With this it will be convenient to discuss new clause 1Transfers
The only circumstances in which a Saving Gateway account held with one account provider may be transferred to another is when the account provider is subject to the Banking Special Provisions Act 2008..
This is a probing new clause. It goes back to the evidence session we had last Tuesday afternoon, when it became clear in the conversations we had with the potential account providers that one of their concerns was the administrative cost of running saving gateway accounts. The income to the providers was quite limited and one of the factors they would need to think about was the cost of the operation of these accounts. When we probed them on this, one of the issues raised by Helen Banks of the British Bankers Association was transferability. She expressed the view that the ability to transfer accounts from provider to provider could add to the costs that they would face. Part of the challenge comes from the way in which saving gateway accounts are structured. If one transferred an account from one bank to another, the transferring bank might normally just need to provide name, address and balance at date of transfer, but for a saving gateway account, given the way in which the matching contribution is calculated, a bit more information is required, and that falls outside the banks normal systems. The banks who gave evidence said that the transfer process would probably have to be a manual workaround and, of course, that is always more costly than automated systems. Helen Banks made an argument against transferability, which certainly addressed cost-based issues around the account.
I take the hon. Gentlemans point that the evidence given to us was that there would be a significant cost in transferring these accounts and this is one of the simplicities that the bankers were looking for. Equally, I wonder whether it occurred to the hon. Gentleman that doing so would be anti-competitive since, if one of the banks decided to offer a more generous rate of interest on one of these accounts because it wanted to nurture a client base for the future, not allowing people to transfer would prevent them from taking their money out of a provider that was not providing that generous rate of interest.
I agree. The argument against transferability is quite strong on the grounds of competition. One could argue that the best way for banks and other providers to compete is on the sign-up process. Before someone takes out a saving gateway account, they could shop around among a range of providers to find out what the conditions are, what is offered in these accounts, whether or not they offer interest and what it is, and what is the default option when the account matures in two years. In that way, we could have all competition taking place up front before someone signs up to an account. However, as the hon. Member for South Thanet rightly pointed out, that means that once someone has been enticed into saving in that account they are locked in for two years, and it also prevents people switching to take advantage of a better rate.
There is a debate to be had on the extent to which people will transfer from one account to another and whether we are prepared to accept the trade-off between reducing the cost base of operating the accounts on the one hand, thereby potentially increasing their availability and the number of people prepared to offer them, and the anti-competitive element that that includes on the other. I am mindful of that debate, and those were the two arguments I considered when writing my notes.
As one who fervently believes in the importance of competition, I want to see as many account providers as possible. Indeed, I would like people to be able to switch between accounts, but if the costs of the transfer option are such that that restricts the number of providers, are consumers best served by that smaller number of providers even though they have the option of transferability? There is a tension between the number of providers and the question of whether they will be attracted to a system that will leave them to incur additional costs if people transfer from account to account, and it is important to explore that.
When potential account providers look at whether to enter the market, they will need to understand the cost basewe will talk about statements laterand clearly they will have to bear in mind some of those parameters and whether it is economically viable for them to run the account. We need to have that on one side and the consumer interest on the other. I have tabled the new clause to stimulate that debate: we heard the view of potential account providers and it would be helpful to hear the Minsters view.
I have included one proviso, because the one case in which we need to be able to transfer accounts from provider to provider occurs when a bank becomes insolvent. It could be forced into administration or the Government could take it over and transfer the accounts to another bank, as was the case with Bradford & Bingley. I am very conscious that next week Members will consider Lords amendments to the Banking Bill, but in lieu of that Bill being on the statute book, I have incorporated in new clause 1 a provision relating to the Banking (Special Provisions) Act 2008. As the Minister will know, many of the actions that have been taken to solve the banking crisis over the past few months have been taken under the ambit of powers in that Act, so it seemed a convenient reference to include for the purpose of the debate.
The new clause is intended to be probing and to tease out the issues relating to transferability and to how it could help consumer interests once someone has taken on an account by encouraging or enabling transferability. Equally, however, transferability might reduce the number of providers who come forward to provide the saving gateway accounts if it leads to additional costs. If there are fewer providers, that might impair the competition in the marketplace and make the accounts less attractive.
As nearly always, the hon. Gentleman has a point. The Government have to make judgments on what the best action to take is if we are to ensure a plurality of provision of saving gateway accounts on the one hand and the ability to ensure that transfers can take place when they are in the interests of individual savers on the other. Clause 7 addresses that, and new clause 1, which the hon. Gentleman has tabled in a probing manner, would place severe restrictions on the opportunity for transfers to take place and would clearly be defective within a couple of weeks when the Banking (Special Provisions) Act is superseded. However, this is an opportunity to show the Governments current intentions and underlying thinking, much of which is set out in the draft regulations.
We would not expect transfers to be frequent. Unlike child trust funds, these are short accounts lasting two years and, unlike ISAs, it is not likely that account holders will want to change providers regularly to obtain a better interest ratethe match payment will be the same with any provider and will be significantly larger than any return paid by the provider. However, we are attracted to saving gateway account holders having the option of transferring their accounts between providers. For example, an account holder may move and find that their current provider is no longer accessible. That is potentially the case for people moving within rural areas. However, we do recognise that this remains a concern for potential account providers, as the Committee heard in the evidence session.
The hon. Gentleman is right to say that there are, potentially, administrative costs involved in paper-based transactions, if transfers were to take place. That is one reason why we need to continue to discuss this matter in detail, as we mentioned in the explanatory notes to the draft regulations that we published. However, clause 7 would be required, whatever the outcome of those discussions. Even if transferability were not a requirement of offering saving gateway accounts, a mechanism for transfers would be necessary to cater for cases where the transfer is triggered by the account provider, rather than the account holder. For example, if an account provider were to choose to withdraw from offering saving gateway accounts, their accounts would need to be transferred. The same would be true if a provider had their approval withdrawn by Her Majestys Revenue and Customs or ceased to qualify as an account provider for any reason. In such cases, transferring the accounts to another provider would be the only way of ensuring that they could continue to account maturity, so that the account holders could receive their maturity payments.
The new clause would permit transfers to another provider, only in the circumstance that the saving gateway provider with which the account is held is subject to the Banking (Special Provisions) Act 2008. Our intention, as set out in the regulations, is broadly that a transfer may be made where an account holder wishes to move from one provider to another and that there should be no charge when an account holder wishes to do this. We understand that the complexity and potential costs involved remain a concern. I assure the hon. Gentleman that we will continue to discuss this matter in detail, as I have already said.
Let me explain why the new clause, although intended to probe, is limited in scope. It is subject to the Banking (Special Provisions) Act 2008, which, as Committee members know, gives the Government power to take a failing UK deposit taker into public ownership or to transfer its assets to another private sector body to maintain the stability of the UK financial system or to protect the public interest. That is a narrow set of circumstances and a provider could be subject to the Bill only in the specific circumstances that it sets out. The new clause would not permit transfers where, as I have said, a provider chose to withdraw from offering saving gateway accounts, and it would not permit transfers if a provider were to have its approved status removed, so it is defective as a piece of prospective legislation.
If the Economic Secretary is saying that it is the Governments intention to facilitate transfers, I am a little surprised by regulation 19(3), which, since we do not know what the any necessary modifications mentioned in it are going to be, effectively means that a transfer account has to start again in going through the banks procedures, because those push it straight back into the regulation 13 requirements that we have already discussed, particularly in relation to my earlier amendment. I am surprised that the Economic Secretary is doing that. Does he accept that that also produces a potential conflict for a transferred account? It would be coming from a bank with one set of regulation 13 compliance for its own purposes to another that may have a completely different set and may not be willing to accept the account?
I do not have the particular regulation to hand, but I want to say in response to the hon. Gentleman that, as a Government, we currently intend that transfers should be allowed to take place, at no charge, where an account holder wishes to do that. It would clearly be up to the account provider to ensure that, if the transfer is taking place, the account holder is aware of the particular requirements operated as part of the providers saving gateway account and in undertaking the necessary checks. I shall look in detail at the regulation, but our current view is, clearly, that we want to see transfers, but that we are conscious of the potential costs involved. As I indicated, we are open to further discussions with the industry, because we want to make sure that the saving gateway scheme does not impose burdens on providers such that they might be put off from offering saving gateway accounts.
I understand where my hon. Friend is coming from, but I am worried about providing the banks with an opportunity to cop out. If they can build cost into the process of transferring between accounts, they will do that. We require electricity, gas, water and telephone companies to have procedures in place automatically to transfer accounts between customers at as a low a cost as possible and as quickly as possible. They are required to do that for competition purposes, so they keep the costs down. Admittedly, in my experience, they almost always screw it up when they do it, but nevertheless they are required to have those procedures in place. I do not see why it would be any different to require the banks to be able to transfer accounts between each other at as low a cost as possible. If the banks are expected to do that, they will make sure that the procedures are in place for it not to cost them too much money.
I understand my hon. Friends point, but I ask him to understand the situation with the banks. They will be offering accounts that, hopefully, will be taken up in significant volumes, but have relatively small sums of money deposited in them and are likely to involve procedures that would probably have to be paper-based andif there are significant transfers taking placecould well be expensive. That will affect their judgment as to whether they think it is worthwhile participating in the saving gateway programme. We are keen for them to do so, and we want to have discussions with them.
Clearly, it is in the best interests of savers if they can move around. We would like to see saving gateway accounts offering rates of interest, although there is no such requirement in the legislation. That is something that we shall probably discuss later on in the Committees deliberations. At the moment, we do not think that there will be significant drivers for accounts to be transferred, because as I have indicated it is the match that is clearly the most important thing here. We shall continue to have dialogue with the industry about that. We want to get to the bottom of how much cost really is involved, and whether it is a major problem, because it is something that we would like to see done.
To try to piece all this together, is the Minister saying as he did few moments ago that there should be no charge for transfer, under any circumstances? Or is he envisaging that, depending on the circumstances under which transfer took place, there will potentially be some charge to the account holder as opposed to the provider?
We have said that we want to see transfer at no charge to the account holder. Inevitably, if transfers are going to take place, there will be some costs to the account provider. The debate we are having with the industry is about how significant those costs are and whether they are likely to deter it from wanting to offer savings gateway products. We will continue to have that debate with the industry.
It is our firm view that it is desirable for transfers to take place. We do not expect them to be in any great numbers because of the nature of these accounts and because they are relatively short term, but we would like to have the flexibility so that consumers can undertake these transfers. That is why we want to continue to have dialogue with the industryit is important that we do so. As I indicated earlier, clause 7 is still necessary, whatever view one takes on transfers. It is an important part of the Bill.
I am grateful to the Economic Secretary for responding and in particular for pointing out that, notwithstanding the comments I have made about transferability, there would still be a need for clause 7 to be part of the Bill, given that there would need to be some regulations around transfers.
We have had a helpful debate about the costs. We talked about the benefits of the account to account holders and why it is important in terms of delivering a culture of savings to people who do not, currently, save much. This short debate has highlighted the importance of making sure that there are providers in place to provide those accounts and provide those opportunities for saving. While I focused on the area around transferability, hon. Members who took part in last Tuesdays evidence session will recollect that it was not just the banks who were concerned about the costs of operating these accounts; Adrian Coles of the Building Societies Association made a similar point, as did Mark Lyonette of ABCUL, about the cost of collection and cash handling. If we are to make sure that these accounts are available, it is important that the providers themselves see a purpose for providing these accounts and feel that it is beneficial to them to do so.
One of the issues that bedevils financial inclusion can be that often people come up with some good ideas for products that might meet the needs of consumers, but they do not come up with products that providers want to provide for a whole range of reasons. Ron Sandler, the chairman of Northern Rock, did a good report on some basic products, but unfortunately the design of those products means that no one is prepared to provide them. We need to think of both sides of the equation, which is part of the purpose of raising the issue around transferability this afternoon. We need to make sure that there are people out there who are prepared to provide these accounts.
The hon. Member for South Thanet spoke about perhaps encouraging the Post Office to be the sole provider. My concern would be that we would get a monopoly provider by default rather than design, if we do not get the product design right and make sure that the conditions are in place to encourage as many people as possible to provide those. That is the purpose around tabling new clause 1 and I am grateful that we have had the opportunity to have that debate this afternoon.