I beg to move, That the clause be read a Second time.
I am not sure whether new clause 2 would add anything to the Bill. However, it would make it explicit that it is permissible for interest to be paid on saving gateway accounts, but that it is not a requirement to do so. In part, the permissive nature relates to a comment that I made in the debate on clause 15: if interest was required to be paid on the accounts, they would not be sharia compliant. That would close off the accounts to a significant part of the population with whom we want to engage in terms of financial inclusion.
We had a debate with the various witnesses who gave evidence to us on that point. There were two extremesperhaps that is not the right word, because I do not think that I would ever accuse Teresa Perchard of being extreme. Teresa took the view that interest should be paid on the accounts. Her perspective was that it would educate people on the sort of terms that they could expect an account to have in the future. I put a question to her about the requirement to pay interest and she said:
I have strong views on this. If this product is designed to get people who have not been saving into the savings habit and it does not include the key feature that you would find in a standard savings account, you are losing the opportunity to engage people with the idea that they earn interest on the money that they put aside.
So, notwithstanding the fact that, with todays interest rates, the amounts involved might be relatively small, the educational benefit that comes with seeing how much interest is payable on one of these accounts is important. People would also see that the matched amounts were much more generous than the interest, and when they came to the end of the two-year period, they would understand that they were moving on to lower rates. That is what they should expect. They should not expect another 50p-in-the-pound match in other, standard savings products. Teresa saw this issue very much from the educational aspect.
Brian Pomeroy, who chairs the Governments Financial Inclusion Taskforce said that he agreed in principle with the idea that interest should be paid. However, he also made an important point when he said:
It would be unfortunate if the Treasury were to mandate a rate of interest and as a result killed off interest in being a provider.[Official Report, Saving Gateway Accounts Public Bill Committee, 27 January 2009; c. 20, Q40.]
We touched on this dilemma on Tuesday. Do we encourage as many people as possible to provide this product by making the cost of provision as low as possible, or do we set high standardswhether on savings, transferability or, in this case, the payment of interestthat force up the cost of the product, thereby restricting the number of providers? The question is whether we want a monopoly on provision by default or design.
In the afternoon sitting, it was interesting that one of the people who expressed the need for a permissive Bill was Mark Lyonette, from the Association of British Credit Unions. He understood the points about the financial education benefit, but he said that, for this marketplace, the motive was not necessarily the matching contribution or the interest. Marks experience of working with credit unions suggested that many people save to provide a buffer for a rainy day. I know from my discussions with the credit union to which I belong that many people put aside relatively small amounts to provide that buffer. They are not looking to earn interest, but simply want to put money aside.
Adrian Coles, from the Building Societies Association, felt that the interest rate would not be relevant to a savers decision on where to save or, indeed, whether to save. A variety of views have been put forward, and although I argued in favour of compulsion in the context of the product defaulting to an ISA when it matures, I favour a more permissive regime. I am mindful, however, of Teresa Perchards point about education, as that is part of the overall package.
We have talked about this being a stand-alone product, but we need to ensure that people will understand what the saving gateway product entails and what they will move on to afterwards. One lesson that was learned from the second pilot was the importance of having financial education alongside these products and the value of using third sector groups and others to help to encourage people to save.
I am content with the permissive nature of the Bill, but I thought that the new clause would give the Committee an opportunity to debate this issue, as there is no other opportunity to do so.
I have already made my key points, and I remind my hon. Friend the Economic Secretary of them, so that he can address them. An important point was made to us in evidence: if we are to encourage people to get the saving habit, which is what these accounts are for, it is necessary to pay some interest on them, so that people understand that, once the Government have paid the bonus on maturity, there is still a good reason for keeping money in a savings account and adding to it from time to time, because interest will be added.
I confess that I did not find the people from the banking industry who gave evidence particularly sympathetic characters. Their cries of poverty stretched credulity a little. By their own figures, this market will be worth about £250 million a year. Even at todays rates of interest, a back-of-the-envelope calculation based on the typical annual percentage rate offered on personal loans gives them a profit of £20 million on the money that they will get free from these savers and the Government.
The £20 million of profit has to go to administering these accounts, but that is not an insignificant amount of money for the banks to use for that, given that the Bill is about building their future customer base and encouraging people into the saving habit, which will stay with them in the long term. Having done the paperwork involved in getting people to open these accounts, the banks will not have to do it again when they transfer the matured funds either into ISAs or some other sort of savings account. That is another area of savings for them.
Even if the banks paid interest set at the current low rate, I estimate that they would still make about £14 million out of that £20 million, and they could use it to administer these accounts. I appeal to my hon. Friend not to take the banks cry of poverty and hardship too seriously when he is discussing whether interest should be paid on these accounts.
I am listening to the hon. Gentleman with interest and a lot of sympathy. Would he consider another valid point? To give people who hold saving gateway accounts a sense of what it is like to be a saver beyond the two-year period, it would be a good idea if the accounts bore some resemblance to a conventional savings account. People could see the little increments. Even the fact that the pounds do not round up, that there are a few pennies here and there and that it all looks like the money is growing in that incremental way will give the holders of these accounts, if they have no previous experience of saving, a sense of what it is like to have a conventional savings account. That may be beneficial as well.
The hon. Gentleman is absolutely right. This is about teaching people how savings work and how beneficial to them holding these accounts can be in the long term. I hope that they will take that message very seriously.
I return to my core point: I do not want my hon. Friend the Economic Secretary to think that the banks are not getting anything out of this. They are getting something very considerable. They are getting free money to help them to expand their customer base. Any other industry in this country that could make a claim for getting free money to expand its customer base would be falling over itself to get it. We have just had a debate about the car industry, and we are essentially helping the car industry to expand its customer base. I do not see how this is any different. The banks should be doing their bit by making money available.
To come back to the point made by the hon. Member for Taunton, perhaps the banks will want to structure their interest differently, so that someone who puts in their money regularly each month and does not withdraw it in the meantime will get more interest than someone who operates an account by putting in money and taking out money all the time in a way that is difficult to administer. Perhaps someone who puts in a lump sum at the start and keeps it there until the maturity period will get a bigger rate of interest than someone who puts in money differently. There are different ways of structuring the account, but I encourage my hon. Friend to remember, as I am sure that he does, that these accounts are about teaching people the benefits of saving. If we are to do that, the banks, building societies and others should be encouraged to pay interest on the accounts.
It is fair to say that there has been a healthy debate on whether there should be a mandated rate of interest on saving gateway accounts or whether, as in the Governments view, it should be left to the banks, building societies and other potential account providers to decide whether they wish to pay interest.
Let me explain how we have reached the judgment that we have made. I note in passing that my hon. Friend the Member for South Thanet seems to have made common cause with the right hon. Member for Wokingham, although perhaps for different reasons, in wanting the compulsory approach. I seem to remember his arguing on Second Reading that the payment of interest should be compulsory, but I share the view expressed by the hon. Member for Fareham: we should be permissive in this area.
Let me be clear that, in principle, the Government want to see account providers offering rates on saving gateway accounts. We also want them to offer good defaults for when accounts roll over after the two-year period. We want to engender a market with a number of account providers wanting to compete in offering saving gateway accounts. In those circumstances, relatively few people will want to take out a saving gateway account with no interest if an alternative product on the market offered a good level of interest and a good default option after the end of two years. At the moment we do not think that it is appropriate to specify and mandate a rate of interest.
It is clear that the match rate is by far the most important feature of saving gateway accounts and is the biggest incentive to encouraging individuals to open such accounts. That rate would dwarf any interest that is likely to be awarded during a two-year period. That is the real driver for the programme. However, I take closely into account the comments made by Teresa Perchard of Citizens Advice, and those of my hon. Friend the Member for South Thanet and others, which were that getting into the saving habit is about learning about savings products. Having a savings product that is a gateway account, which looks like an ordinary savings product, can have benefits in that regard.
I fear that some banks will rely on the generous bonus as a way of attracting people into these accounts and that they will take the same view as the bankers who gave evidence, which is that any rate of interest that they could possibly offer will be dwarfed by the bonus, so it is not worth paying it. They may then say, Okay, we wont give you any interest, but well transfer your money at the end of this account into a savings account that gives a generous rate of interest. They might take that approach, but we should not be encouraging them to rely on that big bonus. We should be trying to put as much pressure on them as possible at least to pay a low level of interest during the maturity period.
I understand how my hon. Friend gets to that point of view. As I have explained, the Governments preferred position is to engender competition so that a wide range of institutions participate and offer saving gateway accounts. We hope that a number of those institutions will want to offer interest on those accounts, as well as good default options, so that people wanting to open a saving gateway account will have a choice of places to go.
The advice that I have received and the detailed work that we have done on the cost of operating saving gateway accounts clearly shows that there are costs involved in opening accounts for significant numbers of people who will be saving relatively small amounts of money. I ask my hon. Friend to take that into account. It is not as simple as he suggests. He says that banks are being given free money to expand their customer base, but it is not like that.
These will be my last words on this matter. The banks seem to want to invest in children; their websites are currently offering quite generous rates of interest by todays standards for young people, who do put small amounts of money in and out, to inculcate the saving habit in them. However, I do not see why their attitude should be any different when they are operating the saving gateway accounts. Banks invest in children because they are their business of the future. Why should they not be encouraged to invest in people who are eligible to open a saving gateway account?
I certainly do want to encourage banks to offer saving gateway accounts. I do not want to put them off; I want to continue to listen to them when they say that significant business issues will determine their decision whether to offer the accounts. The Government are not credulous about that, and we will hold a detailed dialogue with the banks to come to an understanding on their offering of saving gateway accounts. Having talked to them, we remain of the view that it is not the right approach to prescribe that interest must be offered on saving gateway accounts. It is far better to create a market to encourage a variety of providers. Our approach is the right one.
I appreciate the comments made by the hon. Member for Fareham and the reason for his new clause, which he correctly said does not add anything to the Bill. I am happy to assure him that account providers will not find that the regulations suddenly change, imposing on them a new requirement to pay interest to account holders. That is the decision that we have reachedit is the settled view of the Government. However, that does not mean that it would not be wise to provide flexibility in case we change our minds in the futureperhaps we will be persuaded by the right hon. Member for Wokingham or my hon. Friend the Member for South Thanet. That is why the legislation, and secondary legislation, is so framed. However, were we to go down that road, we would want to conduct a full consultation. We think that the Bill is far better as it stands now, with its voluntary approach. Let us get these accounts up and running and get people saving. We need to encourage that saving habit. Let us try to create a market so that account providers will want to offer attractive rates of interests as default positions. We ought to proceed on that basis; that is the Governments intention.
We have had a very useful debate about the role that interest plays in such accounts and the economics of providing them. I am keen to ensure that we have as many providers of such accounts as possible. The cost issue weighed on the minds not only of banks but of the Building Societies Association and the credit unions. If we want financial mutuals to participate, they need to be confident about the financial return. Often they are thinly capitalised compared with banks. They do not necessarily have the wherewithal to open some of these things. It is important to ensure that the provision is attractive to a range of providers. However, I take on board the comments of Teresa Perchard and Brian Pomeroy about education and ensuring that people understand what a savings account will be like in the future. That is an important part of the process. Given that, as I said earlier, the new clause adds little, if not nothing, to the Bill, I beg to ask leave to withdraw the clause.
I was going to do this on a point of order, but I am happy to speak to the question formally. We believe that the Saving Gateway Accounts Bill offers an important opportunity to encourage people of working age or on low incomes to acquire the saving habit. We think that there are strong advantages in promoting this policy. It only remains for me to thank you, Mr. Taylor, and Mr. Bercow for the efficient way in which you chaired the proceedings. I thank the Clerks for faithfully dealing with our debates. I thank my Bill team for the sterling work that they have done. I thank the hon. Members for Fareham and for Taunton for the good-natured manner in which they have probed us on the proposed legislation during Committee stage and I thank my hon. Friends for their contributions to the debate. Our proceedings have not been conducted through the best of weather, but we have had a good turnout.
There is a high level of interest in saving gateway accounts and wide cross-party support for them. That is to be welcomed. I am sure that on Report and in the other place, the Bill will continue to progress in good shape. I am sure that it will get on to the statute book and will kick-start the saving habit for the future.
I add my thanks to you, Mr. Taylor and your co-Chairman, Mr. Bercow. I also thank the Clerks and the Hansard reporters for their assistance.
The Minister commented that only two Government amendments had been tabled to the Bill. That is a tribute to the Bill team. Saving gateway accounts were possibly easier to cast into legislation than the proposals in the Banking Bill, which will come back to us on Tuesday having been heavily amended in the Lords and the Commons. There has been a great deal of consensus on this Bill. I wonder whether this is the political equivalent to Stockholm syndrome for Opposition Members. I am grateful for the way in which the Minister has engaged in the debate. In contrast to many Public Bill Committees, Labour Back Benchers have seen fit to take part. They are always very loyal in attending and usually in being very quiet. It has been helpful to have participation from both sides.
I hope that the hon. Gentleman has impressed the Whip sufficiently that he will not be called on to participate in the Finance Bill Committee. He should be careful what he wishes for.
There is widespread agreement on the Bill and we all share the aims of encouraging a saving culture among those who feel excluded from saving. We hope that it is successful in encouraging more people to enjoy the benefits that most other people enjoy from having savings, such as protection against uncertainty and the opportunity to provide for their future.