Savings (Government Contributions) Bill (Fifth sitting)
Debate between Kelvin Hopkins and Jane Ellison(9 years, 3 months ago)
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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
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.
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 (Third sitting)
Debate between Kelvin Hopkins and Jane Ellison(9 years, 3 months ago)
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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.
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 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 (Fourth sitting)
Debate between Kelvin Hopkins and Jane Ellison(9 years, 3 months ago)
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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.
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.