The general public's complaint is that the banks are neither fully passing on interest rate cuts nor benefiting their depositors; they are trying to build up their margins. They have to do that, but it has not been enough.
I was glad that Mr. Hammond made it absolutely clear that he supported the policy of continuing low and falling interest rates. He was quite clear, so there is no point in my cross-questioning him about that. I am intrigued, however, because in debates I am often paired with Mr. Redwood, who gives a very good Conservative case; he is highly economically literate, and makes his case well. I think that he argues that interest rates should now be increased. I am glad that there is clarity about what appears to be a somewhat different approach starting from the same premises.
As the motion rightly says, the problem is that people who have very low interest rates on their bank deposits feel that they are suffering and disadvantaged. I understand that. People in my constituency often come up to me and say, "Isn't this awful? What are we going to do about it?" Some points can be made to reassure them. First, if we are going into a deflationary environment—as we almost certainly are; that is what the Bank of England is warning us about—merely to have a bank account that is increasing in real value in a world of falling prices is compensation in itself. We have not got to that point, so people are not seeing it, but that is coming down the road.
Furthermore—this relates to the Equitable Life intervention—we should stress that all bank depositors have been fully protected: their deposits have been guaranteed and completely underwritten by the state, and in that they are unlike investors in many other forms of saving. Finally, many bank depositors are enjoying a reasonable rate of interest on fixed-rate deposits. I happen to be married to somebody who, as much through accident as through anything else, has ended up with a 6 per cent. fixed interest account in the Nationwide. She is laughing all the way to the bank. Many borrowers, however, are not getting the advantage of low interest rates. The balance of advantage between borrowers and lenders is not at all straightforward.
Let me get to the heart of the issue. Given that savings are a problem in the long term, what should we do to help savers? I am thinking particularly of low-income savers, who are rightly the focus of the discussion. I was surprised that the hon. Member for Runnymede and Weybridge made no reference to one of the biggest sources of difficulty for low-income savers—the way in which the benefit system operates. People on pension credit effectively pay a 40 per cent. marginal rate of tax because of how the tapering system operates. For people on low incomes, saving is not worth while because they are penalised through the pension credit system.
There is one particularly wicked inhibition on savings in the benefit system: if people with savings of £6,000 or more apply for pension credit, the Government assume that they are earning a 7 per cent. return on that account. That contrasts with 2 per cent. on main ISA deposits in national savings. Why is the rate 7 per cent., a penal disincentive to some of the poorest people in society? If we really tried to help people on low incomes with savings—that would come at a relatively low cost—we should address that anomaly. My colleagues did a calculation to the effect that about 500,000 really very poor people are being penalised £800 a year as a result of how the savings disregard system operates.
There is common ground in the House on how we should look at savings reform. Like a lot of Conservative Back Benchers over the years, Liberal Democrats push for reform of the annuity system, which is a major discouragement to many forms of saving. I ask the Minister to reflect on one technical point. In this current banking crisis, the mutuals are essentially at a relative advantage because they do not have to worry about shareholder return. But the building societies often report that they are at a considerable disadvantage in attracting savers because they have to pay disproportionately for the cost of the depositor protection scheme. They seem to have a good point, albeit a technical one, and I should be interested to know whether the Government accept their case.
Much more important than either of those two points is the fact that in order to save, consumers—savers—need to feel that they have a sense of protection and that they are not going to be ripped off by cowboys. We have had a couple of decades of endless scandals, with private pension mis-selling, endowment mortgages, split-cap trusts and, of course, Equitable Life. If people are operating in an environment where they know that their savings are not safe because they may have been mis-sold, they will not save. They must have very strong consumer protection in order that the savings culture can be revived.
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