Autumn Statement

Teresa Pearce Excerpts

Wednesday 3rd December 2014 Commons Chamber

[Mr Osborne]

I certainly give my hon. Friend that assurance. He is a doughty champion for Cleethorpes and its strong road and rail links. He has raised train services with me and I am looking at that, as is the Transport Secretary. We are determined to provide a great service to the people he represents, and ensure that they travel in comfort. Today’s announcement about replacing outdated Pacer trains with new, modern trains will be welcomed across the north of England.

[Teresa Pearce (Erith and Thamesmead) (Lab)]

The Chancellor spoke about fiscal discipline and welfare reduction, yet it seems that the Office for Budget Responsibility might not agree. Its “Blue Book” shows that the bill for housing benefit for people not on jobseeker’s alliance will rise year on year. More worryingly, despite repeated assurances from the Work and Pensions Secretary in this House that universal credit is on time and on budget, the OBR has reviewed all the evidence and states that there remains “considerable uncertainty” around its delivery, and “broader uncertainties” over the eventual cost. In whom does the Chancellor have more faith: the OBR or the Secretary of State for Work and Pensions?

[Mr Osborne]

Universal credit is a change to our welfare system that makes sure that it always pays to work. I pay tribute to my right hon. Friend the Work and Pensions Secretary because he is pioneering what I think are important far-reaching changes to the incentives in our country that encourage work and support people in work. We have introduced a welfare cap. That is a brand new mechanism for controlling welfare spending, including identifying pressures such as rising housing benefit bills that were completely ignored in the past by the Labour Government. If a Government are not prepared to address increases in one benefit with reductions or measures on other benefits, they are required to come before the House and ask for a vote because they have reached the cap. We have not done that because we are within the cap, as the OBR report confirms.

Autumn Statement

Teresa Pearce Excerpts

Thursday 5th December 2013 Commons Chamber

[Mr Osborne]

Plymouth council absolutely should freeze council tax. I commend my hon. Friend and his constituents for their campaign to make that happen. We have not included local government in the additional savings we have asked Whitehall for today, precisely so that councils can deliver a council tax freeze. If his council does not deliver a council tax freeze, he can ask Labour why it is putting up the cost of living for his constituents.

[Teresa Pearce (Erith and Thamesmead) (Lab)]

There is a housing crisis in London at the moment. The autumn statement says that house prices grew by 9.4% in the first nine months of this year—and that is before Help to Buy comes in, which nearly all forecasters believe will increase prices further. Does the Chancellor believe that spiralling house prices are good for the economy?

[Mr Osborne]

I made a point in my statement of saying that we want stable house prices and that we need more homes to be built. I know that that is what the Mayor of London also believes. We have taken steps to give the Bank of England powers to deal with asset bubbles as they develop. That, of course, did not happen five or six years ago, much to our cost. Specifically on the cost of London housing, the early Help to Buy statistics suggest that most of the families who have taken it up are from outside London and the south-east, and are buying properties worth on average £160,000. Help to Buy is therefore helping exactly those we want it to help: aspirational families who can afford a mortgage but cannot currently afford the very large deposit that the problems in our banking system have demanded of them.

Oral Answers to Questions

Teresa Pearce Excerpts

Tuesday 12th March 2013 Commons Chamber

[The Economic Secretary to the Treasury (Sajid Javid)]

I thank my hon. Friend for that question. Like us, Barnardo’s is interested in reducing child poverty and understands that that is done by creating jobs. The private sector has created 1.2 million jobs over the past two years, which is more than were created during the last 10 years of the previous Government.

[Teresa Pearce (Erith and Thamesmead) (Lab)]

T6. Owing to the changes to child benefit for families with a higher-rate earner, as from 7 March, 370,000 parents have opted not to receive child benefit. Will the Chancellor say how many of those 370,000 parents are stay-at-home mums who will lose their national insurance credit to their state pension, which is linked to the receipt of child benefit? Were they advised before they made that decision?

[Mr Gauke]

As far as contributions to the state pension are concerned, the change will have no effect whatsoever on any of those who opt out. The system will not be affected by the change and the hon. Lady can be assured that that is not an issue. I also point out that all households affected by the high income charge on child benefit are in the top 15% to 20% in terms of earnings. It is right for the Government to take some difficult decisions to reduce the deficit.

Oral Answers to Questions

Teresa Pearce Excerpts

Tuesday 11th December 2012 Commons Chamber

[Mr Osborne]

Mr Speaker, 152,000 customers have been affected. These are people with loans of less than £25,000. The cost to UK Asset Resolution is estimated at £270 million. UK Asset Resolution has ordered a full inquiry into what happened in 2008, and we will come to the House with more information when we have it. I wanted to bring this news to the House at the very first opportunity, and I find it pretty extraordinary that the Opposition do not want the public to hear it.

[Teresa Pearce (Erith and Thamesmead) (Lab)]

T7. New research from Which?—[Interruption.]

[Mr Speaker]

Order. Whatever discontent there may be on either side of the House about this matter, it would be a courtesy to hear Teresa Pearce.

[Teresa Pearce]

Thank you, Mr Speaker.

New research from Which? reveals that nearly half of front-line bank staff believe that pressure selling still dominates the culture of banking. Will the Minister join me in calling for banking remuneration and incentive structures to be changed to reward ethics and service, rather than aggressive selling targets, in order to help to change the culture of banking?

[The Financial Secretary to the Treasury (Greg Clark)]

The hon. Lady is absolutely right that one of the real problems in banking over recent years was that the people who had a trusted relationship with their customers saw them as sales targets rather than as people to be helped. That needs to change. The Financial Conduct Authority is very clear that these kinds of incentives have to go.

Banking Competition

Teresa Pearce Excerpts

Thursday 12th July 2012 Westminster Hall

[Teresa Pearce (Erith and Thamesmead) (Lab)]

Some of the points that I was going to make have already been raised by my fellow member of the Treasury Committee, the hon. Member for South Northamptonshire (Andrea Leadsom). I was glad to add my support to the application for the debate, because it is important to my constituents.

I represent Thamesmead and Erith. Thamesmead is an estate built by the Greater London council in the 1960s. There are 45,000 people living there and not a single bank in the whole of Thamesmead. I have met all the major banks to ask whether they would be wiling to open a branch or have a mobile bank—anything, really—but they have all said no because it would not be economic for them. They have no thought for the customers there—mainly basic bank account holders, some of whom cannot even use one of the few ATMs there. People in my constituency have to take two bus rides to draw their own hard-earned money out of an ATM without incurring a charge. The service is simply not good enough.

Markets are supposed to operate on the principle of the virtuous circle. I doubt whether anybody in the country at the moment thinks that that applies to the banking market. Well-informed consumers are supposed to drive a competitive business to deliver what people want, and that is simply not happening in my area or many other areas. Banks are not delivering what my local small businesses want or what my local bank account holders want—they are just not delivering at all.

The market is supposed to respond to customer need and customer power, but at the moment, consumers do not seem to have any real choice or power. When people come to me and say that they have a problem with their bank, and I ask if they have tried another bank, they say, “They all seem to be owned by each other; what difference will it make?” There is no consumer choice. It is a market, but not a proper market, because it does not operate as any other market would.

[Cathy Jamieson]

I know that my hon. Friend cares passionately about people’s exclusion from financial services. Would she agree that part of the problem is that it is not easy for people who are in debt or do not have high incomes to switch? Going to another bank is fine if they have money, but it is not easy at all if they are trying to pay off an overdraft or loan.

--- Later in debate ---

[Teresa Pearce]

That is completely right. Debt is a big issue in my constituency, and I believe that that is why there is no particular interest in opening a branch, which would alleviate some of that debt through giving advice. That said, the staff in a branch of Barclays, which was a Woolwich, in my constituency have taken it upon themselves to try to help their customers. If they see people coming in and just paying off the minimum amount on their credit card for three months in a row, they sit them down, talk to them and explain that they are not paying off the debt. The people in that branch do a fantastic job. I feel sorry that they do not find saying, “I work for Barclays” something to be proud of at the moment. We should be thinking of the people who work in such branches and call centres in the current environment.

[Mr Thomas]

North Harrow, in my constituency, sounds a little like Thamesmead in that it does not have a bank branch. It has a post office through which personal banking customers of Lloyds can access services, but there is no equivalent for small businesses in north Harrow. Given our anecdotal experience of areas of the country that are unbanked, does my hon. Friend think there would be benefits from full disclosure by the banks of what and where they lend by postcode? We could then have proper understanding of which areas are unbanked and a proper debate about how to respond to that gap in the financial market.

[Teresa Pearce]

That is an excellent idea. There are very few things in society that do not benefit from transparency; the more we know, the more we can make a judgment. We should all press for it.

The hon. Member for South Northamptonshire mentioned that people are more likely to get divorced than switch their bank account, which is certainly the case in my experience. Only 36% of consumers have ever switched their bank account, and 45% of marriages are expected to end in divorce. I have been with the same bank since I left school, but it has changed, because it has been taken over repeatedly. That is a common experience. Lots of us will have sat in an office with a friend or spoken to a family member who has tried to switch bank accounts and heard the catalogue of horrors that ensued—from mortgages not paid to bounced direct debits.

As we heard today, the hesitancy to embrace bank account portability is a big barrier to customers being able to exercise choice. The seven-day switching programme is good step forward, but we should be working towards full bank account portability in the long term. I ask the Government to commit today to undertaking a full and comprehensive cost-benefit analysis of account number portability to start that process. Years ago, it was not easy to transfer a mobile phone number from one provider to another—in fact, the mobile phone companies told us that it was impossible. As consumer pressure grew and more providers entered the market, it became very possible, and now is common and simple to do. I see no reason why banks accounts cannot go down the same road. It would make a big difference to consumer behaviour—43% of consumers say that they would be more likely to switch their current account if they could keep the same number.

Even after the banking crisis, our banks are still too big to fail. It is not a proper market when the huge rewards are taken by some, but the risk is always sold on further down the line to other people, ultimately ending with the taxpayer. With only one new high street bank launched in over 100 years, it is pretty obvious that there is no true competition. Increasingly, new entrants need to be backed by one of the big five banks—as with the Marks and Spencer bank, which is backed by HSBC—or to have benefited from Government sell-offs, such as Virgin’s acquisition of Northern Rock.

The big banks are represented on standards-setting bodies, such as the Payments Council, which sets the level of access. There is clearly not a lot of incentive for them to lower the barriers to access for new entrants and thereby decrease their market share. That is why the Government should step in and establish a framework with increased competition and customer experience in mind. To increase competition, it is important to increase not only the number but the diversity of organisations operating, so that consumers have real choice.

Many of us will have read in the papers this week that there is a big consumer push towards ethical alternatives after the recent banking scandals: Charity bank, which lends its savers’ money to charity, has had a 200% increase in depositors; the Ecology bank has had a 266% jump in applications; and there has been a 51% increase in applications at Triodos, a Bristol-based sustainable bank. Credit unions also report week-on-week increases of at least 20% and up to 300%.

Building societies and credit unions obviously have an important role to play in constituencies such as mine. Unlike banks, they are accountable to their members, who are also their customers. There is no discrepancy between the aims of the shareholders and the customers, because they are one and the same. Building societies and credit unions are a true service industry, not a self-serving industry. There is usually a big culture difference in the way they operate in comparison to banks. Most markedly, they are free from the pursuit of short-term returns for shareholders that has contributed to risky behaviour in the big banks and in turn threatened the stability of banking system as a whole.

What we are seeing with the banking crisis is the result of the demutualisation agenda kick-started in the 1980s and peaking in 1997, when a host of building societies became banks, including Woolwich building society, which is a mere mile from my constituency. The Woolwich was founded in 1847 as one of the first permanent building societies. It had a proud local tradition—it was a major employer and an asset to its community. Ultimately, it demutualised and was eventually taken over by Barclays. People used to say, “I’m with the Woolwich.” They were proud to be so, but I do not think they say, “I’m with Barclays and I’m proud to be.”

During the demutualisation period, the investment banks toured the boardrooms of the building societies, putting the case for demutualisation, often making large fees as advisers in the eventual takeover. The end result is that there are now five big banks—Lloyds, the Royal Bank of Scotland, HSBC, Santander and Barclays—with a disproportionate market share. They have an estimated market share of 85% of the personal current account market and 67% of the mortgage market.

When I was writing my speech, I thought back to when I was young, which was a long time ago, and to when the Greater London council used to give mortgages to homebuyers. The GLC was one of the two biggest mortgage lenders in London at the time. Getting a mortgage from the GLC was a great incentive for local people. They felt a sense of ownership of the GLC, and the GLC had invested in their homes, which created a stable society. They did not have what we now have in parts of London—rogue landlords profiteering from renting out terrible accommodation. Giving people a stake in something makes them better citizens. It is a shame we do not have the same model now.

Taxpayers have ploughed enormous sums of money into rescuing the banking system. Northern Rock, RBS and Lloyds TSB have received direct bail-outs, and all banks have benefited from some form of public subsidy, especially quantitative easing and deposit guarantees. The publicly funded support of the taxpayer does not appear to have translated into banks acting in the public interest. In fact, it appears that in some areas of banking, few lessons have been learned, and the banks’ existing priorities and practices seem to be a return to business as usual.

UK banks also hold 85% of the business banking market. In other countries, the picture is different. In the US, there are some 15,000 banks and credit unions operating in the market. In Germany, there is a network of 431 locally controlled banks with public interest criteria in their governing constitutions. Change, therefore, is possible. With the political will and the right Government intervention, it could take place.

Earlier this year, the chief executive at the Office of Fair Trading said:

“For too long banks have needed pressure, often sustained, from regulators and enforcers to introduce the things they should have already been doing.”

In a relatively short period of time, we have ended up with banks taking over each other, leaving just five major banks, and with the deputy governor of the Bank of England describing his own industry as a cesspit. That is a reflection not only on London as a financial centre but on the whole of the UK. The finance sector is a major employer and we should be proud of it. As this issue crosses party lines, it is important that we all put our minds to finding a solution to the problem. We have made piecemeal alterations, but we need a full-scale inquiry into the banking sector. Opening up the sector to competition is one of the major ways to achieve that aim. So far, regulation has not altered culture or behaviour. Perhaps losing profits and customers will bring about such a change in the banks.

We need Government intervention to put the experience of customers at the heart of regulation. The Labour leader and the shadow Chancellor recently made a series of proposals for a banking system that serves not just the bankers but the real economy. They include a British investment bank backed by the state to increase lending to small businesses; a code of conduct for bankers; a greater push for international changes to limit bonuses; selling off high street branches; and greater transparency. All of those proposals would be welcome steps forward.

I have a couple of ideas to float to the Minister. The big high street banks could control the clearing systems, and any new entrant would have to use those systems. As it is unrealistic to presume that a new entrant could create their own systems because of the cost of infrastructure, why not use the Bank of England to monitor and regulate the cost of accessing the clearing systems? Even better, we could make it a condition of the big banks’ banking licence.

Businesses, especially small businesses, pay higher fees to the banks. Will the Minister discuss this matter with the Minister for Housing and Local Government? We could get local authorities to set up a membership system to negotiate bank charges on behalf of local businesses. For example, some small businesses are paying around 50p per £100 cash banked, while the big supermarkets are paying around 6p per £100. Those businesses should come together and collectively borrow. A local authority could perhaps help in this regard, through the local chambers of commerce. We must look at using customer power in a way that helps customers.

I have one final thought, which I doubt the Minister will agree with. Government, both national and local, could pay all their salaries into the local credit union or similar not-for-profit institutions such as Postbank. Obviously, each individual would be free to withdraw their money and put it somewhere else once it has been paid in, but many would keep their money in the local credit union and that would provide a strong impetus for alternative retail banking. Although I doubt the Minister will agree with me, it is a possible way forward.

In conclusion, I hope that one day, the residents of Thamesmead can choose which bank to go to, rather than choosing which bus to catch to get to the nearest bank.

Oral Answers to Questions

Teresa Pearce Excerpts

Tuesday 26th June 2012 Commons Chamber

The Chancellor of the Exchequer was asked—

[Teresa Pearce (Erith and Thamesmead) (Lab)]

1. When he expects to publish the consultation document on tackling excessive card surcharges.

[Mr Andrew Love (Edmonton) (Lab/Co-op)]

8. When he expects to publish the consultation document on tackling excessive card surcharges.

[The Financial Secretary to the Treasury (Mr Mark Hoban)]

The Department for Business, Innovation and Skills is taking forward work on excessive credit card surcharges. I understand that the consultation to seek views on how and when a ban might be applied is going on in the summer.

[Teresa Pearce]

For many years, families in my constituency have faced surcharges—sometimes 240 times the actual processing costs—when booking plane tickets. There are now charges on theatre tickets and utility bills and some funeral directors are applying them. Given the prevalence of this issue, does the Chancellor still intend to ban excessive debit and credit card charges by the end of the year?

[Mr Hoban]

The hon. Lady is absolutely right to highlight the costs imposed by this on our constituents. Our estimate was that in 2010 nearly £500 million was spent by consumers on surcharges. It is still our intention to ban them. Both consumers and businesses should be clear that after many years of inaction by our predecessors, it is this Government’s intention to ban these excessive charges.

Amendment of the Law

Teresa Pearce Excerpts

Wednesday 21st March 2012 Commons Chamber

[Stephen Williams]

These are extraordinarily difficult times, and none of us has ever shied away from the fact that we are in a tight fiscal squeeze or that there is a tight squeeze on family budgets. That is why it is important that we put more of people’s own money back into their pockets through the tax changes that we are introducing.

When the next tax year starts in two weeks’ time, the personal allowance will rise again, to £8,105, lifting 1.1 million people out of taxation altogether and providing a tax cut of £330. Also in two weeks’ time, as well as those tax changes, the largest pension increase for a century will have been delivered by this coalition Government.

[Teresa Pearce (Erith and Thamesmead) (Lab)]

Will the hon. Gentleman give way?

[Stephen Williams]

I cannot give way any more.

In this Budget, our Liberal Democrat priority was to move further and faster towards our goal of £10,000 tax-free pay. Liberal Democrats in the coalition Government are therefore delighted by the confirmation that the rise in the personal allowance of £1,100 will proceed in April 2013. It is the largest rise in the personal allowance for 30 years—that is, in all our working lifetimes. In April 2013, people will be able to earn £9,205 without paying tax, which will lift a further 840,000 people out of tax. Over three years, 2 million British people will have been raised out of income tax. That will help everyone who works part time, the majority of whom are women. The measures will lift young people on the minimum wage out of income tax altogether, and 24 million basic rate taxpayers will be better off to the tune of £546. These changes will allow people to keep more of their own money. They will inject spending power into local economies and they will make work pay.

As the front page of the Liberal Democrat manifesto promised, we have delivered more than £500 into the pockets and purses of Britain as a result of this Budget. It will have been obvious from the fact that my colleagues were waving their Order Papers earlier that we are extremely pleased to have achieved that. Let us contrast it with the last Budget under the leadership of the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown), when Labour MPs waved their Order Papers following the abolition of the 10p tax rate. There could not be a greater contrast between the priorities of this coalition Government and those of the last Labour Government.

--- Later in debate ---

[Mr John Denham (Southampton, Itchen) (Lab)]

My morning newspaper today said that the coalition parties were inviting me to regard this as a Robin Hood Budget. I enjoyed the stories of Robin Hood when I was younger, but I must have missed the bit where Robin goes back to Nottingham castle and says to the sheriff, “You look a bit hard up. Would you like some of your taxes back?” I must have missed the bit, too, where Robin went to the front door of the cottage, cash in hand, while the rest of the merry men went round the back and made off with the tax credits, the child benefit, the VAT and all the rest of it.

This Budget does not deliver what the Liberal Democrats or the Conservatives say it will deliver. The Government will fail on each of the three main tests that they have to meet today. Of course, just a few minutes after the Budget statement, it is impossible to make a comprehensive assessment of it, but I suspect that the detail of the pensioner tax changes will come as a deeply unpleasant surprise to Government Members who were waving their Order Papers so cheerfully earlier on.

[Teresa Pearce]

It came as a surprise to me to read through the detail of the impact assessment, which says that in 2013-14, 4.41 million people over 65 will be worse off because of the age allowance, and that 230,000 people will be brought into income tax. I wonder whether the Liberal Democrats will be proud of that.

[Mr Denham]

I am grateful to my hon. Friend: 4.41 people—4.41 million older people—[Interruption.] Government Members may laugh, but they have just cheered a Budget that is going to make more than 4 million pensioners worse off, because they did not understand what they were cheering.

The Budget has three tests. The first is the immediate action needed to create growth and jobs in the economy, to bring in taxes and to reduce the deficit. The second challenge—even if the Government get the first right, painful times cannot be avoided—is to ensure that the burden of the challenges is shared fairly; in other words, whether we get fairness in tough times. Does the Budget really say, “We’re all in it together,” or does it look after those already better placed to get through the next few years more generously than those who struggle hardest?

There is a third challenge for this Budget. The Institute for Fiscal Studies made presentations to MPs this week. It said that the slowing of growth since this Government were elected meant that even by 2016 the economy would be 3.5% lower than it would otherwise have been and perhaps 12% smaller in comparison with the growth rates of 2008. The Resolution Foundation, also drawing on the Office for Budget of Responsibility, calculates that disposable income for low and middle-income households will fall by 8% between 2008 and 2015. What that means is that our economy will have fallen behind, our incomes will be lower and our capacity to fund public services and social security will have been reduced. I hazard a guess that nothing that has happened today will change that grim picture by any significant degree.

The third question, then, that the public will be asking is how, after all this pain, we will pay our way in an increasingly competitive world? If we cannot compete and cannot create wealth by succeeding in global markets, we will never offer new opportunities and hope to those young people whom The Financial Times described on Saturday as “the jinxed generation”. The world economy will have moved on massively and the challenge of building British companies into those that can succeed in ever-tougher global markets will be harder than ever. If we do not lay the foundations for that success now, it will be harder to start later.

The truth is that on each of those three tests—the immediate future, fairness and laying the foundations for the future—the Chancellor’s speech gave little ground for optimism.

Independent Financial Advisers (Regulation)

Teresa Pearce Excerpts

Monday 29th November 2010 Commons Chamber

[Mark Garnier]

Absolutely, and I am very grateful to my hon. Friend the Chairman of the Treasury Committee for bringing that up.

The £1.7 billion costs being pushed on to the consumer mean that £1.7 billion will be taken out of the savings pool. We simply cannot take that approach if we are trying to encourage people to save and to pay off their debts. That is why the changes are so fundamentally wrong. IFAs will have to bear the brunt of them, especially those with small operations where the requirement to sit exams, recapitalise and install new compliance systems, as well as all the other requirements of RDR, will often be handled by the same individual who is offering advice to the customer. Hector Sants estimated that implementation might mean a loss to the IFA community of 20% of the professionals who work in this arena today. Adair Turner has said that this is an acceptable cost, but I do not agree. It is unacceptable that up to 3,000 professionals according to the FSA’s figures, and more according to other research, will lose their livelihoods. Among those who stay, the cost will be passed on to the consumer, as my hon. Friend the Member for Chichester (Mr Tyrie) has said.

There are many questions to ask. Will the RDR deal with the cowboys? Will a reduction in the number of IFAs encourage a savings culture or detract from it? Is it right that when we are encouraging entrepreneurs to set up new businesses, the outgoing regulator should be bringing about such devastating change to this industry? My constituent Mike Jeacock is typical of the type of IFA who is threatened by the RDR. He runs a high street shop in Stourport-on-Severn and he networks for new business among his mates in the Stourport Workmen’s Club. These are not high-rolling wealth managers prowling family offices in Mayfair. We are talking about people who earn a living honestly servicing the financial interests of people who can afford little but who need financial advice.

The retail distribution review is a significant market intervention, and market interventions, particularly of such a fundamental and far-reaching nature, require overwhelming evidence of consumer detriment and the appropriateness of the solution. In addition, any solution needs to meet cost-benefit requirements. Does the RDR satisfy these tests? It appears to be based on a combination of unfounded assertions, limited and contradictory research and, as regards some of its solutions, little more than a hunch that the outcome will somehow be better than the present system.

It is estimated that up to 10,000 experienced IFAs of good standing will be forced to retire for no valid reason.

[Teresa Pearce (Erith and Thamesmead) (Lab)]

The FSA says that only less competent advisers will not be able to comply with the new qualifications and that the changes will therefore act as a sort of natural selection for the industry. Does the hon. Gentleman agree that the opposite might be true because it will be the more successful and long-experienced advisers with well-developed client lists who will not be able to comply or who will choose not to, and that we will therefore lose their experience from the industry?

[Mark Garnier]

Yes, I agree entirely. It is absolutely the case that the harder-working and more successful IFAs simply will not have time to take the exams and start dealing with the dead hand of regulation from the FSA.

With up 10,000 experienced IFAs of good standing potentially being forced to retire for no valid reason, it is estimated that as many as 3 million existing clients, many of whom will be elderly, will lose access to their trusted adviser as of 1 January 2013. I fear that without the FSA looking again at grandfathering the experienced through the process of implementation and without a rethink about commissions, independent financial advice will become the preserve of the wealthy only.

Savings Accounts and Health in Pregnancy Grant Bill

Teresa Pearce Excerpts

Tuesday 26th October 2010 Commons Chamber

[Teresa Pearce (Erith and Thamesmead) (Lab)]

I am grateful for the opportunity to speak about clause 1 of this Bill today. In 2005, the child trust funds were launched in an attempt to build financial education and encourage habitual saving. The scheme was progressive in that it gave additional financial help to those who needed it most, with larger sums given to children from low-income families, children with no families—those in care—and disabled children.

The Government’s decision to introduce this Bill to phase out and then stop all Government payments to child trust funds is short-sighted and unfair. It is short-sighted because it scraps a popular scheme that encourages young people to save, without putting a replacement mechanism in its place. It is unfair because it is part of a package of measures contained in the comprehensive spending review that asks children and families—and children with no families—to play a bigger role in reducing the deficit than the banks and large corporations.

Ministers have failed to say what they would put in place of child trust funds to encourage families, and low-income families in particular, to save specifically for their children’s future. In answer to a written question on 20 October asking what the Department for Work and Pensions is doing to encourage saving among low-income families, the Minister of State, Department for Work and Pensions, the hon. Member for Thornbury and Yate (Steve Webb) cited a number of general initiatives to encourage adults to save for later life, but failed to mention any plans to encourage parents and children—and children without parents—to put money aside to help with the transition to adulthood.

At the moment, it seems inevitable that the winding down of child trust funds will reverse recent efforts to increase the financial literacy of young people in this country. Financial knowledge and education in this country are at a worryingly low level. The savings ratio, which measures what proportion of earnings people in Britain are putting aside as savings, recently fell to the lowest level in seven quarters. That is no doubt linked to the recession, with wage freezes reducing household income while the cost of living continues to rise. With more strain being placed on family budgets and people having to dip into their savings, families need more help, not less, to put money away for their children’s future.

Child trust funds have an important role to play in helping young people engage with financial institutions early in their lives and to develop saving as a habit. The funds also provide young people with a level of financial independence and therefore responsibility. It is particularly important for children from low-income families, where such a significant financial asset accessed at age 18 can help with social mobility. Studies show that young adults with a small amount of capital at the beginning of adulthood had a significant advantage 10 years later over those who did not.

Child trust funds are a good way of reaching families who otherwise may not save. Stopping the child trust fund scheme will only increase the chance that social mobility will remain static. Parents with financial knowledge and greater means will likely continue to put money aside for their children’s future and instil in their children the value of saving. The children of parents who lack these resources, or children with no parents, will fall behind. The Government say that child trust funds have not been successful, but as no recipient has yet reached the age of 18, I do not understand how that can be judged.

HMRC statistics show that 10,841 vouchers were issued in my constituency and more than 8,000 child trust funds were opened by parents or guardians, with the remaining ones opened by the Revenue on the child’s behalf. So the initial take-up rate has been positive. The most important point that needs to be made in this debate is that the Government are not proposing to stop Government payments to child trust funds in order to reallocate the money for children elsewhere. The funding is simply being cut, with the relatively modest cost of child trust funds—£320 million this financial year—going towards reducing the deficit. Thus, a valuable scheme to help young people is to be sacrificed in the name of short-term expediency.

The Financial Secretary to the Treasury says that the eradication of the deficit is the Government’s “top priority”. However, if this is the Government’s main priority, they would do better to look at the state of the UK tax system where the top five retail banks stand to cut around £19 billion from their tax bills in the future because of huge losses during the economic downturn, despite being saved by the UK Government through an £850 billion bail-out.

The tax payments that those banks are expected to contribute to the Government are nowhere near the expectations of most people in the UK. Banks are not being told to bear their fair share of the deficit burden that was run up because of their reckless behaviour. Instead, it is children and families, and children with no families who are being asked to bear the brunt of the cuts through the scrapping of schemes such as the child trust fund. The Chancellor used the word “fair” 24 times during his statement last Wednesday, but in reality his spending review takes more money away from children to help reduce the deficit than from the banks responsible for it.

On a personal note, as I stand here this evening, my youngest daughter is in hospital in Dartford, in labour with her first baby. She was born in 1979 under a Tory Government, and my granddaughter will be born in 2010, also under a Tory Government. The previous Tory Government came for my daughter’s school milk, but at least she was five when they took it from her. From my granddaughter, however, they are taking away the child trust fund when she has just been born, and the health in pregnancy provisions before she is even born. It seems that the priorities of the Tory party are always the same.

Comprehensive Spending Review

Teresa Pearce Excerpts

Wednesday 20th October 2010 Commons Chamber

[Mr Osborne]

My hon. Friend is right. This country is spending £120 million a day on debt interest. So all the pet projects that Labour has suddenly discovered—[Interruption.] Well, the truth is that the previous Labour Government inherited a golden economic legacy from the Conservatives, but we have been left the worst economic inheritance that any peacetime Government in this country have ever faced. Unfortunately, we have to deal with it, but we are doing that as two parties working together to clean up the mess that one party created. The goal that I have in sight is a more prosperous, sustainable economy and a public finance situation that is deliverable and affordable for the people of Harlow.

[Teresa Pearce (Erith and Thamesmead) (Lab)]

The Chancellor has told us that we can expect 490,000 public sector jobs to go in the next five years, while PricewaterhouseCoopers has made an expert estimate that another 500,000 private sector jobs will go. How does putting out of work 1 million people, who will no longer pay tax and will add to the jobseeker’s allowance and housing benefit budgets, cut the deficit and add to growth?

[Mr Osborne]

I shall make a couple of observations. First, the independent Office for Budget Responsibility—the hon. Lady is, after all, quoting its forecast, so I presume that she would accept its whole forecast—has predicted that unemployment will fall and that more private sector jobs will be created. Secondly, she must accept—even the deficit deniers in the Labour party must accept it, and they admitted it during the general election—that there would have been a reduction in the public sector head count if there had been a Labour Government. I do not know whether the hon. Lady agrees with that—she can shake her head, nod or whatever—but that is the truth. We have had to make some decisions, but there is a high turnover in the public sector anyway, so we hope that much of this can be accommodated by posts not being filled. There will be redundancies—I think the Labour party has accepted that there would have been redundancies under its plan—but we are going to do everything we can to deal with that situation and help those people to find work. In the end, however, the current size of the budget deficit means that we have to deal with this situation, or many, many more jobs would be at risk. Let us remember that this Government came into office with unemployment rising, and that is what we have had to deal with.