold pensions and may have lost thousands of pounds. Yet there was not a word of apology from the Tory party. The Tories were responsible for one of the biggest financial scandals this country has ever seen. They are in no position to lecture anyone on the plight of those who have suffered.
During the 1980s—to which the shadow Chancellor referred—inflation at one point hit 18 per cent. The Tory party ran economic affairs in such a way that many people who tried to save and to make provision for themselves found that what they had saved had been eaten up by inflation. The Tories are in no position whatever to talk about probity, or to lecture this or any other Government on helping those on low incomes.
The Government's proposals are designed to ensure that more people have the opportunity to save than in the past. I remind the hon. Gentleman that, before the election, the right hon. Member for Hitchin and Harpenden proposed a reform to the pensions system that would have cost this country £7 billion a year at its peak—money that would have had to be provided by increased tax on the very people for whom the right hon. Gentleman says he wants to speak.
The Government have two key objectives, which are both set out in the consultation document. First, we want to develop and extend the savings culture, because that is good for individuals and for the country. More than half the population have less than £200 each in savings, which is less than half the average weekly wage, and just over a quarter have no savings at all. Indeed, 60 per cent. of those who save have less than £500 in savings.
It must be in the interests of the country and of everyone that we extend the savings principle to encourage people to save as much as they can. If we are to do so, three things are necessary. First, we have to get the right economic framework—macro-economic stability. Secondly, we must have a regulatory system that commands the confidence of individuals and industry alike—something which the Conservative party does not begin to understand. Thirdly, we must have specific measures, such as those canvassed in the consultation document, to encourage individuals to save.
The second objective is to ensure that where we are giving tax relief, it is fairly distributed. The problem is that we are spending about £1.5 billion in tax relief on PEPs and TESSAs. On present trends, by 2007 that amount would rise to more than £2 billion, which is the equivalent of 1p on the basic rate of income tax. We must ensure that that tax relief does what it is supposed to do, which is to encourage people who do not save to save in the future. There is no point in continuing to give tax relief to people who can already afford to have significant sums locked up for long periods.
I shall give way soon to all hon. Members who are showing an interest. It is important to ensure that tax relief is focused in such a way as to help people who do not save to become savers and, once they become savers, to encourage them to continue saving. That is in their interests and those of everyone else in the country.
First, I will give way to the hon. Member for Twickenham (Dr. Cable), but I will give way to all the other hon. Gentlemen who are trying to intervene.
Will the Chief Secretary confirm whether more, less or the same amount of tax relief will be available under the projected new scheme as could be available under the existing scheme?
I repeat what my right hon. Friend the Prime Minister has said. We believe that broadly the same amount of money forgone in tax relief under the present system will be forgone in tax relief under the new system. Encouraging people to save—people who do not save at the moment—is a useful application of the tax system.
While I accept the objective of trying to broaden the scope of the schemes and to get more people in, does the Chief Secretary accept that some people decided not to go for a personal pension but to invest in PEPs and TESSAs because of the old tax regime, and it is too late for many of them to revert and get a personal pension plan? Will that not put some people in an invidious position?
I am aware that many people have taken advantage of PEPs and TESSAs with a view to providing for their pensions and elsewhere. That is one of the measures of which we are well aware, and we want to encourage people to save to complement their pensions, although I regard the future individual savings accounts and the present PEPs and TESSAs as complementary to anything an individual might be doing as regards his or her pension. We ought to encourage people to make long-term arrangements for their pension, because that is the best form of security for the future.
Given that most lower and basic rate taxpayers are unlikely to generate gains that would exceed their capital gains tax exemption every year, and given that management charges for individual savings accounts are likely to exceed the 10 per cent. tax credit paid into ISAs, what are the advantages for those taxpayers in holding their equities through an ISA?
The hon. Gentleman raises a number of matters. On management charges, he is right to highlight that, under the present PEP systems, there have been cases of people's management charges being rather more than the tax relief they were getting. The hon. Gentleman cannot be held to blame, because he was not here at the time, but the previous Government did nothing about that.
That is one of the reasons why we want a robust regulatory system that will ensure that people are charged fairly.
Under the existing system, many basic or lower-rate taxpayers do not have gains that exceed their personal allowance, whereas, under the new system, holders of the individual savings account will enjoy tax relief—not only the tax credit for five years of lop, but a general tax exemption.
The hon. Gentleman shakes his head, but many providers and many objective observers have welcomed our proposals. [HON. MEMBERS: "Name them."] Conservative Members shout, "Name them." Let me quote from a representation that we received:
There is much that we welcome within the ISA … We agree with features such as flexibility, no minimum level of saving, reducing the restrictions on the equity element and no 'lock in' … they are all welcome and we consider that there has been much careful thought given to the design of the ISA".
Conservative Members sneer, but, less than a year ago, they sat on the same Benches as the person who gave the proposals such a warm welcome—the former Economic Secretary to the Treasury, Angela Knight.
Virgin has welcomed the individual savings account, and the Halifax building society said that it saw a bright future for it. ProShare, an organisation dedicated to share-based investment, said that the Government had achieved the right balance in their aim to reach investors on low income, many of whom do not currently save, as well as others on higher income. Many people have examined the consultation document and praised the Government's objective of extending the base of savers to include those people about whom the previous Government did not care one jot—the Conservatives have never bothered about people on low incomes or people of modest means.
On those key objectives, it is worth reminding the House that one of the most fundamental prerequisites of generating a savings culture is to ensure long-term economic stability and low inflation. If there is high inflation or instability, any benefits that a saver may accrue will disappear.
The House should note two interesting phenomena that occurred when the shadow Chancellor was a Treasury Minister. First, during the Lawson boom in the mid-1980s, not only were people encouraged to spend as much as they had, then to borrow and to spend again, but the amount of money that people saved was reduced—there was a negative savings ratio. Secondly, because of the Conservative Government's failure to keep control of what was happening during the late 1980s, the inflation rate rose from nearly 5 per cent. to almost 10 per cent. between 1988 and 1990—in the space of two years. Interest rates also rose dramatically, which affected mortgages and the very people whom the Conservatives pretend to support.
Unless people can plan against a stable economic background, they will not be encouraged to save. If there is instability, any benefits from saving will be eaten up. We believe that economic stability is of fundamental importance if we are to encourage people to save—they must know the background against which they will plan and save over the ensuing few years.
Does the right hon. Gentleman accept that, although administrative charges are important to all investors, they are particularly crucial to small investors, whom Labour has chosen to target? In devising a scheme that, by its nature, is much more expensive than existing schemes to administer, the Government have undermined their objective.
I dealt with that point when I said that one of the problems with PEPs, particularly in the early days, was the high administrative charges. The transparency that we believe to be necessary did not exist then, so many individual savers did not know how much they were paying in administrative charges. The hon. Gentleman's point would have had far more force if he had raised it during the many years when, as a Conservative Back Bencher, he supported the Conservative Government.
My hon. Friend is right. People well remember what happened in the late 1980s: the Conservative Government managed to create an unsustainable boom which culminated in one of the deepest recessions this country has ever known. The people who lost their jobs and their homes will remember that very well.
The shadow Chancellor was a Treasury Minister throughout that period. I commend to him another excellent document, "Fiscal policy: lessons from the last economic cycle", published at the time of the pre-Budget report, which draws on the lessons to be learnt from what the Conservatives did in the late 1980s when, through their economic incompetence, they completely misread the economic signals and took all the wrong decisions, with the result that millions of people suffered a great deal.
The first precondition to encouraging people to save is to ensure that we have economic stability, and the Government are absolutely committed to that. The second necessary condition is to ensure that we have a regulatory regime that enjoys the confidence of savers and investors alike, and we have delivered that already.
In the consultation document, we make it clear that it is necessary to have an appropriate and robust regulatory regime. [Interruption.] If Opposition Members care to look, they will find many references to what we propose to do to ensure that the regime will maintain the interests of those investing in individual savings accounts and elsewhere.
The Conservative party showed scant interest in reforming and improving the regulatory system over the past 18 years, despite all the problems with pensions mis-selling, in the City and elsewhere. We, by contrast, have made clear our determination to reform the system, not only making it more robust and putting an end to the nonsense of self-regulation, which was too often more a matter of self-interest than of the public interest, but—and this is an important point—ensuring that it is at an appropriate level for the savings or investments that it is supposed to be looking after.
We are very conscious of the fact that, in the past, the regulatory system became so expensive that the relationship between cost and benefit was completely lost. We are determined never again to return to the situation in which so much rampant mis-selling of pensions could take place.
My hon. Friend the Economic Secretary has shown what a difference a change of Government can make. Since she took up her post and the Government made it clear to the pensions industry that we would not tolerate a situation in which absolutely nothing was being done to remedy the plight of those who had been mis-sold pensions, there has been a dramatic improvement in the clear-up rate, so many people now have the reassurance that they would never have had under the Tory Government.
The third element needed to ensure that people save is to have the appropriate incentives in place. We have taken a number of steps, on which we have held consultations, that I believe will help people on low incomes. Conservative Members, when they were not shouting and bawling, tried to persuade us that they were interested in the plight of those on low incomes.
All the evidence is that one of the biggest obstacles to people on low incomes saving, especially under the current regime, is the necessity to lock up money for a considerable period. People on low incomes, who may have unexpected and unwelcome demands on their savings, have not been prepared to take that risk.
We want the system to be more accessible, with no "lock-in" period or minimum investment, partly because we want to encourage many people to save who would not dream of doing so under the current system. We want a flexible system which people feel they can use as confidently as they do banks and building societies. We also want to extend the variety of outlets from which the individual savings account can be bought, including supermarkets, friendly societies, national savings, banks and building societies. That will make it easier for people to access the individual savings account and will provide flexibility and a wide choice of tax-free products that are not available under the present system.
I thought that Conservative Members might have shown a little more practical interest in the measures that can be taken to encourage saving. However, their conduct this afternoon suggests that they are still not bothered about people on low incomes, any more than they were when they were in government.
Given that the Chief Secretary is in listening mode, will he give a specific response to the criticisms made in the green budget published by the Institute for Fiscal Studies, which stated that the proposal for a cumulative contribution limit of £50,000 will impose substantial compliance costs, is unlikely to raise much revenue, and sits uneasily with a commitment to increase self-reliance in welfare provision?
The £50,000 limit was not meant to raise revenue. The hon. Gentleman is right, and we have made it clear that one of our objectives—and one of the reasons for a £50,000 limit—is to ensure that the amount of tax forgone is manageable. The amount of tax forgone would have to be examined, whichever Government were in power. Had the Conservatives won the election in May, they would have had to consider how tax relief was being focused. Our intention is that broadly the same amount currently spent, in terms of tax forgone, will be applied to the new scheme, but we are rebalancing it, to ensure that people who do not save now are encouraged to save in the future. That is a useful and worthwhile objective.
The Chief Secretary has evaded the question by speculating on what the previous Government might have done, but we were committed to PEPs and TESSAs. How does he reconcile what he has just said with the quotations put to him in which, on behalf of the Labour party, he pledged that it was not considering the abolition of PEPs and TESSAs? He also told savers that there was no threat to the continuation of the tax relief that the previous Government gave them.
I said on several occasions that we were committed to building on the principle established by PEPs and TESSAs. The individual savings account will do that. If the right hon. and learned Gentleman reads the consultation document—I know that he has a reputation for not always reading everything that is put in front of him—he will see that TESSAs will run their course. He is right to say that we will never know what the previous Government would have done had they been re-elected, but perhaps he will one day shed some light on the subject. I repeat the point, which he, as a former Chancellor, will acknowledge: every Chancellor has to keep the level of tax reliefs granted under review from one year to the next. It would be madness not to do so.
We want to ensure that the substantial amounts given in tax relief are directed to helping those people who do not currently save, but whom we want to save in the future. Helping more and more people to save is an objective of this Government, just as it was of the previous Government.
The House will understand that there is a limit to what any Treasury Minister can say only two weeks before the Budget, but I repeat the fundamental and important objectives set out in the consultation document. First, we want to extend the savings culture so that more and more people save and make provision for themselves. To achieve that, we need economic stability, the right regulatory framework, and specific measures to help people to save. That is the direction of the Government's thinking, and it has been broadly welcomed.
The second objective is to ensure that the scheme is affordable and sustainable, to give people the certainty referred to earlier. The proposals, on which we have consulted, are a useful contribution to encouraging people to save. It is in the interests of everyone in this country, and of the country as a whole, that as many people save as possible. I am sure that my right hon. Friend the Chancellor of the Exchequer will have more to say about that in the not-too-distant future.
I declare an interest as a director of the London and Manchester Group, which specialises in encouraging people on low incomes to save. I make that declaration not only because it is necessary because of the Register of Members' Interests but because I believe that, on top of my lifelong interest in the issue, it has given me further insight into the problems that we are discussing. I therefore speak with considerable practical experience. I want to make a constructive contribution, but, given what the Chief Secretary said at the start of his speech, I must respond in a partisan way first.
It was outrageous for the Chief Secretary to suggest that pension mis-selling concerned only the Conservatives. We know that some took place, but many thousands, if not millions, more people benefited from personal pensions than suffered. It was a major contribution. He also ignored the fact that the major pensions scandal of the period was the work of a former Labour Member, for whom other Labour Members worked. It was outrageous that the Chief Secretary made such attacks.
The Chief Secretary accused us of having had a short period of high inflation. He forgets that under the previous Labour Government—I remember it well, because I served on every Finance Bill Committee—the average level of inflation was 15 per cent. We never in all our 18 years in government breached that average. For him to talk as though we were the party that did not understand the importance of a positive return on savings is nonsense. There was a negative return on savings throughout the time of the previous Labour Government, which was the biggest disincentive to save of all time.
For the Chief Secretary to suggest that we show no interest in low-income groups was a travesty of the speech of my right hon. Friend the Member for Hitchin and Harpenden (Mr. Lilley), which was a devastating critique. We have not heard an answer to any of his criticisms. I want to turn to that now. The House agrees about the importance of savings, especially long-term savings. The key question is how to go about it. That is why it was disappointing that the Chief Secretary did not answer any of the points that were made, although I understand why.
I have four main points. The first concerns the £50,000 limit on existing PEPs and TESSAs. My right hon. Friend the Member for Hitchin and Harpenden made many criticisms on that, all of which I agree with, and some of which I want to reinforce. I agree that it is insulting that the Minister who introduced this ceiling has done well in many ways through tax avoidance, and so on. That is so well documented that I shall not repeat it.
I shall comment on the key points, starting with the retrospective nature of the proposals. The right hon. Member for Caernarfon (Mr. Wigley) put it well in his question. People who entered into PEPs—this is not so much true of TESSAs—thought that the tax regime would last. They were reassured by the Chief Secretary before the general election that it would. They invested year after year, often, as the right hon. Member for Caernarfon said, not only for short to mid-term savings but to pay for mortgages. More important, many people chose them as their form of pension, rather than taking personal pensions if they did not have occupational schemes, or as a supplement to their pensions. They now find a change in tax legislation which, in many cases, will severely reduce the benefit that they were getting from those savings. For someone who started saving in 1987, £50,000 is not a huge sum today, given the improvements in the stock markets. The first point is that the Government's proposal is retrospective legislation.
The second point is the volatility of the issue. We do not know what the position will be next year in relation to PEPs. The stock market may not continue as it is at present. Some people will find themselves unexpectedly above or below that £50,000 line, and they will do so thereafter.
Thirdly, as my right hon. Friend the Member for Hitchin and Harpenden made clear, £50,000 is not a substantial sum in terms of the income produced, particularly after retirement. It will produce nothing like what most personal pensions and certainly occupational pensions will produce. To cut the sum off at £50,000 when so many people are relying on it is the exact reverse of what the Government said that they were about—encouraging people to save for their retirement.
That leads me to my final point on the £50,000 limit. I plead with the right hon. Gentleman to think seriously about this. How will people enter into future savings schemes with tax incentives, if they see that there has been such a dramatic change in these? The right hon. Gentleman said that some parts of the ISAs are meant to be short term, but if these are fundamentally meant to be long-term saving schemes, and if the Government, who said before the election that they would not make such a move, now do so, who will believe that they or a future Government will not change again?
That is one of my most fundamental worries, linked to the retrospective aspect. I entirely agree that tax incentives are an important way of encouraging long-term savings. If we reduce the credibility of tax incentives by making this move, we will have undermined the specific long-term objective that we are all seeking to achieve. I plead with the Chief Secretary to think seriously about the limit.
The simple answer is to say that all schemes up to now should remain within the tax net in which everyone expected them to remain. As we know, TESSAs will drop out, by their very nature. Everyone knew that they entered that scheme for a five-year period. No one can complain about TESSAs dropping out, because when people entered the contract, they knew the terms.
However, PEPs are different. The Government ought to have said that, as from a given date, there will be no further opportunities to engage in TESSAs and PEPs, but that all those who already have them should be allowed to continue with them and to come out of them when they wish to do so. That is the simple answer, which deals with all the arguments that I have advanced, but, above all, with the point that it is essential to maintain belief and credibility among the population at large that tax incentives given for long-term savings are maintained.
My second general point is that the Government are in a muddle about the relationship between ISAs and the stakeholder pension. I believe that it is important to encourage many more people, especially at a younger age, to save for their retirement. I think that that is also the Government's objective.
The House is aware of the issues—the fact that the state pension will no longer provide enough. All public opinion surveys show that the public have at last got that message, although they have not sufficiently grasped the importance of their doing something about it. We know about the problem of retirement in nursing homes. We know that people live longer. All those factors mean that we must build on the already considerable success that we have achieved, especially in relation to the rest of the European Union and most other countries, to encourage occupational and personal pensions.
We all agree that that should be the main objective. I am in total sympathy with the Government about the need to find a way of enabling those who do not have personal or occupational pensions to have them. I therefore look forward to the stakeholder pension document. I put a much higher priority on that than on the ISAs, but the Government have presented a proposal first for ISAs, which are apparently designed for the same low-income groups as the stakeholder pensions will be. I cannot see the attraction of an ISA to those lower-income groups.
Let me elaborate. I have read all the responses to the consultation document, and many of them argue that we should have a compulsory third pension—we already have a compulsory second pension. If that is the direction in which we move, and I am reluctantly beginning to come to the view that that must be done, low-income groups will not have any extra income to put into an ISA, on top of the compulsory second or third pension, however one wishes to describe it. They will move into the pension area, which some of them will find difficult enough, and they will have very little to contribute to ISAs.
Secondly, ISAs will provide only limited benefits to lower-income groups. They would do worse on equities than they would under the existing PEP regime. Supposing people put up to £1,000, as they will be allowed to do in the existing ISA, into a deposit scheme, I calculate that the benefit to an individual from going into an ISA through cash will be under £5 a year. That is not a big attraction for going into an ISA: £5 a year for five years and that is it—no more after that.
Does my right hon. Friend agree that it would be wrong for someone in that income group to put the money in an ISA? It would be far better to put it in a pension, so that the money is there for the future. The Government's proposal creates a temptation that is all wrong in public policy terms.
I entirely agree with my hon. Friend. If the second—or third—pension is compulsory, that is what people will have to do anyway. We are setting up elaborate machinery, designed apparently for the low-income groups, which will be of little interest to them. Given the likely charges and costs, which I shall deal with later, that would probably be the wrong thing for them to do as a means of efficient saving. I would not quite call it a fraud, but it is a pretty poor prospectus—a con—for the low-income groups. The proposals for ISAs and stakeholder pensions should have been considered together. If they had been, the Government might have come to a different view.
I am all in favour of savings regimes with tax incentives for the middle and upper-income groups, for whom PEPs have largely been of benefit up to now. It is not just low-income groups who need to save for their retirement. We all know that one of the most devastatingly difficult problems to deal with is the case of people in middle-income groups who have to sell their family home to provide for nursing homes. Part of the objective is to encourage them, through PEPs and other regimes, to accumulate some liquid savings to deal with that situation when it arises, as it will for many in any age when people live so much longer.
I am strongly in favour of PEPs—indeed, as Chief Secretary, I took them through the House in the Finance Bill—but I am certainly not going out to sell the advantages of a PEP or of an ISA on the basis that it will be of great benefit to low-income groups, because that is not the case. The Government have got into a muddle.
One of the problems that have arisen from encouraging savings through occupational or other pensions is that those are available only to people with earned income. That is a strong criticism of the existing system, given that life styles are different, and people go in and out of work more frequently. The way to tackle that is for those who are not currently earning but who have some disposable income to be encouraged to put it into pension schemes with the same tax reliefs, rather than into ISAs.
Through their approach, the Government have clobbered the PEP saver. They have already clobbered pension savers through their measure on advance corporation tax in the last Budget. They are not putting in place a regime that is attractive enough to the people whom they intend to help. I hope that the forthcoming Budget does not contain any other measures to hit contributions or savings going into pension schemes. If further tax reliefs were taken away from contributions, that would be further evidence that the Government were not serious about what they claim to be their objectives, because their actions go in the opposite direction.
The last two points that I shall make are somewhat related. The first is the need to encourage the market and people out there to take up ISAs, if those are to be introduced. The second is the regulatory regime. When we were considering introducing PEPs—as I said, I took the legislation through the House—I said regularly that we had to give incentives to the marketplace, which is the financial services industry, to encourage it to sell PEPs. I was bothered then that the scheme that we were introducing, which had a limit of £2,400, would not prove sufficiently attractive to the financial services industry to enable it to recoup the costs of selling the scheme. However, I was happy to see the scheme start, because at least there was a regime and a tax incentive on the statute book on which we could build.
That is precisely what occurred. The take-up was low in the early years. As the conditions were relieved—we allowed some investment in shares in foreign companies, and the £2,400 limit was raised effectively to £9,000—there was massive take-up both by the industry and by individual savers. The Government should give the financial services industry—I shall turn to Tesco, Marks and Spencer and so on later—some incentive so that it can make the scheme work. The more the Government criticise the financial services industry without appreciating that point, the less successful the scheme will be. I urge the Government to acknowledge the importance of that argument with regard to PEPs.
The Government are doing something quite different with ISAs. According to the conditions outlined in the consultation document, they are producing a scheme that the industry will find difficult to market at low cost. First, the product is anything but simple, so advice must be provided. Secondly, the Government are insisting that a single manager should handle all the different elements of the scheme every year. It will be extremely difficult for individual providers to monitor those elements, and there will an associated cost. Thirdly, we have the limits. The industry will not take up ISAs easily—the vast range of respondents who criticise the scheme in the consultation document make that point based on their experience.
That leads me to ask whether we can simplify the product and sell it differently. I am in favour of Virgin, Marks and Spencer and others trying to simplify the product and using their marketing skills to reach a wider clientele. However, the product will not be easy to sell. It is suggested that people from low-income groups will be able to take up ISAs at the cash till, having asked the cashier what it means and what they should do with it. That is not on. It will not happen like that—if it does, there will be massive mis-selling on a huge scale for which the Government will have to take the blame. The product as it stands will not be easy to sell, so there will be an associated cost.
That brings me to my point about the regulatory regime. I am trying to be as objective as I can, because there has been too much criticism of pension mis-selling by Labour Members who do not understand the basics. If we introduce complicated schemes such as this, we must ensure that those who take them up receive proper advice—and there is a cost attached to providing that advice. There is a cost attached to administering the scheme and a big cost attached to tracking the £50,000 limit to which I have referred already.
There is a direct contradiction between the Government's comments about the regulatory regime, and their lambasting of the industry for high costs and charges, and the purportedly low-cost scheme that they have introduced. I am in favour of the Government's attempts to reduce costs and charges—that is a highly desirable aim. However, if the Government go down that route, they must recognise that the regulatory regime will have to change. We cannot maintain the current prescriptive and difficult regulatory regime.
In the event of any so-called "misselling", this or a future Government must not be able to blame those who sold the product. We must recognise that those who buy financial products assume a certain amount of the risk—it is caveat emptor to a certain extent. If we invest in equities in an ISA, and another unit trust performs better, we cannot blame the provider of the poor-performing trust. That would be ludicrous. There is a vast difference in the performance of unit trusts in any one year, so there must be a certain amount of understanding and give and take. The only way forward is to have the simplest possible regulatory regime with a kite mark—it could be a benchmark, but I prefer a kite mark—set by the Government. Providers could then follow that kite mark without needing to worry about redress—which could be enormously expensive—if it is thought subsequently that their original selling was wrong.
I plead with the Government to appreciate that they must understand what happens in the marketplace—not in the tax avoidance industry, but at the bottom end where the low-income groups are involved—regarding selling and the regulatory regime. I know from my experience in the London and Manchester Group that encouraging people on modest incomes to save can be a labour-intensive exercise, and therefore a costly business. However, that is how we shall achieve our objectives. The scheme and the regulatory regime must be made much simpler.
I do not seek to make a partisan point: I genuinely believe that the Government have got it wrong. I believe that the scheme is wrong and that the £50,000 limit is dangerous and unfair on those who have invested to date. It is a breach of the retrospective principle. The Government must take into account the relationship between ISAs and the stakeholder pension, and recognise that ISAs will not be particularly attractive to those in the low-income group—although I favour some form of saving of that sort.
I fully understand why the Chief Secretary could not reveal today the Government's response to the consultation document. However, I hope that the Chancellor will introduce a totally different scheme in two weeks that responds to all the objections that my right hon. Friend the Member for Hitchin and Harpenden raised.
I begin by responding to the comments of the right hon. Member for South Norfolk (Mr. MacGregor). He said that PEPs had no advantages for the low-income group; I shall outline the advantages of ISAs in my speech today. Before I do that, I must express my admiration at the desperate attempt by the right hon. Member for Hitchin and Harpenden (Mr. Lilley), the shadow Chancellor, to save his job. However, I think that he failed and I am sure that he will not hold that position much longer. He made a vindictive and petty speech, in which he failed to address seriously the issues of the day.
It is interesting to witness the politics of envy: Conservative Members are envious of anyone who is successful in this country. That is quite astonishing. I am waiting for a response from the Opposition, but there is none, as usual. The right hon. Gentleman launched a completely unnecessary attack on Ministers in a very important debate about the future of savings in this country. I welcome the fact that the right hon. Gentleman has apologised for one remark, but I think that he should reconsider many of his comments in light of today's debate.
Of all hon. Members, I am qualified to speak in this debate because—as I am sure Opposition Members know—until 1 May, I was employed by Legal and General, which is a major pension and savings provider. In 1986, when the then Chancellor, Nigel Lawson, introduced PEPs, I was in the marketing department of Legal and General. We faced the quandary of deciding what the PEPs products meant.
We looked carefully at Nigel Lawson's Budget speech in 1986. He said, for example, that
it is the long-term ambition of this Government to make the British people a nation of share owners … in which more and more men and women have a direct personal stake in British business and industry.
This is not about privatisation; it is about personal equity plans. The then Chancellor continued:
I propose … a radical new scheme to encourage direct investment in United Kingdom equities … it is specially designed to encourage smaller savers, and particularly those who may never previously have invested in equities in their lives.
His final comment on the PEPs scheme in March 1986 was:
I am confident … it will bring about a dramatic extension of share ownership in Britain."—[Official Report, 18 March 1986; Vol. 94, c. 177–78.]
Those words, 11 years later, are wrong. What we in the marketing department discovered in 1986 was that it was not possible to put those words into action, because PEPs were not about greater share ownership. They were about allowing the better-off in society the opportunity to save in a tax-free vehicle. There would be nothing wrong with that if the Government in 1986 had been honest, but they were not because PEPs were not an attempt to bring about greater share ownership. [Interruption.] My hon. Friend the Member for Workington (Mr. Campbell-Savours) has just asked me whether the year was 1986. It was.
I will take the House through the PEPs issue in its entirety. Fewer than one in 100 of the poorest households in the United Kingdom have any form of tax-free share investments, whereas more than a quarter of the wealthiest do. That shows clearly that, as the right hon. Member for South Norfolk said, there is no advantage in PEPs for low-income groups. He is right. It is his Front Benchers who are getting it wrong by trying to defend PEPs and TESSAs. I looked at the pledges that the Conservative party made in its manifesto to rectify the point that the right hon. Gentleman made. Nothing in it corrects the anomaly that there is no advantage in PEPs for low-income groups.
Is the hon. Gentleman aware that the latest Association of Private Client and Investment Managers and Stockbrokers figures show that earners down even as far as the fourth decile use PEPs extensively; that more than half the people who invest in PEPs are basic rate tax payers; and that 20 per cent. do not pay any tax? Does he agree?
The hon. Gentleman might like to get a copy of the Institute for Financial Studies briefing paper on this, which is widely available, including in the Library. It says that 49.65 per cent. of households in the United Kingdom have no investments; that 40.27 per cent. have some investments but no PEP; that 4.62 per cent. have no investments other than a PEP; and that 5.46 per cent. have a PEP and some other investments. That does not seem to bear out the hon. Gentleman's point. Only 4.62 per cent. of households in the United Kingdom have no investments other than a PEP.
I should clarify what I said, and what I meant. One has to define low-income groups. If by that one means the groups to whom the company with which I am involved, London and Manchester, often appeals, and the groups to whom the £1,000 cash limit is meant to appeal, I agree with the hon. Gentleman that the low-income group is unlikely to be attracted by PEPs. There is a substantial range of income groups who did not previously invest in equities, but who have been encouraged by the PEP regime and the other ways in which we have encouraged savings.
I do not think that I have denied that the previous Government attempted to encourage savings, and that PEPs and TESSAs are worthwhile causes, but have they encouraged many to save? They have not. I have just amplified the point that fewer than 5 per cent. of households in the United Kingdom have no investments other than a PEP. In that respect, no Government with any reasonable ambition for wider savings could sit on their hands and do nothing. That would be a travesty, but that was the proposal in the Conservative party's manifesto in 1997. Perhaps the Conservatives, like the rest of the country, knew that they would lose the election. I do not know.
The Institute for Fiscal Studies document says clearly that, on average, as the right hon. Gentleman will know, PEP holders are older and richer than non-PEP holders. In other words, the industry and the then Government aimed PEPs at people in the 50-plus age group.
Nigel Lawson said in 1986 that PEPs were about widening share ownership in the United Kingdom. The Conservatives must answer the question whether PEPs have achieved that. PEPs have not achieved their goal. Indeed, the financial research survey shows that the same type of people invest in PEPs as hold stakes in normal unit trusts. Unit trusts do not have tax incentives whereas PEPs do, yet the same type of people are investing in both. Unit trusts and PEPs are concentrated among those who are over 55.
The hon. Gentleman's figures seem to be completely out of tally with those of the industry. Is he aware that the Association of Unit Trusts and Investment Funds has carried out a survey that suggests that 78 per cent. of unit trust holders who also have a PEP would not invest in those unit trusts if they were not "PEPable"?
Thank you, Mr. Deputy Speaker. I had not forgotten.
I shall make some points about the financial research survey carried out by NOP. I am sure that the shadow Chancellor has seen it, as he is well versed in these issues. The survey shows that 57 per cent. of adults in this country have less than £500 in any savings scheme, including PEPs, and that 85 per cent. of people in socio-economic classes D and E have less than £500 in savings or investments, so PEPs and TESSAs have not worked. They have not got the masses to save.
The question put to me by the right hon. Member for South Norfolk was whether, going up the salary scale, greater use had been made of PEPs? I am afraid that the answer is no. Those with incomes between £25,000 and £35,000 have less than £2,000 in savings or investments. The previous Government failed in their savings policy for PEPs and TESSAs.
If the hon. Gentleman's figures are true—for the sake of the argument, let us assume that they are—would he advise the same proportion of the population on low incomes to contribute to an ISA before they contribute to a stakeholder pension?
I am grateful to the hon. Gentleman for his intervention, but I am not—and nor is he—qualified to give advice on financial products. That would be against the current regulatory regime. When one comes from the industry, one is aware of the traps when colleagues ask questions about financial services. I am surprised at the hon. Gentleman for suggesting that I should advise him on financial matters in the House of Commons. We cannot do that.
The shadow Chancellor made some disgraceful comments about the consultation process on future savings on which the Government have embarked. Opposition Members seem to have a problem with the word "consultation". For 18 years, it meant not consultation, but "This is what we shall do; we want you to sign up to it". When we say "consultation" and invite comments from the industry and all interested parties, including political parties, we mean it. In the past few weeks, I have been out and about speaking to colleagues in my old industry. People in the industry are debating vigorously the future of savings, but no one believes that the status quo, as proposed by the Conservatives in their 1997 manifesto, is a starter. People welcome the opportunity to contribute to the debate about the future of savings.
I have already owned up to having been in the industry when pensions were mis-sold in the late 1980s. I finished my career working as head of quality in Legal and General's compliance department, which was growing more quickly than the marketing department. That may have been a sign of the failure of the regulatory regime that the Tories gave us in the Financial Services Act 1986. It is now widely accepted that it has failed badly.
It would have been nice for the House to hear the person who was responsible for the mis-selling of pensions, the right hon. Member for Hitchin and Harpenden, apologise to the House today for the fact that hundreds of thousands of people were mis-sold pensions. He had the opportunity to do so today and in the Budget debate in July, but he has failed to apologise time and again. He must be judged in those terms.
The right hon. Member for South Norfolk said that the ISA is a product. In pure marketing terms, it is not a product, but a concept. It can become a product only once we have devised how it will be sold. I have attempted not to be partisan about that.
I have outlined in detail why PEPs and TESSAs have failed to extend savings. It is right that any Government should consult widely in an attempt to do that, which is what this Government have done. Ultimately, we shall have an effective and sensible product which will make savings available to the many. That must be the aim of every right hon. and hon. Member, because PEPs and TESSAs have clearly failed to do that in the past.
May I couch my remarks primarily in terms of the Government's declared objective, which is to spread the savings culture and encourage low-income savers? That objective should be judged as laudable and sensible. I regret that the Conservative amendment makes not even a passing reference to that problem, although the right hon. Member for South Norfolk (Mr. MacGregor) made some pertinent remarks about it.
The hon. Member for Hove (Mr. Caplin) summarised very well the problem of low-income savings. The figures are reasonably well known: roughly a third of households have no financial assets and many of them are in debt. The reasons are profound and not easy to overcome. Many people simply do not have the money to save. The whole institutional structure discourages them from saving because there are relatively large returns for people with large bank deposits and smaller returns for those with small bank deposits. Those on low incomes sensibly and rationally discount saving and, unless spectacularly high returns are offered, keep such savings as they have in cash. The test of ISAs is whether they can overcome that.
Despite the Government's objectives, many of the proposals are disappointing. The right hon. Member for South Norfolk gave a good arithmetical example to illustrate the reasons for that. The logic of his arithmetic was that, under the Chancellor's newly proposed 10 per cent. income tax band, a £1,000 deposit with a 5 per cent. yield would give the saver an extra £5. If the saver falls below the 10 per cent. band, he would get nothing. The Government intend to compensate for that by some kind of bonus, but when one studies the details of the bonus, the word that comes to mind is "pathetic". They propose that 50 out of the prospective 6 million new savers be allowed to take part in a prize draw to claim £1,000. That is the kind of sum that one would get in a respectable summer village fete. It is not a large inducement to save, especially for low-income savers.
May I suggest, in a constructive spirit, how the Government might deal with that problem? One route is to adopt the Government's philosophy of rewarding reasonably good balances. Why not take up the proposal of the Liverpool Victoria Provident Society, for example, which suggests that small savers could be rewarded with a generous entitlement to premium bonds or a large portfolio of free lottery tickets? That is an attractive proposal.
I am surprised that no one so far has mentioned the fact that the benefit system severely damages the incentive for those on low incomes to save. Many low-income families are caught in a savings trap, just as they are caught in a poverty trap when they try to work. This weekend, I dealt with a lady who is having serious problems with the Department of Social Security. The DSS was in arrears of payment and, now that it has eventually paid the several hundred pounds owing into the lady's bank account, it is trying to claw back entitlement to supplementary income support because she has a few hundred pounds' savings in her bank account. Such practice is common under the benefit system. I hope that the Government will rule that all benefits paid to low-income savers can be credited as a savings disregard. I also hope that they will make some positive suggestions, in the Budget if not today, about how the savings disregard could operate more flexibly to help low-income savers.
My main criticism is that, although the Government's intentions for low-income savers seem admirable and should be supported, the incentives are weak. Most hon. Members have received a lot of representations about the £50,000 limit. Many people in Twickenham have written to me about it. I am not referring to some abstract philosophical problem with retrospective taxation—the Conservatives have missed the point in that respect, because it is not a basic point of principle. All Governments have chiselled away retrospectively at mortgage income tax relief, for example. That is common practice. The real problem is practical: the marketing of new savings instruments is undermined once it becomes clear that the Government tamper with hindsight in returns from successful products. That is what is happening with PEPs and TESSAs.
There is also a serious administrative problem. Under the PEP scheme, many people have 10 different accounts. Will there be a centralised register so that those can all be monitored? Potentially, there could be an administrative nightmare in capturing the extent to which people exceed their lifetime ceiling. The Inland Revenue has laid off 6,000 people and is already under pressure. It simply does not have the capacity to handle such administrative problems.
It would appear from leaks in the financial press that the Government have already thought about that problem. I therefore suggest that the £50,000 cumulative limit on TESSAs and PEPs be waived. If it were waived, a lifetime ceiling would be illogical, because the Government could impose the necessary restrictions on tax relief through the annual limit. Clearing up the system in such a way would deal with many of the objections of Opposition Members.
My final point relates to the reform's implications for public expenditure. The Chief Secretary gave a clear and helpful response to my earlier intervention, but my hon. Friends and I have been trying to get to the bottom of the matter for months and have received different answers from different Ministers. On 10 December 1997, the Prime Minister said at Question Time that there would be more relief than is currently available, but on 17 December, the Chancellor told the Treasury Select Committee that he was working within a ceiling of £1.5 billion, which is quite different and implies that significant savings will result from the reform.
The correspondence that we have had with Treasury officials to clarify the matter essentially confirms what the Chief Secretary said: the existing level of tax relief will apply for the first two or three years, but there will be a flatter profile after that, which is a technical way of saying that savings will result from the scheme. That is not simply a debating point: if savings are made, those resources should go into improving the scheme.
Two major improvements—to the £50,000 retrospective limit and to bounties or incentives for low-income savers—could be made to the scheme. If the Government can reassure us on those points, we shall support the ISA scheme in principle.
I am grateful for the chance to speak in the debate because financial services are of great importance to my constituents. I was particularly interested when the right hon. Member for Hitchin and Harpenden (Mr. Lilley) said that Conservative policy was, somehow, in the best interests of middle Britain. I represent a constituency in middle Britain, which I took from the Conservative party. The financial reality faced by my constituents bears little resemblance to that which the right hon. Gentleman described. An estimated 9,000 people in Northampton need help with debt problems. Many of my constituents have no savings, but are sold more credit than they can manage. They are living at the limit of their income and have nothing to fall back on, even if they run into small family problems. Therein lie most of their problems.
I shall consider the individual savings accounts proposal from the viewpoint of my constituents in middle Britain with incomes of about £16,000 and mortgages of about £40,000. Most of those who have provided for continuing care have done so with insurance policies. I understand the problems that the right hon. Member for South Norfolk (Mr. MacGregor) mentioned, but he described them from the provider's viewpoint. That does not gainsay the need for a vehicle to ensure that the consumer has access to good financial services and good returns on savings.
The fact that 40 per cent. of the population have no savings has been referred to often. That figure is bad enough, but the position is worse. The Consumers Association recommends that people should have three to six months' savings to fall back on. For my constituents, that means £4,000 to £8,000, yet fewer than half of all savers have savings approaching that sum. Not only are people not saving; even those with savings do not have enough to protect themselves against the proverbial rainy day.
My hon. Friend the Member for Hove (Mr. Caplin) quoted figures showing that people with children, whether couples or single people, have the lowest savings. I strongly believe that the complex problems surrounding savings and debt, as much as those surrounding benefits and work, must be solved if we are to tackle child poverty. It is not good enough to accept the fact that families with children are the most vulnerable to financial ups and downs.
As my hon. Friend the Member for Hove said, TESSAs and PEPs have failed to deal with the problem. Although they attracted huge investment from private individuals, those people were not necessarily new savers and certainly were not on lower incomes. That failure is especially true of PEPs: one in four of the top 10 per cent. of earners have a PEP, but fewer than one in 100 of the bottom 10 per cent. have one.
The involvement of the wider public in share ownership has increased, but has recently tailed off among the young and those on lower incomes, partly because of marketing changes and the ending of the previous Government's privatisation advertising campaigns. The real problem with TESSAs and PEPs is that, although tax breaks undoubtedly encouraged investment, tax benefits mostly went to those who were already in higher income groups, which is why the proposed saving scheme with tax advantages for low-income earners is so welcome. Individual savings accounts will benefit the many, not the few.
It is especially important that ISAs will provide access to different types of investment. Conservative Members described that as a complication; I think that it is an advantage. People on lower incomes have tended to use only certain financial services, such as bank, building society and credit union savings accounts, which carry fewer risks, but offer lower rewards. If we are serious about fuller participation in the economy, people on lower incomes must have access to the sophisticated financial products that are on the market.
The industry may find the ISA formula complex, but it is relatively simple for the consumer to understand. Another important feature is easier access; I welcome the Government's intention to make schemes available through supermarkets. I have struggled through shopping centres with small children in tow, so I know the value of one-stop shopping. Other retailers may not like the idea, but consumers, especially women with young children, increasingly hope and expect to do the bulk of their shopping, pay their bills and bank in one shop.
The quality of ISAs will depend, in part, on the quality of the supermarket from which they are available. That is no different from supermarket banking or products such as Virgin PEPs.
I shall return to that serious point. As I said in relation to Virgin PEPs, the quality of financial services depends, to an extent, on branding. The quality of financial advice is a serious issue—it does not have to be a problem—which the Government must address in response to the consultation.
The issue of the quality of financial advice is not exclusive to PEPs and TESSAs. A number of high street banks are shutting local branches, and financial products are marketed aggressively on the radio and can be bought over the telephone. There is a wider issue: personal banking service providers must give good advice to people who are looking into financial services while buying peas and yoghurts in a supermarket. Although ISAs may be complex for the industry to manage, they will be accessible to the consumer, which is a particular advantage for those who would otherwise be locked out of the increasingly sophisticated financial services market. Moreover, as I have said, banks are closing branches, and supermarkets are likely to become increasingly the most convenient—and sometimes the only—point of access.
The possibility of individual savings accounts being offered through credit unions is an important development which is often overlooked. Credit unions have been the poor relation of financial services in Britain, but the advent of the first national credit union—organised by the bakers' union, backed by Unity Trust bank—has changed that, allowing people to deduct amounts from their payroll.
I hope that when the Government produce their final proposals for individual savings accounts, they will address two issues. I have referred to the provision of financial advice for those who buy such accounts at supermarkets. The other issue is the amount of savings that people are to be allowed to hold before being disqualified from receiving various kinds of benefit, especially if they have chosen life insurance as one of their options for individual savings accounts.
I hope that the Government will consider those two issues, for a reason in addition to those given by Opposition Members. I think that they will particularly affect women who, although they want to save, may either find it difficult to gain access to good financial services and advice or feel concerned about the impact of their savings on benefit entitlement. The figures show that those with the least savings are, overwhelmingly, single parents, only about 20 per cent. of whom have any savings at all.
Much has been made of the £50,000 limit. We used to hear a good deal about the impact on PEP mortgages, but, according to information provided in Hansard, if both partners in a couple exercise their full rights they can support a combined PEP mortgage of some £250,000. Whatever the financial problems of people in middle Britain, they certainly do not focus on mortgages of a quarter of a million pounds. That error of judgment may have contributed to the Conservative party's losing its hold on middle Britain.
I believe that the plans for the individual savings account are both bold and ambitious. I believe that they provide people who have so far been excluded with access to a range of modern financial services. They combine imaginative and innovative features that will attract people who have not saved money before, and, in doing so, they will help to end some of the misery of those who find that lack of money turns a family problem into a financial crisis. I think that these will be savings accounts for the many, not the few, and that they will give more people just the kind of financial independence and choice that this Labour Government are all about.
The hon. Member for Northampton, North (Ms Keeble) made a thoughtful speech. In her summing up, she referred to the need for advice to be available within the general context of savings schemes. It is interesting that she raised the question without having an answer to it, simply pointing out that it needed to be addressed by Government. I certainly agree with that. Another point that the hon. Lady made in summing up related to the effect of the level of savings on benefits, which I intend to discuss in my own short speech.
The subject of pensions and savings may seem dry to those who are young and a long way from retirement age, but I have long been interested in it. I may be the only Member of Parliament to have recently taken the trustees' examination of the Pensions Management Institute; I am also the independent chairman of a pension fund. Given that Lord Nolan puts his nose into most matters nowadays, I suppose I should add that I am not a beneficiary.
This is an issue of raw politics. It goes to the centre of the contrast between the Labour Government and the Conservative party. The Conservative party lives in the tradition of kin Macleod, who said that it was the duty of Government to provide a framework within which each individual could save, and make himself a modest fortune in his own lifetime. In contrast, the Labour party promised in its manifesto to extend the principle of PEPs and TESSAs, which have done so much to enable many people to build up modest fortunes and look forward to retirement with confidence. There is no doubt that that undertaking to extend the principle of PEPs and TESSAs reassured savers as the election approached, and no doubt that it won votes for the Labour party. I submit that it was a misleading statement, a fraud on the saver and the electorate and a false prospectus.
A striking feature of the Labour Government's current formulation of savings policy is its lack of cohesion. As the Association of British Insurers has pointed out, the consultation paper on ISAs seems to have been written by a different hand from the consultation paper on stakeholder pensions. That is extraordinary. One would have thought that the Government's approach to savings would be within the general framework of their approach to pensions.
There are four main ways in which individuals can prepare for retirement. First, they can save for their pensions through an employment scheme, if they are fortunate enough to be in one. Secondly, they can save through a special additional scheme—the state earnings-related pension scheme, or an alternative private scheme. Thirdly, there is the basic retirement pension. Fourthly, there are personal savings.
I have attended seminars, and have studied the subject of low-cost pensions, which the Government's consultation paper is intended, in due course, to address. The expression "low-cost pensions" has become associated with stakeholder pensions. One certainty, however, is that there is no such thing as a low-cost pension. Any pension that is funded will need to be funded by an amount 15 to 18 times the amount of any required pension. People will need to save substantially if they are to save for their own pensions.
Some people will have had the benefit of saving through occupational pension schemes. Others will have relied on PEPs and TESSAs. I heard the Chief Secretary say that he had always regarded PEPs and TESSAs as complementary to pensions. Of course the Chief Secretary is economically literate. He may well regard PEPs and TESSAs as complementary to pensions, but some people do not, including a clergyman's widow who wrote to me from my constituency. She has been relying on her PEP and TESSA contributions as a significant part—perhaps a major part—of her retirement income. It is not good enough for the Government to change the rules on PEPs and TESSAs, and, effectively, to impose retrospective legislation to change the benefits that people will receive from them, when some have been looking forward to PEPs and TESSAs as the main plank of their retirement arrangements.
Attention has been drawn to the cost of the advice that people will need to take before changing their retirement plans. Legal and General carried out a survey, asking people how much they would think it reasonable to pay for advice on insurance and retirement provision. Most regarded £60—younger people said £50—as a reasonable amount to pay for advice on retirement provision. As the hon. Member for Northampton, North said, however, advice is needed, and the Government have now demanded that it be of high quality. The normal rate charged by a pensions or insurance adviser is about £150 an hour. No one can believe that it is possible for a pensions adviser to give realistic and sensible advice in 20 minutes. He cannot do so in less than two hours, given the time that it takes to appraise the position. That will cost £300 plus VAT—in other words, £335—which, incidentally, amounts to two thirds of 1 per cent. of a £50,000 fund. Those who wished to rely on PEPs, TESSAs and ISAs under a Labour Government have been badly let down.
Another issue that has not yet been raised in this debate is the implication of the savings trap, which the hon. Member for Northampton, North mentioned. The hon. Member for Bolsover (Mr. Skinner) clearly had absolutely no idea of the yield on pension funds, or, more important, of the capital sum required to provide a pension. The savings trap will have dramatic effects on savings for pensions. If savings are limited to £50,000, as they may be under ISAs, and if that sum is the sole pension provision, it will yield only £256 per month—£3,072 annually—in annuity for a 65-year-old married man, allowing for the normal 3 per cent. inflation expectation.
If someone with no other pension or savings receives a state pension of £5,083 annually, income support at the level of £330 annually, housing benefit at £2,080 annually and council tax benefit of £312 annually, his or her net annual income will be £7,805. However, if that individual has saved £50,000 in an ISA, the additional amount that he or she will receive will be only an extra £400 annually. Therefore, £50,000 which has been saved over the years will yield only four-fifths of 1 per cent.—representing a serious savings trap with which the Government must deal.
A 45-year-old man who expects to retire at 65 and has no other savings or pension would have absolutely no incentive to save for retirement unless his pension will amount to £4,132 annually, allowing for 3 per cent. inflation. Therefore, if he cannot save £65,000, he would be better off simply blowing his money and not bothering to save.
The message is quite clear: individuals who wish to prepare for their own retirement should start early and keep saving. Although individuals might well support a cap on the annual commitment to their pension or savings fund, it is not acceptable for them to have on overall cap of £50,000, as that would render such savings completely pointless. If such a scheme were to be their only method of savings, regrettably, there would be no point in their saving £50,000.
Are the Government small-minded and ignorant about those matters? No; the situation is worse than that. The Government, having won the general election by reassuring holders of PEPs and TESSAs, are now ditching those individuals. The losers will be many: those who believed the Labour Government when they said that they would extend the benefits of PEPs and TESSAs. The only beneficiary of the change, should it happen, will be the Treasury, which will save £800 million annually in tax relief on PEPs and £450 million annually in tax relief on TESSAs.
The debate had a very unfortunate start. Nevertheless, both Labour and Opposition Members have made some valuable points. The right hon. Member for South Norfolk (Mr. MacGregor) made some valuable points on the interaction of pensions and savings vehicles, such as individual savings accounts and personal equity plans. The hon. Member for Gosport (Mr. Viggers) made some useful points on pension yields, although those who can afford to invest will rarely rely on only one vehicle.
It is useful to start such debates with some history. The right hon. Member for Hitchin and Harpenden (Mr. Lilley) began his speech with some remarks about the previous Government's policy to promote savings. Lord Lawson—in his book, "The View from No. 11"—was much more frank about the matter, making it quite clear that policy was not thought up by the Conservative party, and that he got the idea from a law passed in France in 1978. The comments of the right hon. Member for Hitchin and Harpenden were therefore partly a mis-selling of Tory innovation.
The right hon. Member for Hitchin and Harpenden mentioned promoting savings. However, as my hon. Friend the Member for Hove (Mr. Caplin) rightly said, PEPs were originally designed to widen share ownership. In his book, Lord Lawson says:
I was always very cautious about describing PEPs as savings incentives.
He went on to admit that PEPs were intended more to widen share ownership. However, as my hon. Friend the Member for Hove said, that intention was not fully realised, as those who already had shares moved into PEPs because they were a tax-efficient means of investing.
Conservative Members have suggested that the PEPs and TESSAs savings regimes are long established and almost sacrosanct. They also mentioned retrospectivity, which I shall deal with later in my speech. Conservative Members should remember that they changed the mortgage interest relief at source regime, which affected the tax advantages gained by putting one's investment—if one considers it as such—into housing. If the introduction of ISAs represents retrospective legislation, changing the MIRAS regime certainly represented retrospective legislation.
PEPs did not take off in the early years—until 1991, fewer than 50,000 had been sold. They have been bought in large quantities in only the past five or six years—so that now, according to one estimate, there are up to 2.5 million PEPs. TESSAs were introduced only in 1991, although TESSA ownership has grown more smoothly than PEP ownership. Nevertheless, only about 4.5 million people currently have TESSA savings. We are therefore debating not schemes that have been approved over generations but recent institutional developments. Hon. Members should therefore be much more careful when mentioning retrospectivity.
Labour Members have made some important points about the extent of TESSA and PEP ownership among the public, and Conservative Members have said much about how middle Britain will be hit—although the statistics do not begin to support their comments. My hon. Friend the Member for Hove cited the 1995 British household panel survey which showed that almost 50 per cent. of households had absolutely no investments—no shares, no bank accounts, no building society accounts and no friendly society holdings—and that only 10 per cent. had PEPs. Therefore, only a very small segment of society has such investments.
The 1996 family expenditure survey showed that just over 10 per cent. of families held TESSAs. If we go further and examine the type of people who comprise that 10 per cent. of the population, a point made by Labour Members is confirmed: wealthier and older segments of the population hold such institutional savings accounts and investments. The right hon. Member for Hitchin and Harpenden talked about small savers—but they are small savers with very large incomes.
I am not as cynical as Gillian O'Connor was last week in the Financial Times, when she rather acerbically said that the PEPs regime had been a licence for the middle class to print money. Nevertheless, the report by Andrew Dilnot and his colleagues at the Institute of Fiscal Studies demonstrates the limited ownership of those investment vehicles.
My hon. Friend the Member for Hove cited the figures, so I shall not repeat them, but it is clear, from the percentage of households with at least one PEP, that ownership is concentrated among the richest 10 per cent. A quarter of that cohort own PEPs. We should also bear in mind distribution by age. Ownership is highest among households aged between 50 and 59.
The report reveals that TESSAs are similarly concentrated among older and richer households. Again, the highest ownership rate is among those aged between 50 and 59 and more than 70 per cent. of TESSAs are owned by households in the top 50 per cent. in terms of income.
To anyone other than the Opposition, that would raise an interesting and important issue of public policy—how to involve other segments of the population in saving. The ISA proposals are designed to address that.
Opposition Members have not addressed other disadvantages with the existing regime of PEPs and TESSAs, such as the inflexibility of the TESSA regime. The report by the Institute of Fiscal Studies demonstrates that, because of their inflexibility TESSAs are not held by the sections of the population that one would normally expect to invest in them. People in their 50s, and particularly those in their 40s, need ready access to money to meet particular contingencies and the TESSA regime is far too inflexible.
There are also disadvantages in the PEPs regime. The hon. Member for Gosport touched on the fact that PEPs do not roll over to surviving partners in the event of the death of the investor. There are also marketing problems. My right hon. Friend the Chief Secretary mentioned that the management charges in respect of many PEPs were quite significant and in some cases outweighed the tax relief.
There are further problems. Some companies in the PEP market had to cease taking new business until they had sorted out their problems. A couple of months ago, Kevin Goldstein-Jackson wrote in his column in the Financial Times:
In July 1995, I pointed out that many people had been persuaded to invest in Peps in order to 'save' tax—but the only tax they saved was that on dividend income. This was because many of them had invested sums which, had they been used to buy shares directly, would not have been subject to capital gains tax since they were within the exemption limit.
In other words, there was a mis-selling of PEPs. So there are problems in the existing system and, more important, there are grave disadvantages in terms of the coverage of current investment vehicles.
I now come to the ISA proposals which aim to increase the coverage in the general population. We want to encourage saving. Half the population hardly save at all. In 1995–96, the family expenditure survey revealed that more than a third of households had no financial assets—no bank accounts and no shares.
The hon. Gentleman does not want to hear the facts. He has never been concerned with empirical evidence, only rhetoric.
The ISA proposals are designed to get new savers involved. My right hon. Friend the Chief Secretary drew attention to the tax expenditure aspects of the current regime. In 1997–98, the figure was £1.25 billion and it would rise to £1.7 billion by 2001 under the current regime. Given the enormous tax expenditure, the idea is to distribute more widely the advantages that currently benefit a limited section of the population.
Of course, there have been criticisms from some parts of the industry. The shadow Chancellor quoted some industry reaction, but, as Gillian O'Connor said last week in the Financial Times,
the industry's laments … suggest that they had been a nice little earner.
I would not be so cynical, but certainly some parts of the industry have been making a nice little profit from PEPs and TESSAs, and there is nothing wrong with that.
The right hon. Member for Hitchin and Harpenden quoted various criticisms. However, he omitted to mention the support for the proposals from various parts of the industry. Roger Cornick, head of marketing at Perpetual, a big provider in the PEPs market, is quoted as being
confident that the company will still get a big slice of the ISA cake".
If the hon. Gentleman examined the figures in the Financial Times more carefully, he would see that it rose again subsequently.
The industry will have to be much more flexible and innovative. At present, some parts of the fund management industry concentrate on equities. Under the ISA proposals, they will have to be more expansive in terms of the products that will fall under the tax shelter. Of course, there will be new institutions involved. My hon. Friend the Member for Northampton, North mentioned the supermarkets, some of which have made very positive comments about the possibility of promoting ISAs.
Lord Lawson explained in his book the great difficulty in the initial years with unit trust companies which were most reluctant and dragged their feet. It was only subsequently that they started to promote PEPs vigorously. ISAs will have to be sold in new ways as well as through the traditional channels. Supermarket checkouts are one possibility. Tesco described ISAs as "a smashing idea". Mr. Newton Scott, chairman of Tesco Personal Life was most complimentary. He was not especially happy with the idea of a prize draw fund, but said that, in his view, to get people on lower incomes involved it might be better to offer groceries and loyalty points, and such points have arisen in the consultation period.
My hon. Friend the Member for Northampton, North mentioned another advantage of ISAs, which is that a wider range of products could be developed. She mentioned deposits with credit unions, national savings products and shares in industrial and provident societies. They should all get a boost from incorporation in ISAs.
There will also be flexibility for investors, who will be able to withdraw their money when particular demands arise. As I said earlier, there is evidence that one off-putting feature of TESSAs is that because of their inflexibility those who might otherwise invest do not do so.
Conservative Members have talked about retrospectivity. They misunderstand the nature of retrospective legislation. It makes unlawful something that was lawful at the time or, in the tax context, renders a past transaction subject to tax that was not applicable at the time. At the most, one could say here that expectations have been disappointed. But I do not think that anyone who deals in the area of taxation can have any such expectations. I gave the example of MIRAS earlier. One has to expect different Chancellors to change taxation regimes. No one can proceed on the basis that regimes will remain unchanged for ever. No one could have had a legitimate expectation that the existing tax regime would remain unchanged.
Our manifesto made it clear that we intended to provide savings vehicles for a wider section of the population. That is what we are doing with our ISA proposals.
It has been argued that increased flexibility will result in higher costs for providers than at present—up to 30 per cent. higher, according to one estimate. That demonstrates a misunderstanding of the nature of our financial services industry. Over the past 15 or 20 years, we have had increased competition and innovation. With new providers and managers coming in, I am sure that any increases in costs will be much lower than the figures that are being bandied around.
ISAs will also make the tax system more neutral, reducing the extent to which it distorts investment choices. I would have made further points about the £50,000 limit if I had had more time. Only between 10 and 15 per cent. of PEP holders would be affected by the £50,000 limit. We are talking about a relatively small number of people. My right hon. Friend the Chief Secretary took up the point about marketing. Given the past problems of pension mis-selling, we have to be cautious about the marketing of the products.
The charging regime must be more transparent than at present. That is one of the disadvantages of the PEP system. One has to go to Chase De Vere's guide to find out how much investing in a PEP will cost. There have to be controls on the operations and the administration of funds.
I congratulate the Government on the ISA proposals. I look forward to the results of the consultation exercise.
I sincerely congratulate my right hon. Friend the shadow Chancellor on two things: his powerful and compelling speech; and—the Labour party should be grateful to him for this—his altruism in proposing the debate. A more cynical politician might have avoided talking in public about Labour's plans for ISAs and exposing all their shortcomings, perversities and absurdities to Ministers. Instead, he might have let Ministers get on with implementing their plans. When the shambles ensued, as it certainly will—when there was a collapse of tax-incentivised savings vehicles, when the individual aspirations of so many had been shattered, when the proposals had produced a great deal of justifiable resentment—the Conservatives could have made some political capital. My right hon. Friend has decided to take the high road and have a debate before legislation is introduced. We are trying to save the Government from the fate to which they are heading—taking the country with them—by having genuine parliamentary consultation. The debate has already illustrated extraordinary perversities and absurdities in the Government's proposals.
We do not have any quarrel with the objectives that the Government say that they are trying to pursue: to produce a fair scheme; to produce a system that increases savings, because one of our national handicaps is having the lowest savings ratio in the European Union; and to do something for the lower paid, helping wealth creation in the less financially privileged section of the population. We agree with all that, so we should be having a dispassionate and technical debate, deciding how best to relate objectives to means.
I am sorry, but the hon. Member for Dudley, North (Mr. Cranston) took such an awfully long time with his speech that I cannot accept any interventions. I apologise for that, because I normally enjoy the cut and thrust of debate on such occasions.
I shall deal briefly with those three objectives—fairness, aggregate savings behaviour and the position of the lower paid. The proposals cannot be fair. How can they be fair for someone who has decided to build up a PEP to repay his mortgage of more than £50,000, which is less than the average price of a house? He will suddenly find that his calculations have been thrown out, producing a gap that he had not anticipated. Given the promises that the Labour party made before the election, such a person would have had every reason to suppose that his PEP would continue under the same tax regime until his mortgage needed to be repaid. He and his family will be very badly let down. If the proposals go through, there will be a lot of miserable families. Some people will probably lose their home.
I am sorry, but, for the same reason that I gave to the hon. Member for Hove (Mr. Caplin), I have to refuse.
It is not fair to bamboozle the public in such a way. We heard the Prime Minister, then the Leader of the Labour party, the Social Security Secretary and Treasury Ministers making it absolutely clear to the public that the PEP and TESSA regime was not threatened. The quotations are very well known. We now know that it has been fundamentally threatened.
Given that the tax-incentivised savings vehicle was limited on entry—one was able to have only £6,000-worth of general PEP investments, £3,000-worth of a specialised PEP a year and TESSAs were limited on entry—it is not fair to say to people that, retrospectively, the vehicle will be limited on exit as well. It is not fair to say to people that, if the result of saving has been positive and they have managed to accumulate a reasonable pot of money, tax privileges will be retrospectively withdrawn or limited to some figure about which they did not know in advance. That is clearly the very reverse of fair.
I shall deal with what I think that the Paymaster General will say about fairness. He will say, "Oh, but we are withdrawing tax privileges from the rich who have accumulated £50,000, and the poor, who have not got anywhere near that sum, will continue to enjoy them." If that is being done in the name of traditional socialist egalitarianism, it is thoroughly perverse. It is one of the most foolish perversities in a whole string of such perversities in this debate. If one wants to go in for socialist egalitarianism and clobber the rich, one should put up marginal tax rates—although that would be very bad and destructive for everyone, including those who are less well off, since it would threaten their jobs and the country's prosperity.
Most extraordinarily, however, the Labour Government are proposing to say to the rich that, if they spend their higher income, the tax regime will not be changed and they can go on enjoying exactly the same standard of living, but if they save their higher income, they will be worse off. The Government will clobber such people and ensure that they suffer if they save. The change will impact only on people who save on higher incomes or who are better off—not on those who spend that higher income. That cannot make the beginnings of sense and certainly cannot be justified on the grounds either of economic rationality or of fairness.
What about the impact on savings as a whole? How can such a proposal possibly increase aggregate saving? Let us just think about that for one second; it is clear that Treasury Ministers have not begun to think seriously about it. After all, on their own admission, they are proposing to reduce tax credits for such saving. On universal admission, due to the greater administrative complexity of ISAs, which will force managers to keep an account for every contribution in every year, administrative costs will greatly increase.
If the returns are reduced and the costs are increased, there will be a double negative impact on the net return to savers. Clearly, therefore, the attractions of the scheme as compared with its predecessors will significantly reduce. If human beings are rational, there will be less saving, not more. That is the only possible conclusion; it follows as surely as night follows day.
The negative impact on savings behaviour will be compounded by the fact that those who have already saved £50,000 in their PEPs will have no tax-driven incentive to save any more than they otherwise would. So, the section of the population which has the highest propensity to save—those on the highest incomes—will save less. One does not know by how much, but it will undoubtedly be less. If the aggregate return of saving for such people is reduced, the aggregate savings flow will fall. The proposal's effect on aggregate savings will undoubtedly be negative.
Let us look at those who are low paid—people whose interests the Government claim to have at heart. Will the proposal help them? Such people cannot get many of the benefits of ISAs. Nor could they in predecessor regimes; nothing has changed. In practice, such people will not benefit from capital gains tax relief because they are unlikely to have capital gains exceeding the £6,000 annual personal allowance—or whatever it is now. I think that it is £6,500.
Equally, low-paid people will not get higher tax relief because, by definition, they do not pay higher tax. All that they will get is relief on the basic rate of tax. We have demonstrated in this debate that, from any view, management charges will exceed that benefit, which itself is being reduced due to the reduction in tax relief on ISAs over the next five years.
For those on smaller incomes, the financial benefit of taking part in the new savings vehicle will be less than it was when they contributed to PEPs. The opposite effect of the one for which the Government hope will come about. There will be less saving, not more, by the less well off. The Conservatives are genuinely concerned about that, regardless of whether the Labour party is.
I cannot take an intervention due to lack of time. I hope that the hon. Lady will forgive me. She and her hon. Friend the Member for Dudley, North had plenty of time to make their points.
There is another sinister discriminatory aspect of the proposal, which I fear will impact particularly seriously on those who are on lower incomes. As we know, the proposal is that anybody can save up to a maximum of £1,000 a year in cash, £1,000 in insurance products and £3,000 a year in equities. That is a very artificial portfolio balance, which may be totally inappropriate in certain circumstances.
For example, when the equity market is particularly high, it might be thoroughly irresponsible to put such a high proportion of savings in equities. Indeed, no independent financial adviser worth his salt would dream of advising his client to do so. For the wealthier savers who have an ISA—if any do—as part of a wider portfolio, such constraints are not very great. The balance of portfolio which they desire to achieve can be achieved elsewhere, outside the ISA regime.
People who will not have savings outside an ISA because they hardly have any savings at all—the people about whom the Government claim to be concerned, and whom the ISA regime purports to encourage to save—will not have the ability to obtain a portfolio balance outside the ISA regime. The portfolio balance forced on them inside the ISA regime may be extremely damaging. Poor people might be bamboozled into going for the product, and find that the apparent tax advantages are more than outweighed by management fees. On top of that, they might find that they are forced by regulation to put a disproportionate part of their savings into equities, which might prove to be a disaster at a certain stage in the market. They might find themselves exposed to losing a large part of their savings. That must be an exceedingly bad deal for the low paid.
I am about to bring my remarks to an end. I am sure that the hon. Lady's colleagues will have an opportunity to make whatever points they can—if they can—in answer to my criticism of the Government's proposal.
I shall put one final point to Labour Members. The tragedy for the low paid is that it is not worth their while saving at all. They will merely find that they have deprived themselves of future income. In the event of loss of employment or some disaster, or when they reach retirement age, they will have deprived themselves of access to means-tested welfare benefits. Therefore, the return from their savings will be negative. They might find that they have sacrificed consumption by putting money away, and then do not qualify on retirement for income support, housing benefit, council tax relief and all the things enjoyed by the family next door, which has never bothered to save.
It is the cheating of the poor by this particularly pernicious system that the Government should be addressing if they seriously want to do something for the lower paid, and if they seriously want to change the culture of this country in favour of greater saving. That requires either a much more radical and fundamental welfare reform programme than I believe the Government have the courage to begin to contemplate, or some form of socialist compulsion. We shall see, as the months go by, which of those courses the Government take.
Why do the Government give tax relief? It is to achieve a particular policy objective. In plain language, when the Government give people a handout, they do so to encourage them to do something. The point of the handout, and that is exactly what it is in the case of PEPs and TESSAs, is to encourage people to save.
Although the scheme will be open to everyone, it is specially designed to encourage smaller savers, and particularly those who may never previously have invested in equities in their lives."—[Official Report, 18 March 1986; Vol. 112, c. 178.]
I am taking my speech at the rate at which I think it is possible for the hon. Gentleman to comprehend it.
I now want to extend savings incentives to the mass of ordinary tax-paying savers—and potential savers".—[Official Report, 20 March 1990; Vol. 169, c. 1024.]
That was said in the Budget statement on 20 March 1990 about the introduction of TESSAs.
How effective has that handout been? We have heard that 50 per cent. of adults—broadly the poorest 50 per cent.—have virtually no savings at all. They do not invest in PEPs and TESSAs, but they do pay for them. It is the tax taken from that poorest 50 per cent. of our community that still goes to contribute to the tax relief from which the richer 50 per cent. presently benefit. It is because of that that this handout must be justified to those who pay for it without benefiting from it.
We have been told today that £50,000 is not a huge sum. We have been told also—by the hon. Member for Gosport (Mr. Viggers)—that unless a person was able to save at least £65,000, there would be no point in saving at all. They might as well blow it, because the yield would be so small. I wonder whether the hon. Gentleman considers whether his words gave great comfort to those who have not yet accumulated £50,000 in their PEPs. There is little comfort here for the struggling pensioner who was mentioned, who put his faith in the then Government's PEPs scheme if, unless he accumulates £65,000, there is no point in accumulating anything at all.
The shadow Chancellor, the right hon. Member for Hitchin and Harpenden (Mr. Lilley), stated that after the replacement of PEPs with ISAs, people would "lose the incentive to save." How does that statement stand up? Either there is a benefit from saving or there is not. If there is, and no one in the Chamber today has suggested otherwise, it seems clear that by the time one has accumulated £50,000 of tax-free savings, one has worked out the value of that activity; one does not require an additional handout to convince one further. Money spent in this way is doubtless much appreciated by the recipient, but it is unjustifiable to the neighbour, who pays for it without benefiting from it.
The shadow Chancellor, in a carefully crafted speech, enticed my hon. Friend the Member for Bolsover (Mr. Skinner) to bite and then closed the trap on him. The right hon. Gentleman said that a fund of £356,000 would be required to produce my hon. Friend's pension—about £20,000 per annum. He refused to take an intervention from me at that time, when I would have informed, or reminded, him that the new stock exchange regulations to force companies to disclose the pension arrangements for their directors have revealed—I see some Opposition Members blanching—many more interesting cases than that of my hon. Friend.
Let us take the example revealed in the annual report of the Bass brewing and leisure group, which states that one director—Sir Ian Prosser—has a pension which, at 30 September 1997, is valued at £304,300. That is not the fund—it is the pension which he will take each and every year in retirement. Even the shadow Chancellor might accept that in the light of such a pension, my hon. Friend the Member for Bolsover may be entitled to his paltry £20,000.
Unlike the shadow Chancellor, I do not want to get into the politics of envy. The director of Bass may well deserve his £304,000 a year pension. However, the remarks of the right hon. Gentleman were significant in that they were a reversal of what the Conservatives have traditionally echoed in this Chamber over past years. The politics of envy have never been quite so clearly stated as they were by the right hon. Gentleman this afternoon.
The hon. Member for Grantham and Stamford (Mr. Davies) talked of penalising people who have saved because they will not get tax relief on their savings in excess of £50,000. However, no penalising is going on. It is a change in the tax regime so that taxpayers' money is spent where it is most effective and most needed—in persuading the 50 per cent. of the population who presently are unconvinced of the benefits of saving.
At least I am taking an interest in the subject—unlike Opposition Members, particularly some who have just walked into the Chamber. Has my hon. Friend had time to consider the figures I mentioned in respect of the lack of people who have PEPs? I referred to a figure of less than 5 per cent. Will he address that point?
My hon. Friend is entirely right. The figures that he gave were most revealing in that only 4.7 per cent. of people have a PEP and no other form of saving. He also laid before the House his qualifications, as someone previously employed in an insurance company. Although it is many years ago, my qualification as an associate of the Chartered Insurance Institute gives me some reason to stand in this Chamber this afternoon.
When the hon. Member for Grantham and Stamford talked about penalising, the critical fact that he failed to mention was that the legislation is not retrospective. Nothing that was lawful would be unlawful and nothing that was unlawful would be lawful as a result of the proposed measures.
The right hon. Member for South Norfolk (Mr. MacGregor) talked about the way in which people who have not got great incomes but are of modest means, go about saving. They do so piecemeal and in dribs and drabs. Indeed, the whole foundation of the old Prudential insurance company was based on that policy—the fact that it was difficult to get people to save. We know the old image of "the man from the Pru", who knocked on the door to pick up the weekly premium—the odd five shillings—from the householder. I would be reticent to refer to my right hon. Friend the Chief Secretary as the modern day "man from the Pm", but in setting up ISAs we are seeking a contemporary equivalent of just that.
The ISA would enable people to bring together a range of savings—stocks, shares, cash, national savings, life insurance—and to do so in dribs and drabs, in small weekly amounts. That is the way in which people are able to save—over a period of years—and how they have learnt to save in the past.
At the same time, the great majority of TESSA and PEP investments could be carried forward into the tax-favoured environment of the ISA. For most people, the ISA will be the natural home where their savings and investments of the past few years can lodge to their benefit for the future. It is simply not the case that the Government are trying to penalise people who have saved hard and planned for their retirement. There has been no more telling remark this afternoon than that of my hon. Friend the Member for Dudley, North (Mr. Cranston), who said that if there were ever a case of people's planning for their futures being thrown up in the air by the Government, it was when the previous Government changed the MIRAS tax relief system to their financial detriment.
In conclusion, in the past eight and more years since TESSAs and PEPs were introduced, the schemes have significantly failed to find acceptance throughout society. The people who have benefited from them are those whom one would expect to benefit—people who have traditionally saved and planned pensions and who take advantage of whatever scheme is available. I do not believe that any hon. Member thinks that the schemes have succeeded in the original intention as stated in the extracts from Hansard that I quoted—the intention in those Budget statements that the benefits of tax-free savings would be extended down to the most disadvantaged in our community.
All I can say about the speech of the hon. Member for Brent, North (Mr. Gardiner) is that the hon. Gentleman is clearly one of the few hon. Members who speak faster than they think. We now have a Paymaster General whose tax is sheltered and whose reply to the debate has had to be sheltered by the sort of filibuster that we just heard.
The Government's proposals are dishonest, ill thought out, technically defective and hypocritical. I shall begin with the dishonesty. This scheme is mis-selling in every sense. The individual savings account is designed not to encourage new saving, but to cut the cost to the Treasury of existing saving. Before the election, the Government
claimed that they wanted to extend the scope of PEPs and TESSAs. Even the consultative document that they published concealed their true purpose. That was forced out first in the debate in another place two weeks ago, when the Government spokesman, Lord McIntosh, came clean about PEPs and TESSAs, saying:
We must consider the ultimate effect to the revenue of a system which relies only on annual limits … I want to make clear that capping is an essential part of any tax-free savings package."—[Official Report, House of Lords, 11 February 1998; Vol. 585, c. 1220–21.]
That statement flatly contradicts the Prime Minister's assurance before the election and that given by the Chief Secretary after the election, that existing savers would not be affected. I hope that Ministers will now apologise for deliberately misleading the public. Of course, they will not do so—expecting contrition from this Government is like expecting openness from the Paymaster General.
The whole ISA scheme is ill thought out. As my right hon. Friend the Member for South Norfolk (Mr. MacGregor) and my hon. Friends the Members for Gosport (Mr. Viggers) and for Grantham and Stamford (Mr. Davies) said, there is nothing long term about encouraging instant access accounts at supermarket checkouts. There is nothing sound about offering a monthly flutter as a way of building lifetime savings. The Government now admit that the £50,000 limit would yield only £1,420 a year. That will not pay for long-term care or support PEP-based mortgages and it will certainly not help to provide the sort of pension that, as my hon. Friend the Member for Gosport so neatly illustrated and my right hon. Friend the Chief Secretary—[HON. MEMBERS: "Who?"] I mean the former Chief Secretary, who pointed out that the scheme is wholly inconsistent with the stakeholder pension that the Government are simultaneously proposing.
The scheme is flawed in conception and deeply flawed in detail. I cannot recall a Treasury proposal that has had such universally bad press—[Interruption.] Let me quote it. The Consumers Association has described the scheme as
fundamentally flawed, and … a considerable risk to consumers.
The Association of Investment Trust Companies said that the ISA proposals
will do very little to encourage those on modest incomes to save.
The Independent Financial Advisers Association said that the scheme was
little more than a tax efficient Christmas club.
The Association of British Insurers believed that it was "potentially anti-competitive". It said:
Complexity, and hence cost, is a major worry.
The National Association of Pension Funds said that the proposals were
tackling the problem from the wrong end.
Even the Treasury's spokesman in the other place attacked the scheme. The hapless Lord McIntosh criticised the consultation paper for not proposing a proper regulatory framework. He said that such a framework
receives almost no mention in the document … That is certainly a defect."—[Official Report, House of Lords, 11 February 1998; Vol. 585, c. 1223.]
All the practitioners regard ISAs as unworkable. As the Association of Private Client Investment Managers and Stockbrokers—led by the former Conservative Economic
Secretary to the Treasury, whom the Chief Secretary prayed in aid—highlighted, the proposals will be an administrative nightmare. The association said:
For the system to work, ISA providers will have to provide the following information at the end of each tax year during which they have provided an ISA:—
ISA assets transferred in or out.
ISAs which have been closed.
ISAs which have been made void.
Where an ISA has been transferred, the provider to whom it was transferred.
Where a transfer has been received, the provider to whom it was received.
Where an ISA has been closed, the date of closure.
Net investment made during the tax year … We cannot emphasise too strongly the difficulty and so the associated cost of administering
this system. In case the Chief Secretary is still tempted to claim that Angela Knight is in favour of the scheme, I should point out that she proposes—her views are set out in black and white—that
the tax regime for all the existing PEPs and TESSAs should be honoured".
ISAs are unfair, technically defective, administratively complex and will be very expensive for the providers to operate. We are entitled to ask, therefore, who dreamt up this scheme, which brings us to the architect of ISAs, the Paymaster—or taxmaster—General. He launched the scheme in his usual, careless, blustering style. In the foreword to the consultative document, he opined:
Everyone should have the opportunity to save in a tax-favoured environment".
He wrote that in happier times, of course, before the storm broke over his head. Perhaps he wrote it in one of his two large country mansions—perhaps those words were inscribed in his Park lane penthouse, in his apartments in Cannes, or even in his unselfconsciously named "Villa Muchio". His words would show nerve enough, but he then had the gall to attack those who currently hold PEPs as
well-off people who have done extremely well out of the accounts".
Not as extremely well as he has done with his £12 million offshore—all of it sheltered from tax.
The plan is this: those who have scrimped and saved their PEPs over 10 years will now be penalised. The tax man will rob them retrospectively of anything over £50,000. The Paymaster General, however, will still pay nothing on his £12 million—no income tax, no capital gains tax, no inheritance tax. That is true hypocrisy.
As we have learnt, when the hon. Gentleman is caught out, he blusters. One ISA conference was told that the £50,000 limit would stay, whereas the next was told that it could be changed. Finally, he blamed his officials. In meetings with representatives of the savings and investment industries, he revealed that
he was not fully briefed on the widespread appeal of Peps among all taxpayers.
He allegedly said that he was given out-of-date information and was wrongly advised that Peps were still the domain of higher-rate taxpayers.
This is a true Labour saga: a broken promise that was dishonestly concealed; an ill-thought-out scheme that is technically defective; a measure ridiculed by the industry that is supposed to provide it. For the 3 million people who hold PEPs, for the 4.5 million people who hold TESSAs, this is a serious breach of faith that will undermine confidence in Government savings.
The Government have one way out, which is an unusual one for the Paymaster General—he can come clean. He can admit that he has bungled. He can admit that he tried to deceive existing savers. He can take away his ludicrous scheme and rethink it in the fortnight that remains before the Budget.
We welcome this opportunity to discuss the ISA proposals, which have been put out to consultation. Indeed, consultation ended on 31 January—clearly, the Opposition have only just caught up with that fact, but we welcome them none the less to the debate. We wish that they had had something more substantive to say, on which we could further consult, but the pettiness and irrelevance of what they said were no better exemplified than in the speech of the hon. Member for Sevenoaks (Mr. Fallon).
It is left to us to consider the representations that we have received—they have been many, varied and all of considerable interest, as we intended when we put out the scheme to consultation. The former Conservative Government refused to consult—they did not adhere to that process—which is why they got things very wrong.
No hon. Member can expect me or my right hon. Friend the Chief Secretary to the Treasury to pre-empt what the Chancellor will say in the Budget. I welcome the hon. Member for Sevenoaks to his position as shadow spokesman—I think that this is the first time that he has spoken from the Front Bench, at least since I have been in government—but I was surprised that he did not quote in full the words of Angela Knight, who is not unknown to Conservative Front Benchers. I should put the record straight, as he seems incapable of reading what she said. She stated:
There is much that we welcome within the ISA and APCIMS"—
which, as the hon. Gentleman read out, stands for the Association of Private Client Investment Managers and Stockbrokers—
endorse the policy of attracting more people to save. We also agree with features such as the flexibility, no minimum level of saving, reducing restrictions on the equity element and no lock-in'".
Those are precisely the points that the hon. Member for Sevenoaks and others, including the hon. Member for Grantham and Stamford (Mr. Davies), tried to refute. Angela Knight continued by saying that those aspects
are all welcome and we consider that there has been much careful thought given to the design of the ISA.
She speaks with much experience and authority in these matters, to which she clearly gave much thought.
That does not mean that we shall not also listen carefully to other representations that we received, although those we heard today from the Opposition will not rank highly in our consideration. The Virgin organisation, for example—which has driven down costs on various sorts of savings and investments—said:
Undoubtedly ISAs are good news. They will bring more savers into the market.
Fidelity, one of the biggest product providers in the financial services industry, said:
We welcome the new scheme … this was the big breakthrough in investment.
The Halifax said:
Halifax sees a bright future for the ISA.
The Prudential said:
We welcome the Government's aim of promoting saving, in particular for people with modest incomes … we welcome making ISAs as accessible as possible.
Those quotations are worth reading because they show clearly that, while we were open to consultation, we thought carefully about the document that we issued as the basis for that consultation.
I shall give way in a moment, although I did not interrupt the hon. Gentleman in his speech. In all that he said, he made no attempt to discuss any of the points raised in the debate. I do not say that he acted discourteously, as he had other, less relevant, things to say.
The shadow Chancellor told us that he, personally, by some Herculean endeavour, had rebuilt savings in the 1980s. What happened in the 1980s is a sorry story. When he was in the Treasury in various guises, from 1986 to 1990—a full five-year period—we had a negative savings ratio in the household sector. The figure was -0.3 per cent. in 1986; -1.9 per cent. in 1987; -2.8 per cent. in 1988; -2.7 per cent. in 1989; and -0.4 per cent. in 1990.
We have held consultations with all of them. I do not know why the hon. Gentleman is smirking, as if he had said something terribly clever. If the previous Government had gone out to consultation, as we have, they would not have got into the frightful muddle that I shall talk about in a moment when the right hon. Member for South Norfolk (Mr. MacGregor) first launched PEPs.
I am very grateful to the Paymaster General, but when he is quoting from authorities in the City, he should give the whole quotation. Richard Branson, to give the whole sentence, said:
The £50,000 limit also sends the wrong signal to potential savers—it says that rules can be changed retrospectively.
Fidelity said of the £5,000 annual limit that it
represents a 53% reduction in the total tax-privileged investment … it removes an incentive for"—
I had hoped that the hon. Gentleman, who is not usually short of words, would have something to say for himself, rather than reading. It was clearly a waste of time for me to give way.
I was dealing with the shadow Chancellor, who was so proud of his record in the 1980s; in fact, it was a terrible record on savings, as he well knows. It is worth recalling that stability is the key to economic growth and to savings. When he was in the Treasury, interest rates were at 10 per cent. and inflation at 5 per cent. in 1988. Interest rates peaked at 15 per cent. and inflation at nearly 10 per cent. in 1990. That did not promote growth or stability or encourage savings. That is why we had negative savings rates in the last five years of the 1980s. That is not a record to be proud of.
The right hon. Member for South Norfolk, a former Chief Secretary, made a good contribution to the debate, but he did not tell us that the pension fund of which he is a director was fined £545,000 for mis-selling. He courteously informed me that he would have to leave before the end of the debate, but I wish that he was here to hear this, because he might have been able to tell us something about why, in that context, he recommended a light regulatory touch for the new system. We shall ensure that no such problems happen again, and we are consulting to that effect.
The right hon. Member for South Norfolk mentioned the problems that the Conservative Government had with the introduction of PEPs, and the number of goes that they needed to clear it up. They had a go when they introduced them in 1987; a go in 1988; and another go in 1989. They had to keep trying to simplify the rules and get rid of the anomalies, for the simple reason that they did not consult beforehand.
The right hon. Gentleman also mentioned kitemarking or benchmarking products, with a view to bringing down the costs of administration. That is a matter to which both Government and Opposition Members have alluded in a serious vein, and we are consulting on it. We are attracted by the concept, but we tend to favour benchmarking rather than kitemarking, as the latter might imply that the Government were totally committed to a given product. The hon. Member for Gosport (Mr. Viggers) spoke about that. It is a matter of interest, and my right hon. Friend the Chancellor will consider it in the Budget process.
My hon. Friend the Member for Hove (Mr. Caplin) spoke with the background of much personal and professional experience. He pointed out exactly what had gone wrong in the mis-selling of pensions, and he is keen that we should not follow in the misbegotten, badly thought out footsteps of our predecessors.
The hon. Member for Twickenham (Dr. Cable) made a serious contribution and we hope that, when my right hon. Friend the Chancellor has decided on his proposals, we shall be able to secure his support in the Lobby on the new savings proposals. He was especially concerned, as were the hon. Member for Grantham and Stamford and some of my right hon. and hon. Friends, about the savings disregard and the problems of those on benefit.
The problems go much wider than that, and it is ironic in the extreme that they should be raised by Conservative Members, who have a record second to none in living memory on means-tested benefits that cut right against the principle of people being able to work and save; working and saving is clearly the logical order of events.
I agree with my hon. Friend the Member for Northampton, North (Ms Keeble) that there are considerable advantages in the idea of a one-stop account. I hope that those will be contained in the decisions that my right hon. Friend the Chancellor will make. Opposition Members attempted some ill-founded irony about how retailers could deal with those accounts, but the fact is that many retailers have already moved into financial products and are doing well and giving advice. The exact arrangements are a matter for them, but when companies such as Tesco, Safeway, Marks and Spencer and others—
No. The hon. Gentleman was not here during the debate and I have no intention of giving way to him, as I have very little time left and I want to make some more points.
On a point of order, Mr. Deputy Speaker. The Paymaster General said that I was not here during the debate. I was here for the opening speeches, after which I attended a Defence Export Services Organisation symposium with the Minister for Defence Procurement. I will not be told that I have not participated in this debate.
I am sure that the hon. Gentleman was spending his time very well with my noble Friend, but he was not here, so it is better for me to reply to those who spoke in the debate and attended it throughout.
The hon. Member for Gosport made several points, as did my hon. Friend the Member for Dudley, North (Mr. Cranston), who speaks with great erudition on these matters. He is one of the biggest contributors to Committees on finance-related Bills. I hope that he will participate in more this year. His remark about Lord Lawson's purpose in introducing PEPs was one of the most perceptive of the debate. My hon. Friend is a keen observer of such matters and realises the motivation behind the introduction of PEPs. Lord Lawson introduced them not as an incentive to save or to increase aggregate savings, as has been claimed, but as a way to spread share ownership. That is a welcome objective, but it has nothing to do with savings.
The main issue is stability. We have acted on tax credits and on advance corporation tax. We have introduced a deficit reduction plan and a code of fiscal stability. We have reintroduced the golden rule. Which of those measures, if any, do the Opposition support, or would they repeal them? They should come clean. Would they repeal the provisions of the Bank of England Bill? Would they return to the imputation system of corporation tax? Would they reintroduce advance corporation tax or tax credits? All those measures are intended to have long-term effects, and they will generate savings.
|Division No. 187]||[7 pm|
|Ainsworth, Peter (E Surrey)||Grieve, Dominic|
|Amess, David||Hague, Rt Hon William|
|Ancram, Rt Hon Michael||Hamilton, Rt Hon Sir Archie|
|Arbuthnot, James||Hammond, Philip|
|Atkinson, David (Bour'mth E)||Hawkins, Nick|
|Atkinson, Peter (Hexham)||Hayes, John|
|Baldry, Tony||Heald, Oliver|
|Bercow, John||Heathcoat—Amory, Rt Hon David|
|Beresford, Sir Paul||Horam, John|
|Blunt, Crispin||Howard, Rt Hon Michael|
|Boswell, Tim||Howarth, Gerald (Aldershot)|
|Bottomley, Peter (Worthing W)||Hunter, Andrew|
|Bottomley, Rt Hon Mrs Virginia||Jack, Rt Hon Michael|
|Brady, Graham||Jenkin, Bernard|
|Brazier, Julian||Johnson Smith, Rt Hon Sir Geoffrey|
|Browning, Mrs Angela|
|Bruce, Ian (S Dorset)||Jones, Ieuan Wyn (Ynys Môn)|
|Burns, Simon||Key, Robert|
|Cash, William||King, Rt Hon Tom (Bridgwater)|
|Chapman, Sir Sydney (Chipping Barnet)||Kirkbride, Miss Julie|
|Laing, Mrs Eleanor|
|Chope, Christopher||Lait, Mrs Jacqui|
|Clappison, James||Lansley, Andrew|
|Clark, Rt Hon Alan (Kensington)||Leigh, Edward|
|Clarke, Rt Hon Kenneth (Rushcliffe)||Letwin, Oliver|
|Lewis, Dr Julian (New Forest E)|
|Clifton—Brown, Geoffrey||Lidington, David|
|Collins, Tim||Lilley, Rt Hon Peter|
|Colvin, Michael||Lloyd, Rt Hon Sir Peter (Fareham)|
|Cormack, Sir Patrick||Llwyd, Elfyn|
|Cran, James||Loughton, Tim|
|Curry, Rt Hon David||Luff, Peter|
|Dafis, Cynog||Lyell, Rt Hon Sir Nicholas|
|Davies, Quentin (Grantham)||MacKay, Andrew|
|Davis, Rt Hon David (Haltemprice)||Maclean, Rt Hon David|
|Day, Stephen||McLoughlin, Patrick|
|Duncan, Alan||Madel, Sir David|
|Duncan Smith, Iain||Maginnis, Ken|
|Emery, Rt Hon Sir Peter||Major, Rt Hon John|
|Evans, Nigel||Malins, Humfrey|
|Faber, David||Maples, John|
|Fallon, Michael||Mates, Michael|
|Forsythe, Clifford||Mawhinney, Rt Hon Sir Brian|
|Forth, Rt Hon Eric||May, Mrs Theresa|
|Fowler, Rt Hon Sir Norman||Moss, Malcolm|
|Fox, Dr Liam||Nicholls, Patrick|
|Fraser, Christopher||Norman, Archie|
|Gale, Roger||Ottaway, Richard|
|Garnier, Edward||Page, Richard|
|Gibb, Nick||Paice, James|
|Gill, Christopher||Paterson, Owen|
|Gillan, Mrs Cheryl||Pickles, Eric|
|Goodlad, Rt Hon Sir Alastair||Randall, John|
|Gorman, Mrs Teresa||Redwood, Rt Hon John|
|Gray, James||Robertson, Laurence (Tewk'b'ry)|
|Green, Damian||Ruffley, David|
|Greenway, John||St Aubyn, Nick|
|Sayeed, Jonathan||Trend, Michael|
|Shephard, Rt Hon Mrs Gillian||Tyrie, Andrew|
|Shepherd, Richard||Viggers, Peter|
|Simpson, Keith (Mid—Norfolk)||Walker, Cecil|
|Smyth, Rev Martin (Belfast S)||Wardle, Charles|
|Soames, Nicholas||Waterson, Nigel|
|Spelman, Mrs Caroline||Whitney, Sir Raymond|
|Spicer, Sir Michael||Wigley, Rt Hon Dafydd|
|Spring, Richard||Wilkinson, John|
|Stanley, Rt Hon Sir John||Wilshire, David|
|Steen, Anthony||Winterton, Mrs Ann (Congleton)|
|Swayne, Desmond||Winterton, Nicholas (Macclesfield)|
|Syms, Robert||Yeo, Tim|
|Tapsell, Sir Peter||Young, Rt Hon Sir George|
|Taylor, Ian (Esher & Walton)||Tellers for the Ayes:|
|Townend, John||Mr. John Whittingdale and|
|Tredinnick, David||Mr. John M. Taylor.|
|Abbott, Ms Diane||Clelland, David|
|Ainger, Nick||Coaker, Vernon|
|Ainsworth, Robert (Cov'try NE)||Coffey, Ms Ann|
|Allan, Richard||Cohen, Harry|
|Anderson, Donald (Swansea E)||Colman, Tony|
|Anderson, Janet (Rossendale)||Connarty, Michael|
|Ashton, Joe||Cook, Frank (Stockton N)|
|Atkins, Charlotte||Cooper, Yvette|
|Austin, John||Corbett, Robin|
|Baker, Norman||Cotter, Brian|
|Ballard, Mrs Jackie||Cousins, Jim|
|Banks, Tony||Cranston, Ross|
|Barron, Kevin||Crausby, David|
|Battle, John||Cryer, Mrs Ann (Keighley)|
|Bayley, Hugh||Cryer, John (Hornchurch)|
|Beard, Nigel||Cunliffe, Lawrence|
|Beckett, Rt Hon Mrs Margaret||Cunningham, Rt Hon Dr John (Copeland)|
|Begg, Miss Anne|
|Bennett, Andrew F||Cunningham, Jim (Cov'try S)|
|Benton, Joe||Dalyell, Tarn|
|Bermingham, Gerald||Darling, Rt Hon Alistair|
|Betts, Clive||Darvill, Keith|
|Blackman, Liz||Davey, Valerie (Bristol W)|
|Blears, Ms Hazel||Davidson, Ian|
|Blizzard, Bob||Davies, Rt Hon Denzil (Llanelli)|
|Boateng, Paul||Davies, Geraint (Croydon C)|
|Bradley, Keith (Withington)||Davies, Rt Hon Ron (Caerphilly)|
|Bradley, Peter (The Wrekin)||Davis, Terry (B'ham Hodge H)|
|Brake, Tom||Dawson, Hilton|
|Brand, Dr Peter||Dean, Mrs Janet|
|Breed, Colin||Denham, John|
|Buck, Ms Karen||Dismore, Andrew|
|Burden, Richard||Dobbin, Jim|
|Burgon, Colin||Donohoe, Brian H|
|Burnett, John||Doran, Frank|
|Burstow, Paul||Dowd, Jim|
|Byers, Stephen||Drew, David|
|Cable, Dr Vincent||Drown, Ms Julia|
|Caborn, Richard||Dunwoody, Mrs Gwyneth|
|Campbell, Alan (Tynemouth)||Edwards, Huw|
|Campbell, Mrs Anne (C'bridge)||Ellman, Mrs Louise|
|Campbell, Menzies (NE Fife)||Ennis, Jeff|
|Campbell, Ronnie (Blyth V)||Etherington, Bill|
|Campbell-Savours, Dale||Fearn, Ronnie|
|Cann, Jamie||Field, Rt Hon Frank|
|Caplin, Ivor||Fisher, Mark|
|Chapman, Ben (Wirral S)||Fitzpatrick, Jim|
|Chidgey, David||Fitzsimons, Lorna|
|Chisholm, Malcolm||Flint, Caroline|
|Clapham, Michael||Follett, Barbara|
|Clark, Rt Hon Dr David (S Shields)||Foster, Rt Hon Derek|
|Clark, Dr Lynda (Edinburgh Pentlands)||Foster, Don (Bath)|
|Foster, Michael Jabez (Hastings)|
|Clark, Paul (Gillingham)||Foster, Michael J (Worcester)|
|Clarke, Eric (Midlothian)||Fyfe, Maria|
|Clarke, Tony (Northampton S)||Galloway, George|
|Gapes, Mike||McAvoy, Thomas|
|Gardiner, Barry||McCabe, Steve|
|George, Andrew (St Ives)||McCartney, Ian (Makerfield)|
|George, Bruce (Walsall S)||McDonagh, Siobhain|
|Gerrard, Neil||McDonnell, John|
|Gibson, Dr Ian||McGuire, Mrs Anne|
|Gilroy, Mrs Linda||McIsaac, Shona|
|Godman, Norman A||McKenna, Mrs Rosemary|
|Golding, Mrs Llin||Mackinlay, Andrew|
|Gordon, Mrs Eileen||McLeish, Henry|
|Gorrie, Donald||McNamara, Kevin|
|Griffiths, Jane (Reading E)||McNulty, Tony|
|Griffiths, Nigel (Edinburgh S)||Mactaggart, Fiona|
|Griffiths, Win (Bridgend)||McWilliam, John|
|Grocott, Bruce||Mahon, Mrs Alice|
|Grogan, John||Marek, Dr John|
|Gunnell, John||Marsden, Gordon (Blackpool S)|
|Hain, Peter||Marshall, David (Shettleston)|
|Hall, Mike (Weaver Vale)||Marshall, Jim (Leicester S)|
|Hall, Patrick (Bedford)||Martlew, Eric|
|Hamilton, Fabian (Leeds NE)||Maxton, John|
|Hanson, David||Meale, Alan|
|Harris, Dr Evan||Michael, Alun|
|Heal, Mrs Sylvia||Michie, Bill (Shefld Heeley)|
|Healey, John||Michie, Mrs Ray (Argyll & Bute)|
|Heath, David (Somerton & Frome)||Milburn, Alan|
|Henderson, Ivan (Harwich)||Miller, Andrew|
|Heppell, John||Mitchell, Austin|
|Hesford, Stephen||Moffatt, Laura|
|Hinchliffe, David||Moore, Michael|
|Hodge, Ms Margaret||Moran, Ms Margaret|
|Hoey, Kate||Morgan, Ms Julie (Cardiff N)|
|Home Robertson, John||Morley, Elliot|
|Hoon, Geoffrey||Morris, Ms Estelle (B'ham Yardley)|
|Hope, Phil||Mudie, George|
|Hopkins, Kelvin||Mullin, Chris|
|Howarth, George (Knowsley N)||Murphy, Denis (Wansbeck)|
|Hughes, Ms Beverley (Stretford)||Murphy, Jim (Eastwood)|
|Hughes, Kevin (Doncaster N)||Oaten, Mark|
|Hurst, Alan||O'Brien, Bill (Normanton)|
|Hutton, John||O'Hara, Eddie|
|Iddon, Dr Brian||Olner, Bill|
|Illsley, Eric||Öpik, Lembit|
|Ingram, Adam||Organ, Mrs Diana|
|Jackson, Ms Glenda (Hampstead)||Palmer, Dr Nick|
|Jackson, Helen (Hillsborough)||Pearson, Ian|
|Jamieson, David||Pendry, Tom|
|Jenkins, Brian||Perham, Ms Linda|
|Johnson, Alan (Hull W & Hessle)||Pickthall, Colin|
|Johnson, Miss Melanie (Welwyn Hatfield)||Pike, Peter L|
|Jones, Helen (Warrington N)||Pope, Greg|
|Jones, Ms Jenny (Wolverh'ton SW)||Powell, Sir Raymond|
|Prentice, Ms Bridget (Lewisham E)|
|Jones, Jon Owen (Cardiff C)||Prentice, Gordon (Pendle)|
|Jones, Dr Lynne (Selly Oak)||Primarolo, Dawn|
|Jones, Nigel (Cheltenham)||Prosser, Gwyn|
|Jowell, Ms Tessa||Purchase, Ken|
|Keeble, Ms Sally||Quinn, Lawrie|
|Keen, Alan (Feltham & Heston)||Rammell, Bill|
|Keen, Ann (Brentford & Isleworth)||Raynsford, Nick|
|Keetch, Paul||Reid, Dr John (Hamilton N)|
|Kelly, Ms Ruth||Rendel, David|
|Kemp, Fraser||Robertson, Rt Hon George (Hamilton S)|
|Kennedy, Charles (Ross Skye)|
|Kidney, David||Robinson, Geoffrey (Cov'try NW)|
|Lawrence, Ms Jackie||Roche, Mrs Barbara|
|Lepper, David||Rogers, Allan|
|Levitt, Tom||Rooker, Jeff|
|Lewis, Ivan (Bury S)||Rooney, Terry|
|Liddell, Mrs Helen||Ross, Ernie (Dundee W)|
|Linton, Martin||Roy, Frank|
|Livingstone, Ken||Ruane, Chris|
|Lock, David||Russell, Bob (Colchester)|
|Love, Andrew||Ryan, Ms Joan|
|McAllion, John||Salter, Martin|
|Sanders, Adrian||Trickett, Jon|
|Sarwar, Mohammad||Truswell, Paul|
|Sawford, Phil||Turner, Dennis (Wolverh'ton SE)|
|Sedgemore, Brian||Turner, Dr Desmond (Kemptown)|
|Sheerman, Barry||Turner, Dr George (NW Norfolk)|
|Sheldon, Rt Hon Robert||Twigg, Derek (Halton)|
|Shipley, Ms Debra||Tyler, Paul|
|Simpson, Alan (Nottingham S)||Vis, Dr Rudi|
|Singh, Marsha||Wallace, James|
|Skinner, Dennis||Walley, Ms Joan|
|Smith, Angela (Basildon)||Ward, Ms Claire|
|Smith, John (Glamorgan)||Wareing, Robert N|
|Smith, Llew (Blaenau Gwent)||Watts, David|
|Smith, Sir Robert (W Ab'd'ns)||Webb, Steve|
|Snape, Peter||Whitehead, Dr Alan|
|Soley, Clive||Wicks, Malcolm|
|Spellar, John||Williams, Rt Hon Alan (Swansea W)|
|Squire, Ms Rachel|
|Stevenson, George||Williams, Alan W (E Carmarthen)|
|Stewart, Ian (Eccles)||Williams, Mrs Betty (Conwy)|
|Stinchcombe, Paul||Willis, Phil|
|Stott, Roger||Winnick, David|
|Strang, Rt Hon Dr Gavin||Winterton, Ms Rosie (Doncaster C)|
|Straw, Rt Hon Jack||Wise, Audrey|
|Stringer, Graham||Wood, Mike|
|Sutcliffe, Gerry||Worthington, Tony|
|Taylor, Rt Hon Mrs Ann (Dewsbury)||Wray, James|
|Wright, Anthony D (Gt Yarmouth)|
|Taylor, David (NW Leics)||Wright, Dr Tony (Cannock)|
|Thomas, Gareth (Clwyd W)||Wyatt, Derek|
|Thomas, Gareth R (Harrow W)||Tellers for the Noes:|
|Tipping, Paddy||Mr. Graham Allen and|
|Touhig, Don||Mr. John McFall.|
That this House welcomes the Government's commitment, set out in the pre-Budget report, to consult on tax proposals, including the proposed ISA; believes that the ISA will extend the opportunity to save and invest and that the Government's proposals will ensure a stable and fair savings environment; commends the Government for its commitment to long-term economic stability and low inflation which is good for savers; and rejects any return to the boom and bust policies of the past which were so damaging to those on low incomes, savers and investors.