Monday 12th December 2016
(7 years, 4 months ago)
Commons ChamberSavings (Government Contributions) Act 2017 View all Savings (Government Contributions) Act 2017 Debates Read Hansard Text Amendment Paper: Consideration of Bill Amendments as at 12 December 2016 - (12 Dec 2016)
18:33 - The House divided: - Ayes: 230 / Noes: 277 - Question accordingly negatived.
18:47 - The House divided: - Ayes: 45 / Noes: 285 - Question accordingly negatived.
19:00 - The House divided: - Ayes: 227 / Noes: 279 - Question accordingly negatived.
The Financial Secretary to the Treasury (Jane Ellison)
This has been a wide-ranging debate, albeit with a relatively small number of speakers. Many of the arguments today were given a good airing during our Bill Committee discussions. I will try to address the key points raised by hon. Members, and will also set out why we think the Government amendments are necessary.
First, however, I want to touch on a point of policy that is of some relevance to the debate: a change to charges in the first year. We are making a small change to charges on early withdrawals from the lifetime ISA in its first year of operation, for the benefit of consumers. Although these rules will be set out in regulations, so do not affect the substance of the Bill before the House today, as a courtesy I thought some hon. Members would be interested, given the points raised in oral evidence to the Bill Committee.
The 25% Government charge on unauthorised withdrawals from the lifetime ISA recoups the Government bonus and applies a small additional charge. This is fair as it reflects the long-term nature of the product and ensures that individuals save into it for the intended purposes, protecting Government funds and taxpayers’ money. However, in 2017-18 only, the bonus will not be paid monthly, as it will be from April 2018 on, but will be paid as an annual bonus at year-end. This could create a difficult case where people face a 25% Government charge up to 12 months before they receive the bonus. We have listened to representations on this point, and so, to improve the product for consumers, I can confirm that there will be no Government charges in 2017-18.
If people want to withdraw from their lifetime ISA in 2017-18, they must close their account, and there will be no Government charge to do so. No bonuses will be paid on such closed accounts.
An individual who has closed their account will be able to open another lifetime ISA in 2017-18 and contribute up to £4,000 into it, if they wish to. From April 2018 the Government bonus will be paid monthly. This means that the 25% Government charge on withdrawals other than for a first-time house purchase, in the event of terminal illness or when the individual is over 60 will apply as per the overarching policy intention.
Government amendment 3 is about data sharing, and I wrote on this issue to the hon. Members for Bootle (Peter Dowd) and for Ross, Skye and Lochaber (Ian Blackford) and copied in the rest of the Bill Committee. We have heard that the lifetime ISA will provide an eligible first-time buyer with a new choice in saving for their first home, in addition to the existing help to buy ISA scheme. Both schemes provide that generous Government bonus of 25% that can be put towards a first home.
As we set out when we first announced the lifetime ISA, we intend that individuals will be able to save into both a Help to Buy ISA and a lifetime ISA, but they will only be able to use the bonus from one of the schemes when they buy their first home. Amendment 3 introduces a new paragraph to schedule 1 to allow HMRC and the administrator of the Help to Buy ISA to share information about bonus payments and charge-free withdrawals so that those rules can be policed. It also provides appropriate safeguards and sanctions in relation to the use of account holders’ information, including a criminal offence for unlawful disclosure of that information, in line with HMRC’s established duty of taxpayer confidentiality. The amendment is straightforward and will ensure that the scheme rules on Government bonuses can be effectively administered. I hope that the House will accept it.
Government amendments 4 and 5 concern residency conditions for Help to Save. That is a targeted scheme, as we have heard, that will support lower-income savers by providing a generous Government bonus on their savings. It is only right that that Government bonus should be available for savings made while an account holder is in the UK or has an appropriate connection with the UK, such as Crown servants serving overseas. The Bill already provides that, as well as meeting conditions in relation to working tax credit or universal credit, an individual must be in the UK to open an account. However, it is currently silent on the rules that apply where an account holder leaves the UK during the four-year lifetime of an account.
The amendments address that situation by allowing regulations to provide that the monthly payment limit for Help to Save can be set at nil in certain cases. We intend to use that power to provide that an individual cannot make payments to an account, and cannot thereby earn additional Government bonus, when they are not in the UK or do not have the appropriate connection to the UK. That will be supported by a requirement to notify the account provider if an account holder’s circumstances change and they will be absent from the UK. That approach broadly mirrors the arrangements currently in place for ISA accounts. The amendments also provide for a penalty where there is a failure to notify the account provider of such a change. However, that penalty will not apply where there is a reasonable excuse for the failure, and any person who receives a penalty will have the right to appeal. The House will have the opportunity to consider regulations dealing with eligibility for an account before the launch of the scheme.
These amendments allow an effective targeting of the generous Help to Save bonus, so that it can be earned only on savings made by individuals in the UK, or with an appropriate connection. On that basis, I hope that the House will accept them.
I will now respond to the non-Government amendments and new clauses. Again, we debated most of these issues at length in Committee. I will try not to recap all the arguments and to summarise the main ones.
New clause 3 and new clause 7 both concern advice for people opening either type of account. We have heard concerns that people may not get all the advice they need. I have been clear that the regulation of providers is the role of the independent Financial Conduct Authority, which regulates ISA providers and will likewise set the framework for the Lifetime ISA. It is consulting on its approach at the moment. On 16 November, it set out its suggested approach.
The Government of course want to ensure that people have the information that they need to make important financial decisions. We will provide clear information on gov.uk as well as work with the Money Advice Service and its successor to ensure that they make appropriate and impartial information available. The risk of mandating that people receive independent advice is that it makes investing in these products prohibitively expensive for many people. In Committee, we talked about the cost associated with mandating financial advice of that nature. Therefore, although I understand the sentiment behind those new clauses, I urge hon. Members not to press them and instead look at what the FCA has recommended in its initial suggestions to us.
Jane Ellison
I will, although the hon. Gentleman spoke for 20 minutes on this subject. I will take a brief intervention.
Ian Blackford
Speaking for 20 minutes when consumers are exposed to risk is not unreasonable. Can the Minister tell me which workers who have access to auto-enrolment will be better off under a LISA than they would under a pension?
Jane Ellison
I accept entirely, and it is evident from the hon. Gentleman’s speech, that he objects in principle to the lifetime ISA, but the matter before the House is whether we legislate for it, and the new clause I am addressing at the moment concerns financial advice. I have given examples of where the Government will be steering people towards advice. We are as keen as anyone that people have access to advice, but I urge him to look at the FCA consultation and what it has said, because it is the FCA’s job to steer us in that regard.
Richard Fuller (Bedford) (Con)
I listened with interest to the points made by Labour Members about credit unions. I am a member of the Bedford credit union. Will the Minister look specifically at this issue? I think the hon. Member for Walthamstow (Stella Creasy) was saying that the Bill was an opportunity to expand the role of credit unions—they could be given almost a preferred provider status. When the Minister considers expanding the provider model beyond NS&I to include alternative providers, will she look specifically at expanding it solely to credit unions, rather than more broadly?
Jane Ellison
I hope that my hon. Friend will understand that it would be pre-emptive of me to make such a commitment at this stage. However, we have been clear that we think that credit unions have a big role to play. The primary legislation does not preclude them from being part of a multiple provider model in future. Indeed, my officials have been in constructive discussions with the credit union movement throughout the passage of the Bill. We are working with the credit union sector to ensure that the final design of Help to Save meets the needs of the target audience. I know that the Economic Secretary to the Treasury is looking forward to meeting the hon. Member for Harrow West and my hon. Friend the Member for South Ribble (Seema Kennedy) to discuss the issue further with the Association of British Credit Unions. Therefore, this is not about excluding the credit union movement. We are in regular, constructive discussion with credit unions. We just feel at this stage that the amendment would not allow us to offer that simple nationwide model on the introduction of Help to Save.
Stella Creasy
I thank the Minister for what she is saying. Our concern is that savings are a critical part of credit unions’ ability to deliver the services that they provide. Her argument does not preclude the amendment that Co-op MPs have tabled. The conversations that she is talking about could then happen. There has been no suggestion that there would be any legislative bar. She is making the case for accepting the amendment in saying that it is exactly what she wants to do in future.
Jane Ellison
I am just saying that nothing in the Bill precludes that from happening now, so the amendment is unnecessary. We are in constructive discussions with the credit unions. They are not precluded from being part of a multiple provider model in future. I have laid out that, throughout the consultation, we identified that that was not a suitable model for the starting point. However, I honestly think that we are essentially coming at this from the same point of view. I hope that, in the light of what I have said, hon. Members will not press the amendment. As I say, we will continue to have those constructive discussions.
Amendment 7 seeks to pay the bonus every six months, rather than at the two and four-year mark of the Help to Save product. We believe that paying the bonus at two years and at account maturity strikes the right balance between giving people enough time to build up their savings and develop a savings habit and allowing them to access the bonus within an appropriate timescale. That is supported by evidence from similar savings schemes. Some Members will be aware that the savings gateway pilots showed that the optimal period for the saving habit to be embedded is two years.
I emphasise that people will still have full access to their savings with Help to Save, so even if they are able to save for only six months, they will still be entitled to receive a bonus at the two-year point or at maturity. I hope that that reassures hon. Members that we have looked carefully at the issue. I accept that it is, to an extent, a judgment call, but evidence from the savings gateway pilots, as well as from other peer-reviewed research, shows that the optimal time for the saving habit to be embedded is about 19 to 24 months. We think that we have struck the right balance, so I hope that the amendment will not be pressed.
Amendments 8 to 11 centre on the contribution limits. Not many Members spoke specifically about the issue and we explored it well in Committee. It is about being able to contribute a two-monthly average of £50. Our consultation specifically addressed the question of whether individuals should be able to pay in more than the £50 limit in certain circumstances. Respondents were very clear that that would add complexity to the scheme, both for savers and for account providers. It is worth noting that the Office for Budget Responsibility-certified forecast suggests that people will deposit £27.50 into their accounts each month on average. The £50 monthly limit is adequate, so I hope that the amendments will not be pressed.
Amendment 12 centres on eligibility for under-25s. The issue was explored in Committee and it has been touched on briefly today by the hon. Member for Ross, Skye and Lochaber. Our intention is to passport people into eligibility for Help to Save from working tax credit and universal credit. That is a well-established way of targeting people on lower incomes, and we think that it is the most simple and effective method for determining eligibility. Importantly, it removes the need for people either to complete a further means test to prove that they are eligible for an account or to contact the Government, both of which deter people from opening accounts. It also avoids additional costs associated with developing a new and complex eligibility checking system.
The hon. Gentleman also touched on amendment 13, which seeks to exempt bonuses from bankruptcy proceedings. Our approach is consistent with what we have done elsewhere. In the benefits system, for example, deductions are sometimes made to claims to repay debts. We think that, in reality, any accrued bonus represents an asset to the account holder and should be treated as such during any insolvency proceedings. Again, I urge Members not press the amendment.
The hon. Member for Harrow West began by speaking to new clause 1, which focuses on save-as-you-earn and the payroll reduction, which is also the subject of amendment 14. Both proposed amendments seek to introduce rules to allow people to deduct automatically amounts from their salary into a Help to Save account. In fact, amendment 14 goes further by proposing the introduction of auto-enrolment for Help to Save, allowing employers or benefit-paying bodies to divert money from employees’ pay into a Help to Save account, unless they opt out.
As I said in Committee, we want the decision to save into a Help to Save account to be an active choice made by eligible individuals at a time that is right for them. For many, that will mean saving flexibly, putting aside what they can afford each month, rather than committing to having a fixed amount deducted each month from their salary. There is nothing in the Bill to stop an employer offering payroll deduction for Help to Save to their employees, but we do not intend to make it a statutory requirement for employers to offer payroll deduction for Help to Save. Automatic enrolment into workplace pensions must remain the priority for employers.
New clauses 2, 4, 5 and 6 seek to place a duty on the Government to review or publish analysis on certain aspects of the policies. In all cases we have already conducted an impact assessment, published alongside the Bill. At the time of the autumn statement, we published a cumulative distribution analysis of all the policies implemented during the 2015-20 Parliament, including of the lifetime ISA and Help to Save. We believe that it is important to look at the cumulative impact of tax and spending decisions, rather than the impact of individual measures in isolation. The distributional analysis that the Government have published since 2010 has always taken that cumulative, rather than measure-by-measure, approach.
As with all Government policies, we will, of course, keep the lifetime ISA under review to ensure that it is meeting its objectives. Indeed, we already regularly publish a wide range of detail about the take-up of Government-supported savings accounts such as ISAs. We intend to take a similar approach to the lifetime ISA, so we have already done a lot in that regard.
We discussed the interaction with the housing market in Committee, as the hon. Member for Bootle (Peter Dowd) has said. In essence, any impact that the lifetime ISA has on the housing market is likely to be very difficult to detect among other factors. As was said in Committee, the accusations that this product benefits only the wealthy do not bear scrutiny, given that the Help to Buy ISA has been used to buy homes worth on average £167,250, which is well under the property price cap. The accusations are not fair.
The interaction with automatic enrolment dominated the contribution of the hon. Member for Ross, Skye and Lochaber. We covered the issue in detail in Committee, and I once again stress the Government’s absolute commitment to automatic enrolment. It is wrong to say that we are seeking to derail it. The lifetime ISA—the Treasury is clear on this—is designed to be a complement to automatic enrolment and workplace pensions, not a replacement. Our costings do not assume that people will opt out of their workplace pension in order to pay into a lifetime ISA. Encouragingly, the figures show that the opt-out rate is very low so far. Taking all those things together, we do not think that the proposed new clauses are necessary, so I urge hon. Members not to press them.
Amendments 15 to 22 would effectively cancel the lifetime ISA from the Bill. It is evident from my comments so far that I have no intention of accepting the amendments. It is clear that we have a disagreement in principle. The hon. Gentleman’s accusations against the measure bordered on hyperbole. He said that he is prepared to look at any reasonable proposal that helps people to save, but we know from the consultations on the complex subject of saving for the future that this is a product that will help many people save. It is a direct response to the comments made in response to a public consultation about the complexity of savings options.
Jane Ellison
No. We have had a good debate, both in Committee and here, and I am going to press on. I have to date taken slightly less time than the hon. Gentleman—
Mr Speaker
Order. The Minister is clearly not giving way. It is apparent to everybody else in the Chamber and I am sure that it is now apparent to the hon. Gentleman.
Jane Ellison
Amendments 15 to 22 seek to cancel half the Bill—I am not going to accept them. I refer the hon. Member for Ross, Skye and Lochaber to the FCA’s consultation; I do not think that it would recognise his comments, and neither do I.
Amendment 1 would change the normal maturity period for Help to Save accounts from 48 to 24 months. In practice, people would be able to save into a Help to Save account for only two years rather than four. We designed the scheme so that people can save into a Help to Save account and get a Government bonus after two years, and then continue to save and receive a further bonus when the account matures after four years. We have done that because we want the target group to be able to save as regularly as other people and they may take longer to save towards that vital rainy day fund. It also provides an incentive for people to continue saving beyond two years, which fits with our objective to encourage people to develop a long-term saving habit. I hope that the amendment will not be pressed.
Finally, amendment 6 would delay commencement until April 2019, when automatic enrolment into workplace pensions will be fully rolled out. We have been very clear that we do not expect lifetime ISAs to drive opt-outs from pension saving. There is, therefore, no reason to delay. In fact, such a delay would disadvantage those who wish to open a lifetime ISA and who have been preparing for a 2017 launch. The hon. Gentleman completely disregarded the fact that self-employed people do not have the option of access to a workplace pension scheme. That came out in evidence to the Bill Committee. There was not a word about the self-employed.
Jane Ellison
No, I will not.
The proposal would also delay Help to Save for a year, disadvantaging the savers on low incomes who will benefit from the scheme. Like many hon. Members, I am passionate about the Help to Save scheme and want to see it go ahead as planned. I intend to work with all who have been mentioned—the credit unions, many financial inclusion charities, and the Churches—to ensure that we exceed the take-up target for Help to Save. I will be delighted if we vastly exceed the target, and that is my intention.
Jane Ellison
I beg to move, That the Bill be now read the Third time.
I thank all right hon. and hon. Members who have taken the time to scrutinise the Bill during its passage through the House for the good, constructive debates, which have been very helpful. We want to make it easier for everyone to build up savings, to meet their ambitions and to feel secure in their personal finances, and we have already set to work to make that the case. We put an end, for example, to 17 million people having to pay tax on the interest they received on their savings and we announced the biggest ever increase in the ISA allowance, to £20,000 from April next year. This Bill, legislating as it does for the lifetime ISA and the Help to Save account, carries on that hugely important work.
As we have heard, the lifetime ISA provides a new option for young people looking to save for the long term. It is a positive move for savers that complements pensions and is yet another way in which we are supporting people who are doing the right thing and putting money aside.
Help to Save has received cross-party support in the House. We know why this is so important. Research from the Centre for Social Justice estimates that 3 million low-income households have no savings at all, so we can be in no doubt that moving forward with this account is a hugely important step.
The Savings (Government Contributions) Bill is important, and its passage through the House has been met with thoughtful and constructive challenge. We have debated a number of important principles during our deliberations, but the Bill is fundamentally about people who are trying to save for the future so I have no hesitation—indeed, I take great pleasure—in commending it to the House.