Economy: Personal Savings

Lord Bishop of Chester Excerpts

Thursday 12th July 2018 Lords Chamber

[The Lord Bishop of Chester]

My Lords, on behalf of the House, I thank the noble Lord, Lord Lilley, for his splendid maiden speech and look forward to many contributions from him in future. He mentioned the kingdom of Mercia; Chester was the northern outpost of that kingdom, so I look forward to collaboration with the noble Lord, as we do collaborate on a think tank concerned with energy and climate policy. The noble Lord had a very distinguished record in the other place, but some of us remember him most for singing at the Conservative Party conference, to the tune of “Land of Hope and Glory”, words which I have deliberately forgotten for the purposes of today’s speech. He brings an incisive mind and great integrity to the House, and we look forward to his further contributions.

I am also grateful to the noble Lord, Lord Leigh of Hurley, for securing this debate and for his informative and skilful introduction. I shall look up Monzo, one of the saving apps to which he referred, afterwards.

Given that around 40% of people of working age have no savings and that half of those who use credit cards apparently do not pay them off at the end of the month— to choose just two of the multiple range of indicators one could choose from—there are deep, if complex, issues facing our society at the level of personal finance.

I happily and gratefully acknowledge the various recent government initiatives which have attempted to respond to these, notwithstanding the possibility that they may not be as effective as hoped. The Help to Save scheme for low-income families, the various manifestations of ISAs—including the recent Help to Buy and lifetime ISAs—and the National Savings bond, which offers a slightly more generous rate of interest than can be achieved elsewhere, will all have some helpful impacts for individuals and families over the coming years, I do not doubt.

I would like to offer some comments on broader aspects of the situation which we face. I refer first to housing because buying a house used to be the main way in which individuals and families saved for the future, as the principal on a mortgage was gradually repaid. Until about 10 years ago, the proportion of people who owned their own home was on a long-term rising trend. The process of paying off a mortgage, typically for people who might have got into the housing market in their 20s or 30s, was essentially a form of steady saving. A majority of young people now have to rent—in some cases, they choose to rent—which means that they do not have the stake in wider society which saving and house owning itself help to provide. This debate is not about home ownership and housing policy as such, but the issues are quite deeply connected, as the intentions behind the Help to Buy and lifetime ISAs indicate.

On the housing front, we seem to have reached an unsatisfactory position, with the lack of a clear national policy that is likely to deliver the houses we are going to need in future and need today. For my part, I see little alternative to a return to more direct government and local authority investment as part of the necessary response, along with appropriate management and regulation of the mortgage market. I do not see how just leaving things essentially to the market will work. That has been the fundamental approach for the past 30 years; it has clearly not generated the housing that we need but has generated quite fundamental problems. For those on the housing ladder, it has worked well, of course. The persistent and progressive rise in house prices has been popular with home owners. For those who have benefited—and I have been one of them—wealth and savings have increased almost without effort.

Now, however, we have a real dilemma. Let us suppose that the supply of houses for sale increases to the point where the market starts to reduce their prices. Those who have bought houses in recent years will then experience a loss in their investment—that is, their savings—and all sorts of political stresses and strains would result. This is why I have come to think that the Government really have no choice but to act to control and regulate aspects of the housing market much more proactively than has been the case in recent decades. If this does not happen, I fear that the well-meaning ISA schemes which are designed to help people on to the housing ladder, will not be very effective.

The housing-related aspects of saving are only part of a larger picture, of course, which properly includes pension saving and a wider provision for care needs in old age. I wholeheartedly welcome the auto-enrolment provisions on the pensions front, but they must not be allowed to mask the fact that very many employees are now in defined contribution pension schemes, which are much less generous than the defined benefit schemes that they would have enjoyed in the past. The same is true for the self-employed, as annuity rates have lowered the pension value of the funds for which they have saved.

From whichever angle one views the situation, there is a need to encourage a culture of greater financial responsibility and one more orientated towards saving in our country. Our savings ratio is way below other developed countries, and that is simply storing up problems for the future.

This is a subject in which the Church has taken a certain interest over the years. Some time ago, in collaboration with the Church of Scotland, the Church of England launched the Churches’ Mutual Credit Union, and it would be helpful to have a renewed interest and support for credit unions in general. Perhaps when he responds, the Minister will say something about the contemporary view of the role of credit unions. For some reason, they seem rather to have slipped from our attention.

More recently, the most reverend Primate the Archbishop of Canterbury, who served on the banking commission after the recent financial crisis, set up a task group on responsible credit and saving. Out of this has come a submission to the current consultation on PSHE arguing that serious financial education should begin at primary school and continue throughout a child’s school career. The most reverend Primate’s Just Finance Foundation is helping to run financial education programmes in 120 schools, in partnership with the financial education charity Young Money, under the title LifeSavers. LifeSavers helps children learn how to manage money wisely and provides training and resources for teachers to carry on that work in the classroom. Nearly 15,000 children have already taken part in LifeSavers, and 1,000 teachers have been trained through the continuing professional development scheme that LifeSavers offers.

There are wider social dimensions and impacts, of course. Disputes and strains around finance are a significant factor in adult relationship breakdown, with all the trauma and cost, both to the individuals and to wider society, which generally result from relationship breakdown. I hope the Minister will comment on how the recent government savings initiatives can be supported and complemented by much better financial education, in partnership with the charitable initiatives I have described and which other noble Lords have mentioned.

I conclude with a final, rather broad and perhaps disputable comment. In my adult life, I have watched the development of a more consumerist culture based on the primacy of the freedom of the individual. This has had many benefits—and I would not deny that for a moment—but it has also had a downside. The more that a society is based on the freedom of the individual, the more likely it is that that society will generate winners and losers, and reinforce the winning and losing outcomes. America is the prime example here, with its persistent and large underclass, and it has also fed the gambling problem in our society, which we are attempting to deal with now by, for example, reducing the stake on betting terminals from £100 to just £2. There is a grinding of gears going on as the Government try to implement that.

It is the task of government and of society as a whole to be alert to the downside that results from a free society, which is intrinsically the right way to organise ourselves, and to counteract the unfortunate consequences that tend to result. We also have a growing underclass that sees little point in saving seriously for the future, just as we have a prison population that is twice what it was earlier in my adult life.

The issues behind today’s debate are for the whole of society and touch on these broader social issues. That is why the recent pension and ISA developments, welcome as they are, risk merely scratching the surface of the challenges we face unless they are faced more comprehensively.