Savings (Government Contributions) Bill (Fourth sitting)

Debate between Eilidh Whiteford and Jane Ellison

Thursday 27th October 2016 Public Bill Committees

[Jane Ellison]

The amendment is about auto-enrolling individuals into Help to Save accounts. I understand the motivation, and given the evidence from StepChange the Government do not doubt the sincerity of the intention and the desire to help people to save. However, we have concerns, and I shall explain why we cannot support the amendment.

The amendment would provide for arrangements allowing employers or benefit paying bodies to divert money from employees’ pay or benefits into a Help to Save account, unless they chose to opt out. To return to an earlier debate about auto-enrolment, we all believe that it has been a huge success in pension saving. However, while there is a strong case for auto-enrolling people into long-term pension savings, we do not think that is the case for the rainy-day savings that Help to Save is designed to support.

We want a decision to save into an account to be an active choice made by eligible individuals at a time that is right for them. Given the focus on rainy-day savings, we think that many will want to use the account flexibly, putting aside what they can afford each month rather than committing to a fixed amount being deducted from their salary or tax credit payments. For those looking to make regular payments into a Help to Save account, a standing order that they control will be the best option. That is because many people who are eligible for Help to Save could well have more than one job or other changes in circumstances over the four-year period when they have an account. The target group for a Help to Save account is disproportionately more likely to have a series of different jobs or more than one job at the same time.

Nevertheless, an employer that wants to offer payroll deduction into a Help to Save account to its employees is perfectly free to do so—nothing in the legislation would stop them. The Government are aware of successful voluntary workplace savings schemes and we are keen to explore the role that employers and other local organisations can play to support people in getting access to Help to Save, but we have no intention of making that a statutory requirement at a time when we are still working with businesses to roll out and embed automatic enrolment into workplace pensions—particularly given the forthcoming rises in contribution rates. We think that that must remain the priority for employers. That takes us back to an earlier debate about the support we all give to auto-enrolment, and the desire not to confuse that picture.

I hope that, with those points in mind, the hon. Lady will withdraw her amendment.

[Dr Whiteford]

I take on board the Minister’s concern, particularly for people who may be in multiple employment; that is a fair point. I am not sure that the arrangement would not be hugely beneficial for employers too, or that they would be all that resistant. The amendment is intended as an enabling provision, but in the interest of making progress, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

--- Later in debate ---

[Dr Whiteford]

I beg to move amendment 1, in schedule 2, page 20, line 21, at end insert

“which must be paid no later than six calendar months beginning with the calendar month in which the account is opened”.

This amendment would reduce the time before the holder of a Help to Save account would receive a government bonus to six months.

I will be extremely brief. This amendment is very simple: it would reduce the amount of time before a Help to Save account holder receives their Government bonus to six months, which simply reflects the reality of the timeframe in which people on lower incomes are likely to have to dip into their savings to cover unexpected costs. Again, the amendment builds on research by StepChange, whose users are the target group for the product. According to StepChange, more than three quarters of people in the target income band will need to dip into savings more than once in a year, and a significant proportion will need to do so within six months. Two years is probably too long for them to see the full benefit of the bonus. A more frequent bonus payment will make the product more attractive to the people it is aimed at.

[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.

--- Later in debate ---

[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.

[Dr Whiteford]

I am disappointed that the Government have not taken on board a simple and straightforward amendment. I am minded to push the amendment to a vote, simply because many Members expressed concern about this matter on Second Reading, and the amendment could be made fairly easily.

Question put, That the amendment be made.

Savings (Government Contributions) Bill (Third sitting)

Debate between Eilidh Whiteford and Jane Ellison

Thursday 27th October 2016 Public Bill Committees

[Jane Ellison]

The Prime Minister has set out the Government’s mission to build a country that truly works for everyone, not just the privileged few. Clause 2 introduces the Help to Save product, and we can be extremely encouraged that it speaks directly to that mission. Evidence from the Joseph Rowntree Foundation cited in the House of Commons Library briefing paper shows that between a quarter and a third of households have said that they are unable to make regular savings for rainy days. According to the family resources survey, a household with less than £25,000 in income is twice as likely to have no savings as a family with more than £50,000. We heard from the debt charity StepChange in its written submissions—this point was amplified in its contribution to the evidence session—that access to a £1,000 savings pot can reduce the likelihood of the average family falling into debt by almost half.

Faced with that evidence—and the evidence we all know from our constituency surgeries of people living fragile financial lives, where one thing going wrong can tip them into debt or other problems—it is only right that we provide a strong incentive and reward for working households on lower incomes to build a savings buffer.

Help to Save will support up to 3.5 million people on lower incomes who are just about managing but may be struggling to build up their savings. It will help them develop their financial resilience and ability to cope with unexpected financial pressures. Clause 2 sets out the main characteristic of Help to Save: the Government bonus or contribution, which will be paid by the paying authority. The bonus will be paid at 50% of the highest balance achieved in the account. Over the four-year maturity period of the account, an eligible individual can save up to £2,400 and earn a Government bonus of up to £1,200. We intend that HMRC will pay any bonus amounts due and that that will be passed to eligible individuals by the account provider. Schedule 2, which we will consider shortly, makes further provision in relation to Help to Save accounts and the Government bonus.

Help to Save will meet a real need and will support many of those who are just getting by, helping them to build their financial resilience and supporting their ability to cope with financial shocks.

Question put and agreed to.

Clause 2 accordingly ordered to stand part of the Bill.

Schedule 2

Help-to-Save accounts: further provision

[Dr Whiteford]

I beg to move amendment 6, in schedule 2, page 16, line 31, at end insert—

‘(1A) The conditions specified under sub-paragraph (1) shall not include the condition that the individual be over 25 years old if that individual meets all other specified conditions relating to the working tax credit.’

Currently those aged under 25 only qualify for Working Tax Credits if they work at least 16 hours a week. This amendment would ensure any individual aged under 25 would qualify for a Help-to-Save account if they met other specified criteria.

In relation to later amendments to the schedule, I declare an interest as a member of the North East Scotland Credit Union. I tabled the amendment with my hon. Friend the Member for Ross, Skye and Lochaber. In contrast to the LISA, the Help to Save product offers genuine benefits for low and middle-income savers. All our amendments today seek to strengthen it and address some of the limitations that have emerged in the written and oral evidence.

Currently, the under-25s will not qualify for Help to Save unless they are in receipt of the disabled element of working tax credit, or they are responsible for children and are working 16 hours a week or more. Many young adults under 25 who are in full-time work could benefit greatly from Help to Save. The amendment would ensure that those under 25 could qualify for a Help to Save account on the same basis as those over 25 if they meet the specified criteria.

We know that the under-25s need some encouragement to save. As we heard from the Minister, having some savings can be incredibly advantageous; it cushions them against unexpected financial shocks and prevents them having to use the excruciatingly expensive payday lenders and getting into problem debt when they face unplanned costs.

Help to Save is probably a more realistic way for people to save for a first home than the LISA. Extending it to more young people in that age group can only help to incentivise early saving and improve financial literacy. It seems wrong to deprive young adults who are already working more than 30 hours a week of the opportunity to benefit from this scheme just because of their age.

[Jane Ellison]

The amendment would ensure that individuals aged 25 or under would be eligible for an account if they meet the conditions relating to working tax credit eligibility. It is worth making it clear that under-25s will be eligible to open accounts if they meet the relevant criteria for working tax credit or universal credit. A person under 25 is eligible for working tax credit if they work a minimum of 16 hours a week and have a child or a disability.

Our intention is for eligibility for a Help to Save account to be determined by people passporting from working tax credit and universal credit. That is a well established way of targeting support to people on lower incomes. The Government recognise that some people of working age with lower incomes may not be eligible for Help to Save, but passporting is the simplest and most effective method available for determining and notifying eligibility; it is fundamental to the efficient operation of the scheme.

In particular, passporting means that people will not be required to complete a means test to prove that they are eligible for an account, or to contact the Government. It avoids the need to develop bespoke systems to determine eligibility that would be an additional cost to the Government and could deter many savers. That is why we will resist the amendment and I ask the hon. Member to withdraw it.

[Dr Whiteford]

I would rather press the amendment to a vote.

Question put, That the amendment be made.