I welcome the opportunity to speak on this good, workman-like and well researched report, and congratulate Mr. McFall on having led the exercise and introducing the report today. I want to apologise—although it may not be necessary, as we are running a little ahead of time—as I have a long-standing appointment at 5.15 pm to discuss this subject with the Financial Services Authority. I apologise to the Minister if I have to leave before he finishes his remarks, if we are still going strong at that time.
It is useful to start, as Mr. Plaskitt did, with basic principles, and to ask the fundamental question: is there a shortage of savings? That seems to be the right place to start and the report started there. There are good reasons for advocating saving. As the report says, there are good reasons why individuals, and society as a whole, should take responsibility for saving for retirement and for unexpected events. We all have a life cycle and at the end of it we need to spend. That is why savings are important.
However, there are also bad reasons for saving. It is not inherently desirable. The classic Keynsian argument is that savings act as a barrier to demand, but we also know about the experience in the past decade of other developed countries such as Japan and, to an extent, Germany, which saved too much. Indeed, saving has been locked away in very unproductive activities and that has dragged their growth down rather than improving it. Savings are not inherently desirable, but, properly focused, they are clearly essential. That is why I agree with the hon. Member for Warwick and Leamington that fixing on a savings ratio is not helpful.
The report reaches exactly the right balance. Some benchmarking is necessary, and a better way of looking at the issue is the idea of a savings gap—a gap in savings required to meet sustainable income, of the kind that is talked about by independent institutes such as the Institute for Fiscal Studies and the National Institute of Economic and Social Research. The report accepts the consensus that there is a substantial savings gap measured against that criterion.
The key issue on which the three right hon. and hon. Members who have spoken have focused is why there is a lack of confidence in long-term savings products. I agree with much, although not all, of what they said. They all focused almost exclusively on the failings of the long-term savings industry. There are failings and it is right to acknowledge them, but that is by no means the end of the story. Unless I missed something, none of them made even a passing reference to chapter 9 of the report, which is an important chapter about tax and benefits and deals with incentive structures.
That is crucial, because one reason for our savings gap problem and for the lack of confidence in saving is that the system of tax and benefits provides a strong disincentive to save. As someone rather cryptically points out in the report, a person may save 22 per cent. on the way in, but will pay 40 per cent. on the way out, which, on any simple calculation, is not a good incentive.
Indeed, the Adair Turner report produced some striking statistics on the structure of incentives for pensioners. I think that 40 per cent. of them face a marginal withdrawal rate—basically, a marginal tax rate—of 50 per cent., which is the combination of the withdrawal from pension credit and the first rate of tax that they pay. A quarter of all pensioners pay a marginal withdrawal rate of 75 per cent., which is the combination of withdrawal of pension credit plus higher rate tax. There is a highly penal disincentive against saving in the tax and benefits structure.