Oral Answers to Questions

Kelvin Hopkins Excerpts

Tuesday 18th April 2017 Commons Chamber

[Mr Hammond]

On the hon. Gentleman’s last question, the location of the European Union’s agencies is clearly a matter for the European Union. We cannot credibly seek to leave the European Union and at the same time dictate to it where it should locate its agencies. On the initial items on his list, it will indeed be the UK Government’s objective, as we go into the negotiations, to protect our financial services sector.

[Kelvin Hopkins (Luton North) (Lab)]

Since the EU referendum, the substantial sterling depreciation has seen exports increase and the balance of trade deficit reduce from £13.7 billion in quarter 3 of last year to £5 billion in quarter 4. However, the Chancellor has repeatedly said that he is not concerned about the exchange rate. Is it not just plain wrong to dismiss the significance of the exchange rate?

[Mr Hammond]

I have never said that I was not concerned about the exchange rate. I have said that the Government do not take a view on what the appropriate exchange rate should be; that is very much a matter for the markets to determine. I am sure that the hon. Gentleman will have been delighted to note that my right hon. Friend the Prime Minister’s statement this morning has sent sterling up in the markets, demonstrating the confidence that the markets have in a future for this country under a Tory Government with a new mandate.

Oral Answers to Questions

Kelvin Hopkins Excerpts

Tuesday 28th February 2017 Commons Chamber

The Chancellor of the Exchequer was asked—

[Kelvin Hopkins (Luton North) (Lab)]

1. If his Department will increase the level of funding provided to the Department of Health.

[Paula Sherriff (Dewsbury) (Lab)]

12. If his Department will increase the level of funding provided to the Department of Health.

[The Chief Secretary to the Treasury (Mr David Gauke)]

Annual funding to the Department of Health is already being increased by £17 billion by 2020-21. This reflects the priority that the Government put on investing in the NHS.

[Kelvin Hopkins]

OECD statistics show that the Governments of Germany, France, Holland, Sweden and Denmark spend an average of 9% of GDP on health compared with 7.7% in the UK—a massive difference of £23 billion a year. The NHS is desperately underfunded and it is no surprise that it is suffering, so is the Chancellor really going to take this seriously in the Budget?

[Mr Gauke]

I think the hon. Gentleman will find that the OECD has more recently put out revised numbers to show that the UK’s expenditure on health is very close to some of those other countries. The fact is that we can only have a properly funded NHS if we have a strong economy, and only the Conservative party can deliver it—a point that the people of Copeland may have noticed.

Oral Answers to Questions

Kelvin Hopkins Excerpts

Tuesday 17th January 2017 Commons Chamber

[Mr Hammond]

Of course. I thought that my hon. Friend was going to tell me that the company had chosen an EU location over London, so I am interested to hear him say that it has chosen Zurich—the only other possible non-EU location. I will look at the issue that he raises. It is our objective to have the most attractive location on this continent for inward investment and for foreign businesses to do their business.

[Kelvin Hopkins (Luton North) (Lab)]

Inflation is still below the Monetary Policy Committee’s official target, and the economy has long been at greater and more worrying risk of deflation than inflation. Will the Chancellor therefore be seeking to dissuade the Governor of the Bank of England from any thoughts of raising interest rates, which would simply inflict wholly unnecessary damage on the economy?

[Mr Hammond]

No. It is not for me to dissuade or persuade the Governor of the Bank of England in relation to interest rate policy. However, I will say this to reassure the hon. Gentleman: although this morning’s inflation figure—1.6%, as measured on the consumer prices index—is below the Bank of England’s target rate, the forecasts of the OBR and, indeed, the Bank suggest that the figure will meet and exceed the target rate later in the year.

Savings (Government Contributions) Bill

Kelvin Hopkins Excerpts

3rd reading: House of Commons & Report stage: House of Commons
Monday 12th December 2016 Commons Chamber

[Kelvin Hopkins (Luton North) (Lab)]

I was a member of the Bill Committee and I made many of the points I wish to make at that time. I was not able to be in the Chamber for the first part of this debate, but I wanted to say a few words in support of what we have heard from the Opposition Front Bench. My hon. Friend the Member for Bootle (Peter Dowd) and the hon. Member for Ross, Skye and Lochaber (Ian Blackford), speaking for the Scottish National party, have expressed strong words of scepticism about the Bill. I reinforce those words.

The very poorest need a much bigger state pension. For many people, a compulsory earnings-related state pension scheme would be much better value and would guarantee that everybody saved some of their earnings for a decent old age. That would be a much more positive way forward. I echo what has been said by the Opposition Front Benchers and am grateful for this opportunity to speak.

Oral Answers to Questions

Kelvin Hopkins Excerpts

Tuesday 29th November 2016 Commons Chamber

[Mr Hammond]

I will certainly pass on my hon. Friend’s comments about that particular rail scheme to my right hon. Friend the Transport Secretary. My hon. Friend will know that we have a large programme of rail infrastructure in place and that the additional funding for the east-west rail link that was announced last week was outside that core rail programme. I hope that he will agree that the Oxford to Cambridge corridor represents a real growth opportunity for the south and the east of England to exploit Britain’s two best known universities and their world-class research reputations to enhance the productive capacity of our economy.

[Kelvin Hopkins (Luton North) (Lab)]

Since 23 June, there has been a significant depreciation of sterling and two announcements of major investments in UK motor manufacturing. The prospects for investment in UK manufacturing more widely are now much improved. Will the Chancellor be seeking to ensure that the more sensible exchange rate welcomed by Lord Mervyn King, among others, is sustained?

[Mr Hammond]

No. It is not the Government’s business to sustain or manage the exchange rate in any way, as the hon. Gentleman very well knows. We have an inflation target, but exchange rates are set by markets and reflect market views about the economy and expectations of the trajectory of the economy in the future. He is absolutely right to observe that, over the past six months, we have seen some remarkable endorsements of the British economy through large inward investment decisions made by foreign inward investors.

Technical and Further Education Bill (First sitting)

Kelvin Hopkins Excerpts

Committee Debate: 1st sitting: House of Commons
Tuesday 22nd November 2016 Public Bill Committees

[Tracy Brabin]

Q David, I have been told that in some circumstances members of staff such as receptionists without relevant qualifications or training are carrying out careers guidance in colleges as a tick-box exercise. Are you concerned that there is no careers guidance provision in the Bill?

David Hughes: I am very concerned if that story about reception staff is true, because it is an incredibly important area of education and, of course, it does not start at 16; it starts a lot earlier. I would echo a lot of what Alison was saying. We need to think about key stage 4 rather than just look at age 16-plus, because the decisions that get made by young people and their parents and carers are critical to their future. We need to think about introducing them to the world of work rather than just providing them with some information about courses, so the work experience and work placements that the Sainsbury report and the skills plan rightly concentrate and focus on are really important to consider for key stage 4, rather than just waiting until 16. We want some of the best young people with good achievements at GCSE at 16 going into the technical route and apprenticeships rather than what we have now, which is mostly that if you do well at GCSE at 16, you take an academic route.

We know that probably about £1 billion is wasted when young people go on an academic route for a year and then move off it because they find it is not suitable for them. We need to stop that happening because that wastes money and, more importantly, young people are using up a year of their life on something that does not stimulate them or motivate them. We have got to go back into key stage 4 rather than just wait. It is critical that we get college information, advice and guidance right, but let us think about careers education through school, not just right at the end, and let us think about persuading the best young people to do technical if that is the right thing for them, because it should be high-quality to attract them.

[Kelvin Hopkins (Luton North) (Lab)]

Q What David Hughes and Professor Fuller have been saying is striking. I recall comparisons made some 25 years ago by the National Institute of Economic and Social Research and Professor Sig Prais between technical education in Britain and in Germany, Italy and Spain in particular, where they had up to 30 hours a week of contact-intensive pedagogic teaching over a period. In Britain it was nothing like that.

The underfunding of technical education and 16-to-19 education is noticeable. By contrast, at universities—I went there many years ago—you have a few lectures and a couple of seminars and tutorials, so the contact hours are much lower but the funding is much higher. Do you not think we have got this the wrong way around?

David Hughes: For lots of the technical routes, we are getting 12 to 14 hours of contact time, and that pales into insignificance compared to most of our competitors in the OECD. It is a really important issue. It is not just for technical, though; we have now got young people being offered only three A-levels rather than four AS-levels, and that is really shameful. It means that their opportunities to explore at 16 have been limited.

We really must address the investment issue to get the level of support that is required for young people. We are talking about young people who might have careers lasting 50 years-plus. They need a broad education to allow them to become learners, to think about continuous professional development, to change career probably two or three times and to be able to move when technology moves. I do not think that 12 to 14 hours of contact time for the 16-to-19 phase is enough. I do not think that the quality will be high enough or that the choice, even on A-level routes, is good enough, given the funding that is available.

Professor Alison Fuller: I am sure others will want to speak, but I would hate to say, just because we maybe think there is a big contrast in the numbers, that higher education is overfunded. I certainly would not want that message to come through.

There are a couple of other points. One is that a lot of vocational education—I still say that—happens in universities. The expansion of higher education has largely been in relation to vocational higher education courses in applied areas. A big cost of that is in equipment—lab space, technology, machinery and so on—and that same argument is behind suggesting that further education should really be better resourced. Good-quality technical education does not come cheap; the reality is that it is extremely expensive. We need very highly qualified vocational teachers—I include those who are moving in and out of employment, and I am sure Richard will speak about that, because he was part of the very influential report a couple of years ago from the commission chaired by Frank McLoughlin. It is a case of being serious about what it costs to provide a good-quality technical education, in terms of the people, resources, equipment and facilities.

[Kelvin Hopkins]

Q I wonder whether Mr Watkin would like to say something about sixth-form colleges and the squeeze on funding there.

Bill Watkin: We published a report recently about the impact of the current funding levels, which, although the Government have set them at a certain level, are set at that level following three significant cuts which have cost the sector about 17% since 2011. As David just said, we find that the number of A-levels being offered is increasingly only three rather than four; that minority subjects are being lost—it is not just the high-profile archaeology and history of art, but modern languages and sciences—and that the enrichment support, pastoral support, the activities after college and the careers guidance are all at risk because of low funding levels.

We are also finding, exactly as has been said, that international comparisons show we are not funding enough hours of tuition per week. In Singapore and Shanghai, for example, they are funded for approximately 30 hours a week, whereas in New South Wales it is 26 hours a week. In England it is about 15 hours a week. Of course, the impact of that is that students from more disadvantaged backgrounds will find it harder to use the untaught time. It is not just that there is not enough teaching time to cover the qualifications, but that the non-taught time has to be used effectively. It is much more difficult for young people from disadvantaged backgrounds to use non-taught time well.

[Kelvin Hopkins]

Q It is a major factor. When Michael Gove was Secretary of State, I asked him why we were having to recruit so many engineers from abroad. He said that we were not training enough ourselves because our mathematics was not good enough and we could not get them up to the standards required. Resource is surely what the problem is.

Bill Watkin: It is certainly one of the problems. There is also the shift in what qualifications are available. To move away from apprenticeships and technical professional education for a moment and talk about the academic curriculum, we have just seen, for example, the loss of use of maths and the loss of statistics from the range of qualifications available. That means that young people coming into a sixth-form curriculum looking to study maths only have one route available for them at the moment. That is almost a commercial decision made by awarding organisations, but it is enormously unhelpful to young people who want to support their studies in engineering and physics by following a course of maths because the only course available is an A-level in maths. We would like to see, for example, a core maths qualification and a part 2 core maths that has A-level branding and equivalence, so that there is an alternative to an A-level maths qualification.

[Mike Kane (Wythenshawe and Sale East) (Lab)]

Q This is an interesting panel because it represents sixth forms and FE colleges. In Greater Manchester, where my constituency is, further education is a devolved function but sixth forms are not. We have just gone through an area review process, which I supported. Fortunately, we have strong civil servant and political leadership in Greater Manchester, but I can only describe the process as tortuous and complicated. It has come out of a number of reviews around mergers and synergies of FE colleges—it does not affect sixth forms. You get to that position and then have to enter negotiations between the FE colleges about co-operation. That really is a process of herding cats, in my opinion. There are things I would like to say, but this is an ongoing process so I will not say them in public for now, but the Government’s area review programme is going to be rolled out in places that are less well organised than Greater Manchester. It could be a recipe for chaos. Do the panel want to comment on that?

Richard Atkins: It would be best if I started. As you probably know, I have been the FE commissioner for about four weeks. I was not involved in chairing or attending the Greater Manchester review, although I know Theresa Grant, who chaired it. I am going to Manchester in the next three or four weeks to see how things are going and to talk to the individual colleges. I sat and observed the Education Committee scrutinising area reviews about two weeks ago. Generally, I think the process has worked reasonably well. Clearly they begin from a premise that each college is an independent corporation and therefore is able to make its own views. I accept that that can lead to what you describe as tortuous negotiations, because each college needs to be convinced and persuaded of the right solution.

We have now done waves 1, 2 and 3 of the five waves. Nearly 200 colleges have been through area reviews; some 88 of them are working towards merger, 50 of the sixth-form colleges are considering becoming academies, and 62 colleges have confirmed that they want to go for stand-alone status. We have done that in a remarkably short period. Colleges that are changing the nature of what they do can apply for a restructuring facility to support that. We have done that with a remarkable amount of co-operation and good will. I do not think the process is in any way perfect or a silver bullet that will resolve all the structural problems.

It became obvious in the Education Committee that it is different in each area. There are 37 area reviews, based on the local enterprise partnership areas, and experiences genuinely differ from one area to another. If you had told me at the beginning that at this stage, two thirds of the way through, we would have 88 colleges considering merger and that 62 stand-alones have had to carry out a rigorous analysis of their own data to be sure that they can stand alone financially—. I hope that what emerges from the process is a network in which more colleges are financially sustainable. I do not disagree that having those independent corporations gives governors the opportunity to make decisions for themselves, and therefore a high level of persuasion and influence is required to try to get the best results for learners.

In my new job, with my team of advisers, I am currently seeking to ensure that as often as possible, we get the right solution. I do not think it is a silver bullet. I do not think at the end of it we will have the perfect set of colleges across England, but I do think we will be in a significantly better place than we were when the process started only just over a year ago.

David Hughes: The Government have a choice. In Wales and Scotland, the Government decided to impose structural change, and in England they did not. There are pros and cons with both. We have to remember that we have had for the past 25 years in post-16 a managed market and a managed competition. It is probably fair to say that in the past four or five years, the management bit of that has been getting smaller and smaller, so we do have competition post-16. We recently challenged a decision by a regional schools commissioner to open a new sixth form in east London, because we think that sometimes competition really goes against the interests of young people in terms of quality and breadth of curriculum.

As Richard says, the area review process has been variable across the country. In some areas, it has helped enormously to move things forward quickly; in other areas, it has been more difficult and more awkward. We have got to think about the 2,100 school sixth forms, over half of which recruit fewer than 100 learners into year 12. The Government’s guidance suggests that you need at least 200 to make it both financially and educationally viable. In our autumn statement submission, we have asked, and we keep saying again and again, that if it is right for area reviews to happen for colleges with the rigour that Richard talked about and with really detailed five-year financial plans, why not do that with school sixth forms?

We have hundreds of thousands of young people learning in very small school sixth forms; you can make that work, but it is really difficult to get the breadth and quality right. We would really like to see that same rigour applied to school sixth forms. We know that some local authorities are starting to do that themselves, and it would be great to see Government supporting that and getting a framework for it across the country. You do not have to do it all at the same time but it would be nice to see that rolled through, in the interests of young people in terms of the quality and offer that they get.

Bill Watkin: I should just reiterate the difference between sixth-form colleges and school sixth forms, because they are not the same thing at all. I entirely agree with what David was just saying. To give an example, a sixth-form college straddles—usually successfully but sometimes slightly awkwardly and uncomfortably—two sectors: the FE sector and the schools sector. A sixth-form college offers a school-type curriculum, but it does so with economies of scale. For example, I recently visited a college that has 1,000 students studying maths A-level, and another where there are 400 students studying psychology A-level. These are not the small school sixth forms that David was just talking about; they are large colleges that are incorporated and therefore usually included in considerations about the FE sector. They were also included in the area review process, and there are those who say that it was not entirely helpful not to include school sixth forms while including sixth-form colleges—that did not necessarily make a great deal of sense.

The other consequence of straddling those two sectors is the relevance of the Bill to sixth-form colleges. Much of what is in the Bill will have only a very limited impact on a small number of colleges, and most of them will not be hugely touched by it. There are two areas of particular interest to sixth-form colleges: one is the insolvency regime and the impact on their finances, and the second is the applied general qualifications, which are enormously important to sixth-form colleges. Applied A-levels, BTECs and applied general qualifications are an enormously important part of a blended curriculum offered to students in sixth-form colleges as a pathway to high-end destinations such as universities; two students recently got into biomedical degrees at Russell Group universities with entirely BTEC provision. That is the sort of curriculum that sixth-form colleges offer.

--- Later in debate ---

[Gordon Marsden]

I will not ask you about your experience with the banks.

Ian Pretty: Don’t ask! There are sections of the proposed legislation that talk about indemnities and guarantees given by the national authority, be it the UK Government or the Welsh Government. Again, that is fine. I am sure it must be giving some comfort to the creditors, but the risk, of course, is that the Government become the guarantor of last resort. It is noticeable that other sections of the legislation refer to the college that is in administration having to re-fund. It depends on the sums of money that are involved, but if you do that you run the risk of never getting out of the insolvency cycle.

[Kelvin Hopkins]

Q Two issues have been raised in the past few minutes. One is mergers, and I think that David Hughes suggested that there could be a case for not enormous colleges staying as independent colleges; some might merge, but each could be judged on its own merits. But that should not be elided with the issue of sixth-form colleges doing A-levels and the contrast with small school sixth forms. I should say that I am a 25-year governor of a sixth-form college, a former teacher in further education and the chair of the all-party group on sixth-form colleges. The statistics produced by the Sixth-Form Colleges Association overwhelmingly show that sixth-form colleges do better in educational achievements and in value for money, and the Government would do well to persuade schools, local authorities or whoever to pool their sixth forms and create many more sixth-form colleges. That would be enormously advantageous to the country, to education and to young people.

The other issue is governance, which Ian Pretty talked about. I agree strongly that we ought to have breadth in our governing bodies. I have to say that the governing body of which I am a member has invariably had at least two members qualified in accountancy and at least two with legal qualifications, as well as members from the education sector, including primary and secondary schools, and from local businesses. It is small, tightly knit, monocultural governing bodies—perhaps drawn only from small local businesses—that tend to get out of control and that do not do too well. There was one glaring example of that in my constituency—I will not mention its name, but many of you will know about it. It got into a disastrous state, although it has now been picked up by a superb new principal. That breadth of governance, with all sorts of skills as well as commitments, is crucial. I wonder whether you accept that that is a sensible way of doing things.

Richard Atkins: Shall I begin? First, on interventions and area reviews, the quality of governance is critical to the success of the college—more critical than many governors realise. I see that when I go into colleges that are not doing well. Getting the sort of governing body that you describe, with a broad base of skills and knowledge, is essential. I pay tribute to the chairs and to the role they play in the area review. They are giving up a huge amount of time and showing enormous commitment to their colleges by coming to all the steering group meetings and taking part in this. Governance is critical to the quality of colleges. I agree with David that the size of a college is not the key determinant; we have some successful big colleges, but we also have some very successful small, niche colleges. Logically, you would think “How do they survive?” but actually they are doing very well.

Another point that I did not make earlier is that, although area reviews are leading to these 88 mergers—I am thinking about the area review that we are about to start in your constituency; I was talking to the two principals last week—in some areas we are simply generating collaboration short of a merger at a level that we have not seen for a long time. I happen to know that those colleges in your area have already been to see me to talk about a new form of collaboration. If that is the best solution for that area, and the data underpin that, we will support it. Merger is not the single blind answer in every case; collaboration short of a merger may well be the best solution in certain cases.

David Hughes: I want to assert that governance in the FE sector is very strong. I know that the Minister is very interested in helping to improve it, but we have a sector with very strong governance. These are independent organisations taking big business decisions over the long term, and in the vast majority of cases they deliver a very high-quality service and achieve a surplus. For many years, in the Learning and Skills Council and the Skills Funding Agency, I did a job that was not dissimilar to the FE commissioner’s: overseeing all the colleges that were getting into difficulties. It is quite striking that, despite all the funding cuts and all the competition, there are still only 20 colleges in financial difficulties. That is a very familiar number; it was not dissimilar through the noughties and into this decade. Despite all those challenges, FE and sixth-form colleges have proved incredibly adaptable and have responded really well to the funding environment.

Let me just go back to the fact that higher education is generating a surplus of more than 4% every year. The Higher Education Funding Council for England thinks that that is a problem, because it is only 4%, but FE has had a deficit in the last two years. That is not a commentary on the lack of good leadership and governance, but on the competition and the funding levels. We need to address that; otherwise, we still will not have the technical and academic education we need for young people and adults in this country. These are really important issues. It is not easy, because the economy is not doing as well as anyone wants. We are looking to the autumn statement this week and perhaps the Budget in the spring. As Lord Sainsbury said this morning, how do you properly fund technical education in this country, possibly for the first time ever?

Bill Watkin: I will respond to your comments about the growth of sixth-form colleges in the context of the economies of scale they offer, the quality of qualifications, their outcomes and their support for young people. I would also add that, with the population shift, the number of 11 to 16-year-olds is growing.

There is an interesting example of a proposed merger between a sixth-form college and an academy chain. The school, which has a large sixth-form provision, is looking to shift all of its sixth form across to the sixth-form college, and then to build capacity for 11 to 16-year-olds to serve the community. That is an example of a successful outcome of an area review recommendation. There is also the opportunity for sixth-form colleges to roll out their successful brand and open up a free school 16-to-19 provision, as happened in Pontefract.

I am pleased that the Government are reviewing the approval process for small school sixth forms. We have been invited to contribute to that review. I sincerely hope that there will be a different way of considering applications to open up schools’ sixth forms.

Professor Alison Fuller: I certainly do not want to downplay the importance of governance and efficiency—we are talking about public money, after all—but I do not want us to lose sight of the issue of efficacy and quality, which we started the session off with. The initiatives in the Bill will potentially achieve a step change in quality if we get this right. We know how much this matters, because the population performs very poorly in the OECD’s programme for the international assessment of adult competencies survey—the adult skills survey, which is administered to 27-year-olds. The added value from 15 to 27 is very weak, in terms of the age range, when you compare us to countries that have strong upper secondary and strong vocational and technical systems. The legacy effects that we are suffering as a consequence of the current system and what happened historically are playing through into the economy, life chances and wellbeing more generally. The prize is huge, but so is the challenge. I am a little concerned that an over-emphasis on governance may deflect from the really difficult thing—the quality issue.

Ian Pretty: Can I build on the discussion on mergers, which I think is a healthy one? To me, the merger is the merger. It is very easy to say, “We are all going to merge together. It’s all going to be wonderful, and the world is going to be fantastic,” but if you look at the statistics across all sectors—commercial and public—only 25% of mergers ever achieve their objectives. Post-merger integration is the most difficult thing. Part of that is that you have to understand the logic of the merger—is it a logical merger or a “shotgun” merger?—because that can have an impact. The studies show that, when they are successful, it is because of culture and cultural fit. Within the FE sector, some colleges are more likely to be able to culturally fit with another than others.

Having been on the receiving end, when I was in government, of ministerial decisions to merge, I can attest to the fact that it is difficult. The merger between Inland Revenue and Customs and Excise was an interesting experience, to say the least—I promptly walked out the door and went to the private sector.

You have to look at the logic of the merger, and then there is the whole point about post-merger integration. We have talked about whether there is enough funding, and all that sort of stuff, but do you have the right leadership? Do you have the right cultural fit that will make the merger work? Does the merger have the right objectives?

The other thing that is worth looking at is that we see regional college groups merging, and we see alternative versions of collaboration. Devon recently announced the launch of the Devon Colleges Group. The colleges have not merged together; they are collaborating. That is quite significant. You will then see that some college groups are working very well as merged entities or as groups. Hull, for example, is a successful college that has HE sections and FE sections. Warwickshire has merged a large number of colleges together, but it has not got rid of the place. It can therefore maintain community.

Going back to one of my earlier points, it is worth looking at the experience of places like Scotland. North East Scotland College has been a highly successful regional college group around Aberdeen and Aberdeenshire, and it has campuses that are 40 miles apart and still work—it still succeeds. It is worth looking at those models, but it is about the objectives of the merger. There must be a clear post-merger integration plan, because that is where you are going to get more success, rather than just saying, “We need to knock this together to get a smaller number of colleges.”

[Justin Tomlinson]

Q Building on Ian’s comments about the mergers, we had a similar discussion this week in the centre of the universe that is Swindon, where New College and Swindon College are considering whether to merge formally, whether to collaborate further or whether to continue with the status quo. Ian highlights that the success rate is only some 25%, and it comes down to leadership. What more can be done to engage with local employers? They could provide expertise and leadership in the next wave of governors—colleges are all chronically short of that—thereby improving the culture. Crucially, that could lead to opportunities for the students later on, because too often employers are not being engaged. What more can be done?

Savings (Government Contributions) Bill (Fifth sitting)

Kelvin Hopkins Excerpts

Tuesday 1st November 2016 Public Bill Committees

[Jane Ellison]

That takes us back to territory we have covered. I do not doubt the hon. Gentleman’s sincerity in putting forward his concerns, which he has expressed during debates on other amendments, but as I say, the Government are completely committed to auto-enrolment. We want to have a robust, functioning pension system, but there is also a need for complementary products.

[Kelvin Hopkins (Luton North) (Lab)]

I am strongly persuaded by the hon. Member for Ross, Skye and Lochaber. Indeed, I wish I had thought of his amendment before he did, but there we are. Is the Minister not concerned by all the issues raised in the evidence sessions last week about possible complexities and indecision by people who do not know whether to invest? A commission would clarify things for everyone, including us and the Government.

[Jane Ellison]

I rather take issue with that point. Commissions and reviews by nature tend to look at the broad sweep of policy and how policies interact; they could never offer specific advice for each individual. That is why we have the various advisory services—the Money Advice Service and its successor organisation—and why the Financial Conduct Authority will consider and offer advice on each individual product. Even making the slightly optimistic assumption that every member of the population would read such a commission’s outpourings, it would be unlikely to offer individual advice. I accept the general point that such things can often offer policy guidance in the long term, but that does not alter the fact that we want individuals to take advantage of the advice services that are available and to be guided by what the FCA says about individual products.

Most of the people who gave evidence to the Committee stressed that they saw the lifetime ISA as complementary to pensions. Help to Save is in much more of a standalone category. In all cases, everyone emphasised the Government’s commitment to auto-enrolment. I bring the Committee back to the figures that I gave last week: the rate of opt-out from auto-enrolment is around 9%, which is not just lower than originally expected, but lower than the amended figure.

[Kelvin Hopkins]

I thank the Minister for her answer, but does she not accept that an objective and disinterested arm’s length body such as a commission would be preferable to either private financial advice, which may involve vested interests, or Government advice? I can see strong arguments for what the hon. Member for Ross, Skye and Lochaber says.

[Jane Ellison]

I give way to my hon. Friend the Member for Macclesfield.

--- Later in debate ---

[Jane Ellison]

Let me try to wind this debate up on a note of consensus. Where we can achieve consensus on important long-term reforms—auto-enrolment is a very good example—it is wise to do so, but we are debating apples and pears here. The debate about what is the right way to go in the pensions and savings landscape over the next several decades is separate from, albeit related to, the Bill and the two products that we want to bring in to augment the available landscape of products for individuals in this country.

[Kelvin Hopkins]

I want to reinforce the point that the hon. Member for Ross, Skye and Lochaber made. The Turner commission was extremely valuable, because there was serious resistance from the Treasury. It was only because the Turner commission put its case so well and measured this so carefully that we got some positive change. Commissions can be extremely useful. As the Minister said, some of these issues are contentious.

[Jane Ellison]

I do not disagree that commissions can be useful; of course they can. A very good example has been cited. Neither am I arguing that we should not review things and seek, where we can with long-term things such as this, to get a degree of cross-party consensus. I referred to the review we have committed to on automatic enrolment. I am simply making the point that that debate is not relevant to the Bill. Delaying Help to Save for a year would mean people on low incomes missing out on the chance to save up to £600 in a Help to Save account and, of course, to benefit from a Government bonus.

As I say, we are debating two slightly separate issues. I think we all agree that these sorts of commissions and profound examinations of big issues often give rise to important things that achieve a degree of consensus, enabling us to move forward. However, that is not a relevant reason to delay the Bill, and that is why I reject the amendment. We heard in the evidence from StepChange that having £1,000 of rainy-day savings reduces the chance of falling into problem debt by 44%. Help to Save is a product that we have to get on with and not delay further.

I stress that we take an open approach to making pensions and savings policy and that we have approached these policies in an open and transparent way, as I have said. We will consult on the new financial guidance body later this year and, during the course of that consultation, there might well be a relevant moment to come back to some of the wider issues such as how we help individuals to make the right decisions for them. I have mentioned the automatic enrolment review, which will take place next year.

Those are better vehicles through which to have the debate we have just had and to get across some of the points that have been made, not all of which we would necessarily contest. I reject the amendment simply because it is not particularly relevant to the Bill. There is no need to delay the introduction of these two important schemes to establish a further commission.

Question put, That the amendment be made.

--- Later in debate ---

[The Chair]

New clause 2, which has already been debated, is on a similar subject, and I therefore remind Members wishing to speak to new clause 4 that their remarks should cover new material, and not be a repetition of the debate we have already had.

[Kelvin Hopkins]

I rise in support of the new clause. I believe that most citizens would benefit from this kind of advice. As the hon. Member for Ross, Skye and Lochaber said, even experts in the field of economics and finance are sometimes puzzled and at a loss when it comes to deciding what to do regarding savings and investments. The new clause is eminently sensible and would be a strong addition to the Bill. I would have liked this kind of advice when making my own investments back in the 1960s and 1970s.

[Dr Eilidh Whiteford (Banff and Buchan) (SNP)]

The issue was summed up for me last week when we heard evidence and got into a rather esoteric discussion about “taxed, exempt, exempt” and “exempt, exempt, taxed”. That is just gobbledegook to the average person, including me. We absolutely need to translate that into language that normal people, with a normal level of financial literacy, can understand.

[Kelvin Hopkins]

I thank the hon. Lady for that useful intervention, with which I strongly agree. I hesitate to say this, because I said it before, but it has been calculated that 50% of the population are not functionally numerate—they do not understand percentages and that kind of thing—so advice of this kind is vital for the ordinary citizen. I hope that the Government see fit to accept the new clause, and that we can move on.

[Jane Ellison]

I will try to observe your stricture, Mr Wilson, and not go over ground that we have already covered.

The Government do not disagree with the intention that everyone should get good advice before they take out a pension, and I certainly would not argue with the fact that for many of us, however well-informed we might like to think ourselves, such things can be confusing. The reason I will ask that the clause be withdrawn is simply that the solution it presents is not correct. Also, there are things in place to steer people, which I will touch on.

It is worth reminding the Committee about the definition of advice and guidance. “Advice” is financial advice involved in the provision of a personal recommendation for a specific product. It takes into account the wider circumstances of the person to whom the advice is given, and must be suitable for them. The definition also mentions regulated products. That is at the heart of the matter. I give a commitment that the Government will ensure that clear and accessible information about the lifetime ISA and Help to Save is available, so that potential customers can make an informed choice about whether the accounts are right for them.

Our impact assessment, which was based on a costing certified by the independent Office for Budget Responsibility, shows that our costings do not assume that people will opt out of workplace pensions to save into a lifetime ISA. However, as I have outlined, it is ultimately the role of the independent Financial Conduct Authority, not the Government, to set the regulatory framework for providers that will offer the lifetime ISA, including setting out any suitability tests that should apply. The FCA will consult on its regulatory framework shortly. It will ensure that providers are transparent to customers about the product, and that the products are sold with suitable safeguards in place.

I recognise the importance of individuals making an informed choice about whether Help to Save is right for them. Some may well be the same people who stand to benefit enormously from auto-enrolment. I have stated our commitment to that a number of times. We know that the Help to Save target audience may have less experience of financial products than the population on average. That is why we have already committed to work with interested parties to ensure that the right support and information are available, so that eligible people can decide whether the account is right for them. That will involve information and support from Government and the account provider, but we are also keen to explore a role for local organisations that are well placed to support the target population, such as local charities, advice bodies, social housing providers and the Churches, many of which have very good outreach and advice provision for people suffering from financial exclusion.

While we want to ensure that people have the information that they need, we must ensure that opening an account is as straightforward as possible. Requiring the account provider to give financial advice to every applicant makes the account application process more complex and time-consuming, and risks discouraging eligible people from opening an account. Countless studies show that the more hurdles there are to opening an account online, the more people are likely to fall away. Getting the balance right is really important.

Savings (Government Contributions) Bill (Fourth sitting)

Kelvin Hopkins Excerpts

Thursday 27th October 2016 Public Bill Committees

[Kelvin Hopkins (Luton North) (Lab)]

I concede that there is some worth in what the hon. Member for Ross, Skye and Lochaber was saying, but my concern is that if all sorts of accounts were protected from insolvency prosecutions, people might pile all of their cash into those accounts while knowing that they were going to go bankrupt or behaving in a financially irresponsible way. That protection would not help creditors.

[Jane Ellison]

A fair point—I certainly acknowledge what the hon. Gentleman says. What we propose in the Bill around creditors and insolvency is consistent with Government policy in other areas. For those reasons, I urge the hon. Member for Ross, Skye and Lochaber to withdraw the amendment.

--- Later in debate ---

[Jane Ellison]

The amendment would require the Government to pay the bonus on Help to Save accounts within six months of the account opening. On Second Reading, hon. Members expressed concerns about the bonus being paid after two years and on maturity, and not more regularly. The Government are not requiring people to lock their money away in Help to Save. People will still have full access to their savings and will be paid a bonus on the highest balance obtained. Even if people are able to save for only six months, they will still be entitled to receive a bonus at the two-year point and on maturity.

We have said a number of times that the purpose of Help to Save is to support rainy-day saving over a four-year period to help people to build a buffer against unexpected financial shocks or changes in circumstances. In light of that objective, we have looked carefully at how frequently we should pay the bonus.

Similar accounts in the Saving Gateway pilots run by a previous Government ran for 18 months. Published research shows that participants had different views on account duration, but many were in favour of extending the period. Additionally, there is peer-reviewed research by US academics on individual development accounts, a similar savings scheme in the US that also provides match funding to help people on low incomes to save. The research concluded that 19 to 24 months is the optimal time period to embed a savings habit.

[Kelvin Hopkins]

I am somewhat persuaded by the hon. Member for Banff and Buchan. In the American case, is that the convenient time period for those organising the scheme, or is it the optimal time period for the saver?

[Jane Ellison]

My understanding—I have not read the detailed research, although I suspect I will before Report—is that it is what people who were in the scheme fed back about how they felt. That is certainly the case with the Saving Gateway research, which was published in the Journal of Economic Psychology, and I will certainly read it before we get to the next stage of the Bill. Research was published on the Saving Gateway pilot showing that participants were generally in favour of extending the period. We have the right focus there.

[Kelvin Hopkins]

I remember that when people on lower or ordinary incomes were paid monthly instead of weekly, it was sometimes felt that that was uncomfortable, and that short timescales were better for those on low incomes than those on high incomes.

[Jane Ellison]

We risk straying slightly off the point, but there has been a lot of debate about weekly and monthly pay in the discussions about the many changes to the welfare system in recent years. Universal credit, which like many other benefits is moving to a monthly-by-default payment, is subject to the same argument about striking the right balance. We think that paying the bonus at two years and on account maturity strikes the right balance, because it gives people enough time to build up their savings and develop a saving habit, while allowing them to access the bonus within an appropriate timescale.

The Government bonus is designed to provide support and a real incentive to those building up their savings over a long period, rather than supporting or incentivising short-term spending. A bonus of up to £600 after two years is an attractive target to save towards, and will encourage people to keep saving, if they can. We do not believe that smaller bonus amounts paid at more frequent intervals would provide the same incentive for regular saving over the long term.

Given the rainy-day nature of the scheme, Members may be concerned to ensure that savers can access their bonus early if they face an unexpected cost or change in circumstances, and I stress that savers can access their money at any time and still earn a bonus on their savings. The four-year duration of the account allows people to start saving again, so they can earn an additional bonus. While I recognise the strong views on this issue, the motivation behind the amendment, and that no one solution will work perfectly for all savers, I think—in light of the argument I have made and some of the evidence I have cited—that we have got the balance right in this regard. I ask the hon. Member for Banff and Buchan to withdraw her amendment.

Savings (Government Contributions) Bill (Third sitting)

Kelvin Hopkins Excerpts

Thursday 27th October 2016 Public Bill Committees

[Kelvin Hopkins (Luton North) (Lab)]

I absolutely agree with what my hon. Friend is saying and support the new clauses. We have had a recent history of appalling mis-selling, with billions having to be paid back to people who were mis-sold savings instruments and schemes over the years. Even though this scheme may be simple in itself, it could have serious knock-on effects on other parts of the industry. He is right in what he has been saying.

--- Later in debate ---

[Ian Blackford]

Indeed. The hon. Member for Bootle is right to ask the UK Government to keep a watchful eye on the impact of automatic enrolment. However, that does not go far enough. The LISA must be paused. It is a gimmick that has not been thought through. The impact assessment states:

“The government could have done nothing more, relying on existing tax incentives to promote saving among younger people and working families on low incomes. However, this would have failed to provide the necessary level of support for those who are unable to use existing support to plan and save for their future.”

What a dismal statement. Where is the vision? Where is the hope? Where is the idea of a Government who can architect a pensions savings system that encourages young people to save? Should we not bring forward next year’s review of auto-enrolment and make sure that we have the tax incentives and the structure right? That is what we should be doing, not introducing this hopeless gimmick that risks mis-selling to young people in this country. This Government stand charged with creating circumstances that could lead to mis-selling through this product. They should be utterly ashamed of themselves.

The SNP has tabled amendments that ask for the LISA to be halted until workplace savings are enhanced through automatic enrolment, which is the right way to proceed. Stakeholders have picked apart the UK Government’s main arguments for the LISA, including that it will be good for self-employed individuals who are left out of automatic enrolment. The British Bankers Association said that

“two thirds of the self-employed are already ineligible for the lifetime ISA.”––[Official Report, Savings (Government Contributions) Public Bill Committee, 25 October 2016; c. 18, Q34.]

One of the Government’s major arguments has been shown to be fatally flawed. Why do we not reform auto-enrolment to make sure that the self-employed are included? That is the right way to progress.

At present, as a savings model, the LISA only supports the wealthy—those with the ability to save. New clause 2 is a welcome move to promote financial advice. We welcome this amendment. However, an SNP new clause that will be tabled ahead of the next stage will go further and explicitly demand that the advice extends to workplace savings and automatic enrolment and targets young people. We encourage Labour colleagues, and indeed the Government, to join us in supporting that new clause.

In its oral evidence to the Committee, the Association of British Insurers raised concerns about the communication of the difference between automatic enrolment and the LISA. There is a real concern that individuals could switch out of automatic enrolment and into LISA, and that

“they could lose up to a third once they get to the age of 60.”––[Official Report, Savings (Government Contributions) Public Bill Committee, 25 October 2016; c. 5, Q1.]

The ABI also said that

“there needs to be a strong signpost towards the guidance services.”––[Official Report, Savings (Government Contributions) Public Bill Committee, 25 October 2016; c. 9, Q14.]

Individuals who choose to invest in a LISA, rather than investing through automatic enrolment, could lose a third of their retirement benefits.

Carol Knight of the Tax Incentivised Savings Association said:

“We should be looking at retirement saving as a whole and helping people to put different types of assets towards funding later life.”––[Official Report, Savings (Government Contributions) Public Bill Committee, 25 October 2016; c. 14, Q26.]

It is clear that stakeholders are concerned about the confusion that may arrive for savers with the introduction of the LISA. When he gave evidence to the Committee, Tom McPhail from Hargreaves Lansdown said forcefully:

“We are in danger of sending ISAs down the same road as pensions, making them more and more complicated.”––[Official Report, Savings (Government Contributions) Public Bill Committee, 25 October 2016; c. 15, Q29.]

He advised of savers that it is

“really important that we support them with good information”.––[Official Report, Savings (Government Contributions) Public Bill Committee, 25 October 2016; c. 16, Q31.]

As well as the potential distractions from auto-enrolment pension schemes, the LISA represents a major missed opportunity to increase the attractiveness of auto-enrolment. In a submission to the Work and Pensions Committee, the union Prospect argues:

“If Government wants to subsidise younger workers saving towards a deposit on a first home it could just as easily do so through changing the rules relating to the taxation of pension schemes as through introducing the Lifetime ISA. Such an approach would greatly increase the attractiveness of automatic enrolment pension schemes.”

The submission goes on to say:

“Anecdotally, Prospect members who opt out of automatic enrolment pension schemes sometimes report they do so in order to be able to save towards a deposit for a first home. Research shows a majority of young people would be more inclined to save into a pension scheme or would save more if they could use their pension pot to fund a deposit for a first home.”

Prospect also points out:

“In New Zealand the rules of the Kiwisaver allow the withdrawal of savings to purchase a first home”,

and research from the Pensions Policy Institute shows that early access and borrowing against funds for the purpose of home purchases are permitted in other countries.

David Wren of the BBA pointed out that the LISA will be the sixth type of ISA on the market. He said:

“The hybrid nature of the product—between saving for a house and saving long term for retirement—also adds considerable complexity for people who are choosing where to save and what to do.”––[Official Report, Savings (Government Contributions) Public Bill Committee, 25 October 2016; c. 17, Q32.]

He also noted that

“complexity is definitely the enemy of success in getting people to save.”––[Official Report, Savings (Government Contributions) Public Bill Committee, 25 October 2016; c. 20, Q39.]

That is why robust financial advice that takes account of an individual’s other savings and pension pots is essential. We do not accept that no alternatives to the LISA were considered—the impact assessment for the Bill spells that out clearly. The Government must look at other options. Surely the delay that we are calling for would give the space for a pause.

Since its introduction in 2012, auto-enrolment has been a success, with more than 6.7 million workers successfully enrolled by September 2016 and lower opt-out rates and higher employer compliance than was initially expected. That success has been built on the back of a broad political consensus and thorough planning ahead of its introduction. As the National Audit Office report on auto-enrolment pointed out, the policy faces greater operational risk as it is rolled out to small employers. The phasing in of increases to minimum contribution levels also presents challenges. A separate NAO report identified a potential risk if individual interventions

“are managed separately without adequate consideration of their impact on the overall objective of increasing retirement incomes.”

That warning could hardly fit the circumstances of the introduction of the LISA any better.

The Government’s main priority should be to build on the success of auto-enrolment to date and deal with the upcoming challenges that have been identified. That work should include strategies for addressing issues with ineligibility for auto-enrolment and for increasing contributions under auto-enrolment. That is particularly important for workers aged under 40, because most will be worse off in retirement as a result of the introduction of the new state pension. Prospect also said that

“the Government is in danger of losing focus on what should be its priority with the introduction of the Lifetime ISA.”

[Kelvin Hopkins]

I rise to support new clauses 1 and 2, along with everything said by my hon. Friend the Member for Bootle and much of what was said by the hon. Member for Ross, Skye and Lochaber. It would be sensible of the Government to accept the new clauses. They are practical and logical, and it is perfectly reasonable that we want a review of the effect of the LISA on auto-enrolment and pensions savings and that anybody choosing to buy a LISA is given proper advice. None of that would undermine the Government’s legislation; it would actually improve it considerably and give the necessary protections.

I have considerable doubts about the wisdom of going ahead with lifetime ISAs. The whole pensions and savings world has been far too complicated for far too long. Some 25 or 30 years ago, I reached the age at which I had sufficient income to start to save so that I would have extra income in my later years—I must say that I am now benefiting from that, in spite of having a very generous parliamentary pension as well. At that time it was extremely complicated. There were tax-exempt special savings accounts, personal equity plans, ISAs, national savings certificates and all sorts of tax-free savings instruments, but interestingly they were all perfectly acceptable for people on higher rate tax like me. I have always been concerned about that.

--- Later in debate ---

[Dr Eilidh Whiteford (Banff and Buchan) (SNP)]

Does the hon. Gentleman agree that one of the LISA’s major flaws is that the only people who will be able take full advantage of it are people who have a spare £20,000 a year to save? That is an attractive tax break for very wealthy people.

[Kelvin Hopkins]

The hon. Lady is absolutely right. During the era of TESSAs, PEPs, ISAs and national savings certificates, the wealthy, if they were wise, would have bought all of them for themselves, their partners and their children—anyone within the family for whom they could buy them—every year. They would build up a massive portfolio of tax-free savings over the years and be extremely well off in old age, especially if the savings in those four schemes would otherwise have been taxed at the higher rate. Instead of incentivising poor people to save, the schemes were actually tax-free bunce for the wealthy. I had some TESSAs, PEPs and ISAs, and I still have some national savings certificates today, so I am sitting pretty, but I am comfortably off. I am more concerned about people who are poor, and I am certainly not poor. I am not wealthy, but I am not poor. Mr Davies made the point well.

That is a frontal assault on such instruments, but the concern about damaging auto-enrolment is also serious. I strongly support auto-enrolment, which has been a great success so far. I wanted to go much further, and I have said in the Commons on more than one occasion that I believe we should have a compulsory universal earnings-related savings system for everyone, including the self-employed, so that we all make sure that we save for our old age. I do not stand back from that proposal, which I intend to continue advocating as a step beyond auto-enrolment. Auto-enrolment is a major step forward, but it is still not a defined-benefit scheme and it is still subject to stock market fluctuations, whereas a state system could have guaranteed defined benefits.

[David Rutley]

The hon. Gentleman makes an important point about self-employed people. We heard in the evidence sessions that LISAs would help a significant element of the self-employed. The Government are carrying out a review of how auto-enrolment could support the self-employed in future. Does he think it is important to think about not just nirvana and what might be, but how we can tangibly help people now? This product will make a difference to a big section of the self-employed.

--- Later in debate ---

[Kelvin Hopkins]

I agree with the hon. Gentleman that there is a serious problem for the self-employed. There is a lot of bogus self-employment, with employers forcing their employees into self-employment. If we counted only genuine self-employment, there would be far fewer self-employed people. We could then make sure that people are paying into the system through taxes and national insurance contributions. They could also be enrolled in a compulsory state system of earnings-related savings. I agree that there is a problem with the self-employed and I am glad that the Government are reviewing the problem, but we have to go far further into that than we are discussing today.

What my hon. Friend the Member for Bootle said is sensible, practical and reasonable. The Government should just accept his argument and say, “Of course, we want a review of the impact on the automatic enrolment and pension savings and we want to have proper advice for people applying for lifetime ISAs.”

When I was investing in my middle years—rather than my later years, as I am now—people gave me advice. People came to my door and talked about their savings schemes. I did not understand what they were talking about, even though I used to teach statistics and am mathematically qualified and could understand logic. It became clear to me that the people coming to my door did not understand the instruments either. They were selling something because they had been told to sell and they were on commission: “Just sell it, get the signature on the bit of paper, come away and we will give you 5%.” When they did not understand, I thought it was even more terrifying. No wonder we had mis-selling on a gigantic sale. Billions are now having to be paid back, and no doubt billions have been lost for ever and will never be paid back because many people died before compensation was thought about.

We have a problem. We have to make things automatic, simpler, with a state-managed system involved. We also need to ensure that, if there is any kind of subsidy for pensions in old age, it should go to the poor and not to the better-off like me. The gulf between rich and poor in our country has widened. We have a serious problem of poverty in old age and we have to deal with that through the state. I hope to persuade my own party to adopt a policy of that kind, as and when we become the next Government.

[The Financial Secretary to the Treasury (Jane Ellison)]

It is a pleasure to be here with you and the Committee, Mr Chope. I thank everybody for their attention at the very good witness sessions on Tuesday, when we heard from some very interesting people who were good enough to give up their time to come and inform our deliberations.

I will say a general word around lifetime ISAs when speaking to clause 1 and will come on to new clause 2. However, I should say first that there is much about the spirit of the new clauses and amendments proposed with which I agree, as I think we all would. When I come to speak on them, it will be to demonstrate that they are unnecessary or would not work as intended. I do understand the spirit in which they are tabled. I also note, as we all have, that there are areas of significant consensus across the Committee, particularly around auto-enrolment, the success it has been and the wish to see it go from strength to strength.

I will come to that in a moment, but I will first introduce the broader product. We believe the lifetime ISA is a positive addition to the savings landscape. That was a view substantiated by a number of the experts we heard from on Tuesday. It will support younger people to save for a first home and to supplement their long-term savings by topping up individual contributions with a generous 25% Government bonus of up to £1,000 a year.

In 2015, the Government held a full consultation on pension tax relief, which is the background to how we came to the lifetime ISA. The outcome was clear: there was at that time no consensus for fundamental reform to the pension tax system. In some ways, some of the comments that we have heard in speeches this morning reflect the fact that there is still a desire among some people for a fundamental redrawing of the landscape, but the reality is that that is a debate for another time and place. We are in Committee to deal with this Bill, but I acknowledge that that other debate is ongoing.

Throughout the course of the consultation, young people indicated that they wanted more ways to save flexibly for the future. At Budget 2016, therefore, the Government announced the introduction of the lifetime ISA, which has been welcomed by insurers, ISA providers and other industry experts, as we heard on Tuesday. Although some people had some concerns, I think it is fair to say that there was a broad degree of welcome from people across the sector. They see the lifetime ISA as a valuable new vehicle to help young people save.

--- Later in debate ---

[Jane Ellison]

I entirely accept the hon. Gentleman’s broad point. He assumes the worst will happen, whereas I have good evidence to show that that is not a reasonable assumption. I will go on to show that we are keeping these things under constant review across the broad piece of pensions and savings.

The lifetime ISA, like all Government policies, will be kept under review to ensure that it is meeting its objectives. We already publish a wide range of details about the take-up of Government-supported savings accounts such as ISAs, and we intend to take a similar approach with the lifetime ISA. Similarly, national statistics and other information such as the Office for National Statistics wealth and assets survey set out information on the savings held across a range of different household types. It is quite granular information.

As the hon. Member for Ross, Skye and Lochaber said earlier, we have a legislative commitment to review certain aspects of auto-enrolment in 2017. In addition, we have the discretion to conduct wider review activity. We recognise that broader challenges and questions have been raised by stakeholders in connection with the review—for example, questions of inclusion and adequacy. It is important we look at the scope and the right sequencing of review activity. The Government are currently scoping the review and hope to update further on that by the end of the year. Of course, the debate we are having in this Committee will inform those deliberations. Because of that, we consider publishing an additional review of the scheme’s operation to be unnecessary in terms of its interaction with the product we are discussing in this clause. I therefore urge the hon. Member for Bootle not to press new clause 1.

New clause 2 seeks that the Government provide in regulations that independent financial advice is made available to all customers making an application for a lifetime ISA. I think we all agree with the thrust of the debate on the new clause. We have all seen victims of mis-selling and want to ensure that our constituents go into every financial decision with the best information available. The Government want people to have the information they need to make important financial decisions and we will achieve that by providing clear factual information on gov.uk, as well as working with the Money Advice Service and its successor to ensure they make appropriate and impartial information available.

New clause 2 would require all individuals to take out financial advice before they open a lifetime ISA. I want to demonstrate that that is not practical, however well intentioned it is. Financial advice is relatively expensive. The point has been made that we do not want to disadvantage younger people and basic rate taxpayers who want to take advantage of this product. Our impact assessment and all the work that we have done indicate that the vast majority of people who take up the product will be basic rate taxpayers.

Research carried out by Unbiased shows that the average cost of financial advice for customers is £150 per hour and the average advice process takes around eight hours. That totals £1,200. Even if we assume that that is the upper end of estimates, it is still £200 more than the maximum annual bonus that an individual could receive from the lifetime ISA. That would create a significant barrier to all but the wealthiest individuals opening a lifetime ISA, and I know that that is the opposite of the Opposition’s intent.

[Kelvin Hopkins]

If there was a simple state office where people could obtain such advice from an objective, publicly employed adviser rather than a private financial adviser, would that not be an efficient and relatively cheap way of providing good, reliable advice?

[Jane Ellison]

I think we would all agree on the broad point about wanting people to have access to financial advice whatever their income, but we are dealing with this Bill. The Government will consult and take soundings on the successor to the Money Advice Service and the other advice services that will be brought together, and I am sure that we will have a good debate about that in due course. The hon. Gentleman may wish to contribute those broader thoughts to that debate.

Let me turn to the current regulatory framework around the LISA. It is worth saying that it is not the Government’s role to set that regulatory framework. The hon. Member for Luton North talked about the different regulatory landscape at the time when he was being sold products—not particularly well, apparently. We are all thankful that that landscape has changed greatly since those days, and rightly so, but it is the role of the independent Financial Conduct Authority to regulate the providers of ISAs, and it will likewise set the appropriate framework for the lifetime ISA.

The FCA will consult on the regulatory regime for the lifetime ISA throughout the autumn and will, as is its ordinary remit, ensure that providers are transparent to customers about the products that they are offering and those products are sold with suitable safeguards in place. We heard in some of the evidence sessions on Tuesday about how the industry wants to get advice right. Everyone has been scarred by what has happened in years past. As I said to the hon. Gentleman, we will consult later this year on the scope of the new financial guidance body, as a complement to the industry’s advice. We heard people such as Martin Lewis talk about the common-sense advice that people need to hear, and that is also an important part of the landscape from which people can seek guidance. I am sure that Martin Lewis and others will contribute to the debate about the new advice services.

I reassure the hon. Member for Bootle that information about the lifetime ISA will be available so that potential customers can make informed choices about which financial products to use. We want people to understand what the right choices are for them, but it would not be appropriate for the Government to require advice to be provided, as that would create a significant financial barrier to individuals accessing the lifetime ISA. It is the independent FCA’s role, not the Government’s, to set the regulatory framework for ISAs. For those reasons—not because I disagree with the spirit of his new clause but because I do not think it would work in practice—I encourage him to withdraw new clause 2.

I conclude my remarks about clause 1 by saying that the lifetime ISA will benefit many young people by supporting them to save flexibly for the long term. It is designed to complement the pension system, not replace it. The clause makes provision for the fundamental feature of the lifetime ISA: the Government bonus. We think that is a positive product for young people, and we do not want them to lose out on, for example, a year’s worth of saving and the compound interest on that because of the delay that has been called for. I therefore ask Committee members to support clause 1.

[Peter Dowd]

I welcome some of the Minister’s comments on both new clauses, and the spirit in which she made them. In the spirit of trying to move on, we will not push new clause 1 to a Division. We acknowledge that the Minister has said that there will be reviews of some fashion, though maybe not statutory reviews; we will take that away and consider it, and may come back to the question of reviews. Our concerns in relation to auto-enrolment can be appreciated. It has been a good product, to use the jargon, and we do not want to lose that. However, again, in the spirit of moving on, we will pull away from the new clause.

We will push new clause 2, on independent financial advice, to a vote, because this House has to lay down a marker when it comes to people’s future and making a significant investment in a product. The lifetime ISA is a significant investment, whatever way we look it. Importantly, it is also a significant investment by taxpayers; that has to be taken into account. If somebody wants a lifetime ISA, and rightly understands that the Government will put a lump sum towards it, it is not unreasonable for us to say that we expect that person to take independent financial advice.

[Kelvin Hopkins]

I absolutely support what my hon. Friend says, but is it not important to have that commitment in the Bill, rather than just rely on the apparent sympathy of the Government?

[Peter Dowd]

It is, and that is why I am trying to push that message home. To some extent, we need to draw a line in the sand.

--- Later in debate ---

[Peter Dowd]

New clause 3 would require the Government to conduct a review within a year of the Act coming into force of the potential impact of the lifetime ISA on house prices in the United Kingdom. The review must be made publicly available and laid before both Houses of Parliament. The Opposition recognise that many people want to own their own home. However, we are concerned that the Government’s housing policy will only inflate house prices further. We have concerns that the LISA will make things even more difficult in a housing environment that is already strained because of the limited number of houses being built nationwide, not to mention the huge cost of housing, particularly in London and the south-east; the average figure is £250,000.

Evidence to the Committee on Tuesday was cautionary. Martin Lewis from MoneySavingExpert.com, while acknowledging the potential popularity of the LISA, flagged up its potential impact on the housing market. He highlighted that

“Unintended consequences are possible—the lifetime ISA might pump the housing market, which is a concern”.––[Official Report, Savings (Government Contributions) Public Bill Committee, 25 October 2016; c. 50, Q95.]

The Institute for Fiscal Studies, referring to the Office for Budget Responsibility, made a similar point.

I do not want to over-emphasise the point, but it is worth noting—and perhaps assessing, as suggested in the new clause—the effect of the LISA on house prices overall. It is worrying that fewer homes were built in the last Parliament than under any previous peacetime Government since the 1920s. LISA may help—if that is the right word—to overheat a market that is already short of capacity. The Government’s priority should be to try to mitigate that, not to add to the problem. I do not think that is an unreasonable point to make.

The fact is that people are increasingly chasing a product in a market that has low supply levels. It so happens that the product is a house. The facts speak for themselves. Since I sat on the Housing and Planning Bill Committee around this time last year—it may well have been in this very room—the housing market has remained pretty tight, with supply remaining low. The national planning policy framework, which the Government were warned would create confusion, has done so. That all adds to the broth and is creating problems. By now, according to the plan, and the former Housing Minister, the right hon. Member for Great Yarmouth (Brandon Lewis), there have should been a better housing supply. Alas, he was wrong.

The lifetime ISA, which will in effect replace the help to buy ISA in due course, provides a Government bonus that can be used towards a deposit on a house—if one can be found. If I remember correctly, concern was expressed by a witness that the help to buy ISA had been poorly articulated, and that the current one was potentially being poorly articulated as well. There was the impression that an ISA could be used for a deposit. Of course, there was a smorgasbord of consternation, anger, disappointment, frustration and bewilderment when many young people found that that was not the case. The problem is that if people are encouraged to borrow money for a house in a tight market, the more house prices rises, the bigger mortgages they need, and so on. The fact that the Government are helping to do that is not helpful. The problem is exacerbated. When the growth of mortgage lending outpaces the supply of housing, prices just keep rising and rising, making it increasingly difficult for people to access the housing market at a reasonable rate. There is no doubt about that.

The Government have identified the right problem but are coming up with the wrong solution. We need to build more houses. That is the only way to solve the housing crisis. New products are fine, as far as they go. Lots of people welcome the LISA—I cannot argue against that—and many people do not, but the comprehensive solution is to deal with the continuing housing supply problem. It is worth noting that the house shortage is simply a physical manifestation of the shortage of skills in the construction sector in general and the housing market in particular.

The Government are almost two years through their five-year housing plan, not counting the previous five years, and we are still falling badly behind on targets. The question is whether the proposals really deal with the substantive issue of supply, and the answer is no. In that context, it is important to look at whether this policy will have an impact on house prices. If it will, in addition to there being a lack of action on housing policy in general, that is a concern. It is legitimate to ask the Government to review the impact on the housing market of this product.

[Kelvin Hopkins]

I rise to support my hon. Friend’s new clause. Many of us have long been concerned about the massive rise in house prices. I will give a simple example. When I bought my first house in Luton in 1969, house prices were three times average earnings. Now in Luton, they are 12 times average earnings.

Millions of people are seeing the possibility of home ownership disappearing. Owner-occupation is in decline; it is becoming a smaller sector, and we are seeing an opening up of major social divisions between owner-occupiers and renters. For owner-occupiers, equity will cascade down the generations, and their children and grandchildren will stay in the owner-occupied sector because they will inherit the equity. Those who are not in the sector and do not have sufficient income will remain outside the sector, as will successive generations after them—unless they win the lottery or become extremely wealthy for some other reason, but that will apply to only a small number. The great majority of people will find it very difficult to become owner-occupiers if they do not have equity handed down by their forebears.

Adding extra cash to help people who are already likely to be in a position to buy their own home will simply increase house prices further and take home ownership even further away from those who do not have equity and are unlikely to be able to afford a home. We have to see some action by Government over time at least to stabilise house prices, so that more people can get into owner-occupation, and so that those who aspire to be a homeowner have a realistic prospect of becoming one.

I support what my hon. Friend said. We have to build many more houses. The only way to stabilise house prices is to raise supply, not increase demand, which would just push house prices up. It is not the price of houses that is increasing, but the price of the land on which they are built. The cost of building a house does not increase by that amount; it is the land on which it is built. There is a case for land value taxation and doing something about the price of land.

It is a mad world. In 1969, I thought becoming an owner-occupier was a bit of an adventure, but I could afford it on one income—mine, which was not massively high, because I was a trade union research officer. Nevertheless, I could afford to buy a three-bedroom house with a garage and gardens back and front—a nice, typically British home, which we might all aspire to. If I were trying to buy the same house now, with the same sort of income, in the same town, I would have great difficulty. On my generous parliamentary salary, I might stand a better chance, but not on the salary that I had at the time, so I think my hon. Friend the Member for Bootle is absolutely right, and I support his new clause 3.

[Jane Ellison]

The Committee is enjoying the autobiographical journey to Luton North through the ages.

[Kelvin Hopkins]

I used to be a teacher—I taught economics years ago—and I always found that using examples kept the class alive and entertained them. It also helped them to understand the points that I was making.

[Jane Ellison]

To that end, he has succeeded magnificently; everyone looks thoroughly engaged, which is not always the case in Bill Committees, it is fair to say.

Before I speak about schedule 1 and new clause 3, I have a couple of points to make. I do not intend to go into a wide discussion about house building. We all agree that we need to build more houses. Earlier this month, the Government unveiled a £5 billion package at the Conservative conference, which will make substantial progress and build on the progress already made.

The help to buy ISA is often unfairly criticised. In a way, those myths then transfer across to criticism of the lifetime ISA, so it is worth putting on the record that the take-up of the help to buy ISA has been high; there have been more than 650,000 of them to date. Where people have used help to buy to buy a home, that home has been worth on average £167,250, which is well below the scheme’s property price cap of £250,000, or £450,000 in London. That underlines the fact that we expect the majority of those who use the lifetime ISA to be basic rate taxpayers.

I will turn to schedule 1 and then make a point or two about new clause 3, because I hope to show the shadow Minister that I can respond to his substantive concern. The schedule sets out some of the detailed rules of the lifetime ISA. It is a long schedule, so I propose to provide only an overview.

Regulations made under paragraph 11 of the schedule will set out who is eligible for a lifetime ISA by specifying who “the investor” is. We intend to provide in regulation that a new account may be opened only by a person aged under 40, and that payments to a lifetime ISA may only be made until an account holder reaches 50. That is to reflect the fact that the scheme, as discussed, is designed to support younger people in getting into the habit of saving. Draft regulations have already been published for consultation, and they will be considered and debated by the House before the product is launched.

Paragraphs 7 and 8 of schedule 1 concern withdrawals. Account holders will be able to withdraw sums from their lifetime ISA at any time; that is consistent with normal ISA rules. Such withdrawals will not be subject to a withdrawal charge in the circumstances set out in paragraph 7, which include account holders purchasing their first home after saving in a lifetime ISA for 12 months or longer, or reaching a specified age, which regulations will set at 60.

Regulations will also set out detailed rules for the processes to be followed when a withdrawal is made to buy a first home. We intend to consult with industry experts to ensure that those regulations are simple to apply and that they meet our objectives for the scheme. Officials have been working hard and openly with industry experts for some months to ensure a product that works well. There will also not be a withdrawal charge when an account holder dies or becomes terminally ill, or when savings are transferred to another lifetime ISA.

Savings (Government Contributions) Bill (Second sitting)

Kelvin Hopkins Excerpts

Tuesday 25th October 2016 Public Bill Committees

[James Cartlidge]

Q In respect of Help to Save, it seems to me that there is a real crisis of people who are living week to week, who are often using payday lenders or other forms of debt which are not sustainable for them and who are near the precipice all the time. I take your point that some may not have any spare income at all, but if a savings product such as this, which is so generous, is not going to help them save for those emergency funds that give them greater independence and less reliance on the lenders, which is important, what possibly could?

Bryn Davies: You are right. The work done by StepChange and the Centre for Social Justice very much endorses much of the evidence that you received in the previous session. There is no doubt that it can help people. How targeted it is on people who do not already have a rainy-day fund is unclear. The first point is that many of those people who would take it up already have their rainy-day fund. In that sense, the extra money is not solving that problem.

The other problem is the sheer difficulty of operating on limited budgets. It is not a case of saying, “Let’s give everyone the opportunity to save for a rainy-day fund and that will solve the problem.” I think that underrates the difficulty people face in running their day-to-day budgets and the competing demands that they have. I think that reflects the point that was made here earlier.

[Kelvin Hopkins (Luton North) (Lab)]

Q We are old colleagues from the TUC, so I have to say that I have great sympathy with everything you have said so far. It has always struck me that these alleged savings schemes—tax-exempt special savings accounts, personal equity plans and ISAs—help at the margin with people who are relatively comfortably off, but do not help those people who cannot save anything at all because they are too poor. Is this another of those schemes, which will help some people but not those in the most desperate need? They will be the people who are slightly better off and can afford to save something. Would it not be better to have some sort of universal state scheme for pensions, for one thing, but also, on the other hand, to have an emergency scheme where you can give more money to poor people one way or another? Raising their incomes is what the problem really is.

Bryn Davies: Yes, absolutely. These people do not save because they are poor. A hyped-up social fund would do much more directly to help people with these crisis problems. As was mentioned, it is the day-to-day grind of being poor that is the problem. It is not just crises—people are not just poor in crises; they are poor all the time. In those circumstances, there are very tough decisions to be made about how people use their money. Saving is sometimes seen by those people themselves as a luxury. They would rather run the risk than go without some relatively innocuous discretionary spending. We should, in a sense, respect their decisions. We may warn them that they are heading to a crisis but, ultimately, we need to trust people to make their decisions.

On the broader issue, you well know my views on state provision. I think that the market does fail and that it fails, in terms of saving and pension provision, for a much larger proportion of the population. There are very few people who could get by with just the new state pension. Everyone needs to save something for retirement but the market is a bad way of saving for a large proportion of the working population. I could speak on that at length.

[Kelvin Hopkins]

I would like to ask several more questions, but I will not.

[Maria Caulfield]

Q In your professional capacity, do you advise your clients to have pensions or savings or do you advise them to have both?

Bryn Davies: I do not give independent financial advice. I have to be very careful on that. I always promote the advantages of collective schemes and point out the advantages of having occupational schemes, and support unions when they are negotiating the best possible collective provision. I do not advise individuals about how to use their money.

--- Later in debate ---

[Melanie Onn]

Not in isolation.

Calum Bennie: No.

[Kelvin Hopkins]

Q I am somewhat sceptical about the myriad private savings schemes and have argued the case for a much more comprehensive compulsory state savings scheme for everyone, on top of which people could save in other ways as well as in stocks and shares. What would be the case against having a universal state earnings-related system with defined contributions and defined benefits, which would be extremely efficient to operate, easy to administrate and which everybody would know they were going to get a good deal from? What would be the argument against that?

Calum Bennie: I don’t think there is an argument against that.

[Maria Caulfield]

Q I want to get to the bottom of the evidence that we were given earlier, especially from the experts and professionals in this sector, that these schemes—whether it is Help to Save or the LISA—are too complicated for those on a lower income really to grapple with, and therefore won’t be taken up and won’t be of use. What’s your experience? Do you think the way that these schemes are being set up is easily understandable and will encourage those on a low income to save?

Calum Bennie: We certainly don’t see any issue with that. If it’s us who are going to be promoting these schemes, then we will certainly make sure that our communications are clear and that they are researched in the first place. For instance, our ISAs—that is the basis of this product; it’s an ISA, with various add-ons—are as complicated or as non-complicated as you want them to be, and they are understood extremely well by our customers.