Saving Gateway Accounts Bill

Public Bill Committee, 27 January 2009.

David Taylor (Labour, North West Leicestershire)

Good morning. Before we begin, I have a few preliminary announcements. Hon. Members may remove their jackets during Committee meetings if they wish. We are no doubt expecting a January heat wave. Hon. Members must ensure that mobile phones and pagers are turned off or switched to silent.

There is a money resolution in connection with the Bill, copies of which are available in the room. I remind hon. Members that adequate notice should be given of amendments. As a general rule, my fellow Chairman, Mr. Bercow, and I do not intend to call starred amendments, including any that are reached during afternoon sittings.

The Committee will first be asked to consider the programme motion on the amendment paper. I chaired the Programming Sub-Committee last week. Debate on that motion today is limited to half an hour. We will then proceed to a motion to report written evidence, followed by a motion to permit the Committee to deliberate in private in advance of the oral evidence session. I hope that we will be able to take those formally.

Assuming that the motion to deliberate in private is passed, the Committee will move into private session. Once we have deliberated, witnesses and others will be invited back into the room and the oral evidence session will begin. For those who are new to this procedure, which includes me, I should say that the evidence session will proceed under the Select Committee format. The one difference is that I will not lead in the same way as a Select Committee Chairman. I am not able to ask questions, but must hold the ring in an impartial way and bring people in as appropriate. I will also keep order, if that is a factor.

If the Committee agrees to the programme motion, we will hear oral evidence this morning and this afternoon before reverting to the traditional format next week.

Ian Pearson (Labour, Dudley South)

I beg to move,

That—

(1) the Committee shall (in addition to its first meeting at 10.30 am on Tuesday 27 January) meet—

(a) at 4.30 pm on Tuesday 27 January;

(b) at 10.30 am and 4.30 pm on Tuesday 3 February;

(c) at 9.00 am and 1.00 pm on Thursday 5 February;

(d) at 10.30 am and 4.30 pm on Tuesday 10 February;

(2) the Committee shall hear oral evidence in accordance with the following Table:

Mark Hoban (Conservative, Fareham)

We are proceeding so far on a consensual basis, Mr. Taylor, so I suspect that we will not be troubling very much either you or your co-Chairman, Mr Bercow, in the heat of the debate on this Bill in Committee. Certainly, having gone through the Bill again, I suspect that we will spend more time discussing the statutory instruments when they come before the House than discussing the Bill itself, as it is predominantly an enabling Bill. We therefore have no problem with the programme motion as proposed.

David Taylor (Labour, North West Leicestershire)

Good morning and welcome. Thank you for giving your time to help the Committee in its deliberations. We are going to hear evidence from Brian Pomeroy of the Financial Inclusion Taskforce, Matthew Wakefield of the Institute for Fiscal Studies, Sharon Collard of the Personal Finance Research Centre, University of Bristol, and Teresa Perchard of Citizens Advice. Welcome to our meeting today. Will you start by saying a few words about yourselves?

David Taylor (Labour, North West Leicestershire)

Before calling the first Member, I would like to remind all Members that questions should be limited to the scope of the Bill. I ask witnesses please to raise their voices, as the acoustics in this room are not wonderful.

Stephen Ladyman (Labour, South Thanet)

May I clarify, Ms Collard, whether you were responsible for evaluating the first pilot or both?

Stephen Ladyman (Labour, South Thanet)

If I could start with Ms Collard, could you tell us a bit more about how the first pilot was evaluated?

Stephen Ladyman (Labour, South Thanet)

Yes.

Stephen Ladyman (Labour, South Thanet)

What proportion, roughly speaking, of the people who attempted to save did you make contact with as part of the evaluation?

Stephen Ladyman (Labour, South Thanet)

Yes. Essentially, you sampled them. You did not contact everybody.

Stephen Ladyman (Labour, South Thanet)

Mr. Wakefield, how was the second pilot evaluated?

Stephen Ladyman (Labour, South Thanet)

Would it be fair to say that the evaluation of the first pilot focused on people who had a very low level of saving—almost no record of saving in the past—and the second pilot included people who had a record of saving?

Stephen Ladyman (Labour, South Thanet)

But it would have been a higher level in the second pilot.

Stephen Ladyman (Labour, South Thanet)

So, coming back to Ms Collard and the first pilot, do you think that the lessons that your evaluation revealed are reflected in the Bill? Are there parts of those lessons that still have not been taken account of?

Stephen Ladyman (Labour, South Thanet)

And, Mr. Wakefield, in the second pilot?

Stephen Ladyman (Labour, South Thanet)

Would both of you say that the 50p rate is still a very good incentive, for people who have not saved before, to save?

Stephen Ladyman (Labour, South Thanet)

And when you evaluated the second pilot, presumably you saw a temptation for people to switch from other types of saving into what might have been seen as a more generous type of saving account.

Stephen Ladyman (Labour, South Thanet)

Do you think that the measures in the Bill to do that are adequate?

Stephen Ladyman (Labour, South Thanet)

Did you get any feedback in the evaluations, either from the first or the second one, about what people intended to do at the end of the saving period? Did they just intend to take the money out and blow it or had they actually thought in terms of long-term saving?

Siân James (Labour, Swansea East)

I would like to go back to eligibility now. We have heard it spoken about a little bit, and I would like to open it up to all of the witnesses. We know that eligibility is going to be passported, that there are seven passport headings in clause 3 of the Bill, and that there is scope for amendment. Are there any benefits that you believe should be added to or removed from the list in the Bill?

Siân James (Labour, Swansea East)

Do you think that that flexibility will ensure that no one can abuse the accounts at any time in the future?

Charles Walker (Conservative, Broxbourne)

Ms Perchard, you will be better briefed on this than I am. Would you remind the Committee and me what categories of people will be eligible for these?

David Taylor (Labour, North West Leicestershire)

I remind Members that the list of eligible categories is in clause 3 of the Bill.

Charles Walker (Conservative, Broxbourne)

You say that £16,000 is low. Would you like to see that threshold raised in a perfect world?

David Taylor (Labour, North West Leicestershire)

Can we move on to the inculcation of a savings habit?

Mark Hoban (Conservative, Fareham)

In judging whether the project has been a success there seem to be three measures that we could use. One is persistency—whether it creates a savings habit in the long term—another is participation rates and another is whether it increases people’s net wealth and we are not just seeing a recycling of savings.

How will you know whether the project has been successful? What sort of rates should we see? Should we expect to see an increase in net wealth overall for participants? How much longer should we expect them to be safe from the things that Ms Collard said about the first pilot? What target should we be setting for participation rates for this to be successful?

John Howell (Conservative, Henley)

My question relates to the actual population, so it follows on nicely from that. In the evaluation, you highlight the fact that the scheme reached women but failed to reach men as significantly. Why was that, and what can be done to ensure a broader population reach?

Mark Hoban (Conservative, Fareham)

Picking up on local partnering, I suppose that one of the questions that we ought to ask the potential providers, whom we will see this afternoon, is how they would have that marketing relationship work at a local level. It seems to be a key part of making the scheme work and getting the participation rates up.

A point that came out of one of the evaluations was that there was no statistically significant increase in net wealth. It was also suggested that some people with higher incomes were simply taking advantage of saving gateway and the matching, and that people who had previously been saving informally—perhaps just keeping a balance in their current account—were saving more formally because of the saving gateway.

I would like to ask two questions from that. First, are the eligibility criteria in the Bill such that they will discourage people on higher incomes from using saving gateway to maximise their returns? Secondly, can we judge that saving gateway has worked as a product if it does not lead to an increase in people’s net wealth?

Stephen Ladyman (Labour, South Thanet)

I want to pick up on this point because I can see the benefit of protecting yourself against a financial shock. However, if you hit that shock near the end of your maturity period, and are not quite eligible for the extra money, is there a danger that you might be tempted go into unfortunate forms of borrowing to try and preserve the money in the account?

John Howell (Conservative, Henley)

I fully accept the point about how the account can be a hedge against shocks and how it can help with short-term budgeting. However, one of the claimed benefits for the scheme is that it allows and helps foster long-term planning. Did you see any of that coming out of the pilots, and how was that evidenced?

John Howell (Conservative, Henley)

Did you not see any transfer away from savings into other long-term issues, such as insurance? The groups of people who participated are often those who have minimal insurance for either their homes or their possessions.

Edward Timpson (Conservative, Crewe and Nantwich)

I think that you have answered the first question that I was going to pose about the temptation for people to borrow in order to save and how we can mitigate those circumstances. May I pick up on the second point, which Brian touched upon, about the fourth indicator of people becoming more financially included by becoming involved in the saving gateway scheme? Account providers may be tempted to offer them other types of facilities, including credit facilities and other schemes, which may appear more attractive than the saving gateway account itself, because of the interest rate or whatever. People who take on the saving gateway account, who perhaps do not have the financial experience, may get sucked into other schemes that, on the face of it, are savings; but on the back end of that, they may get themselves into more debt. What protection will the Bill provide to such people to ensure that they do not end up in a worse position than before, as a result of entering into the scheme?

Edward Timpson (Conservative, Crewe and Nantwich)

From reading the feedback and the data that you managed to put together in the document, it would appear that most people were rather reticent. Although they said that they wanted guidance, they were reticent about taking it up; they felt that they already had the fiscal knowledge and responsibility to do it on their own. Is that a concern if you are seeking to provide them with that knowledge to protect themselves?

David Taylor (Labour, North West Leicestershire)

We will drill down a bit into the operation of the accounts.

Jeremy Browne (Liberal Democrat, Taunton)

Good morning, everyone. I think that we might have already dealt with the question that I was going to ask first of all, but just in case we have not done so fully or to your satisfaction, I will ask it. Are you satisfied that the 50p rate is the optimum level and that it will maximise savings and minimise the cost of the scheme?

Jeremy Browne (Liberal Democrat, Taunton)

But 50p is extremely high.

Jeremy Browne (Liberal Democrat, Taunton)

I bet that most people who try to save money get about 1 or 2 per cent. if they are lucky. With a 50 per cent. rate, you would expect people to be incentivised.

Jeremy Browne (Liberal Democrat, Taunton)

Are we just being cavalier with the costs for that group? Could people be incentivised at a rather lower cost?

Jeremy Browne (Liberal Democrat, Taunton)

Could more money be put in with a lower rate? Could you dangle a smaller carrot in front of more people? Would that help the overall savings culture that Mark touched on?

Jeremy Browne (Liberal Democrat, Taunton)

Does everyone agree with Matthew on the 50p rate? Yes. Thank you.

Another issue is what happens at the end of the two years. Should the money that has accrued be transferred into tax-free products? Again, this touches on Mark’s point about the savings habit taking hold. Interestingly, the issues are competing in a way. We also talked about a buffer, which would give people a sense of security, because they would not be running their finances on empty the whole time—a little would be put aside for difficulties, such as the washing machine breaking down.

Most people would feel that the scheme had not worked if, at the end of the two years, people blew the sum total on a one-off purchase, such as a second-hand car. My point is about the degree to which people need incentivisation to save beyond the maturity of the term. That has been touched on; we have been discussing similar issues. When people are used to the extremely generous 50p, everything else in the real world might seem pretty unenticing.

Jeremy Browne (Liberal Democrat, Taunton)

For what it is worth, I am inclined to agree that the more simple the scheme, the less people will fear that they have to read small print. That improves the incentives. My only anxiety is that constituents may write to me asking why money that could be spent on improving schools and hospitals is being spent on generous subsidies that might be blown on luxurious holidays that they cannot afford, because their income is slightly higher than the eligibility limit for the scheme. If I were to receive such a letter, would you be good enough to draft a reply to address the constituent’s concerns? What would you put in that reply?

David Taylor (Labour, North West Leicestershire)

Shall I bring Stephen in and then come back to you, Jeremy?

Jeremy Browne (Liberal Democrat, Taunton)

I was going to talk about tax free later, but if I do it now, I will spare everyone. May I just summarise? The default option would be a savings account, which you would prefer to be tax free? Is there a consensus that that is a wise way forward?

Jeremy Browne (Liberal Democrat, Taunton)

It is not going into a pension plan; it is going to a nice holiday in Tenerife.

Stephen Ladyman (Labour, South Thanet)

I am worried about the complexity. Mr. Pomeroy said that most of the people who save in these accounts will not be income tax payers, so, surely, an ISA would be a very bad investment for those people. Where is the advice going to come from that is going to be sufficiently customer-oriented to take account of whether you are going to benefit from an ISA, whether you would be better off putting the money in a Post Office savings account, which assumes that you are not a basic rate tax payer?

Stephen Ladyman (Labour, South Thanet)

Do you know of a cash ISA that pays the same rate for a non-basic rate tax payer as a National Savings Post Office account?

Stephen Ladyman (Labour, South Thanet)

I am trying to get some financial advice here; I might be interested in it after this.

Stephen Ladyman (Labour, South Thanet)

That makes my point for me. If you, who have studied it, are wondering about where the best place to put your money is, how is a person with no experience of saving or navigating their way through the marketplace going to make that decision, unless there is a very clear pathway to help them?

Edward Timpson (Conservative, Crewe and Nantwich)

From what we understand, the regulations will make it impossible for anyone to have more than one saving gateway account in their lifetime. First, is that the right approach? Secondly, if it is not, in what circumstances can you envisage it being right for someone to have the opportunity to have either simultaneous or consecutive accounts? I am trying to imagine scenarios in which people have already opened an account but have had to close it at a later stage through defaulting, withdrawing or a change in their eligibility status. There may be a point at which, because their circumstances change again, they want to open a further account. I might be wrong about that—Matthew is furrowing his brow and I bow to his better knowledge. Can we hear the arguments for and against regulations to limit the number of accounts that an individual can open in their lifetime?

David Taylor (Labour, North West Leicestershire)

Okay. We will move into the area of providers and products.

Charles Walker (Conservative, Broxbourne)

Have you given any thought to who will provide the accounts? Will it be banks, credit unions or building societies? The banks are giving evidence this afternoon, and basically their line will be, “What’s in it for us?” They do not seem to have a huge amount of social corporate responsibility when it comes to providing savings vehicles for people on low incomes. Will the banks have a part to play, or will more socially responsible organisations deliver the accounts?

Charles Walker (Conservative, Broxbourne)

So, they are not rushing to embrace the scheme, but they are willing to listen.

Mark Hoban (Conservative, Fareham)

On the issue of paying interest on the accounts, I can see from the account providers’ perspective that this may be a cost that makes providing the accounts unattractive. For the customers it might be quite an important incentive on top of the matching benefit. What are your views on the pros and cons of requiring these accounts to pay interest?

Mark Hoban (Conservative, Fareham)

I agree with Sharon’s last point.

David Taylor (Labour, North West Leicestershire)

We have covered taxability, but I believe that Jeremy wishes to raise questions on the interest.

Jeremy Browne (Liberal Democrat, Taunton)

My question is on tax and the range of providers. Instinctively, I am an enthusiast for competition, but when confronted by a range of mobile phone providers, I never understand which rate is better for me. I end up getting whichever phone looks best or the one that my friends have. There is notional competition, but for a consumer such as me, the complexity is such that I do not derive the benefits from it.

I am a little fearful that the points Brian Pomeroy made might be good in theory, but that in practice, people who have not saved previously might be intimidated by the range of schemes on offer. They might think that ultimately all such schemes are bound to rip them off one way or another, but they just do not understand how. Particularly given that state-owned banking is such a rage these days, if there was a single provider with a reassuring brand such as the Post Office that paid a modest but uniform rate of interest, some people who might otherwise have felt intimidated or suspicious might be inclined to bite in a way that they would not have done otherwise. I am not sure that I believe that, but I am interested in whether any of you do.

Jeremy Browne (Liberal Democrat, Taunton)

The counterpoint to the point that I just made is that if I had a bank account, I might be seduced by the scheme if I could open it with my bank. I would be put off if there was only one supplier and it did not happen to be my bank. On the basis that people bank with all different institutions, do you agree that we must allow them all to offer the scheme?

David Taylor (Labour, North West Leicestershire)

I think that we are on to our final section of questions, which relate to penalties and appeals.

Stephen Ladyman (Labour, South Thanet)

You have all acknowledged that the 50p rate is very generous. Some people will therefore try to exploit it, perhaps by having more than one of the accounts in their lifetime or by opening an account that they are not entitled to. Do you think that the proposed penalty—which is, I think, £300—is a sufficient disincentive to them? Do you think that the suggested mechanisms will be adequate for picking-up people who try to exploit the accounts?

David Taylor (Labour, North West Leicestershire)

Who wants to pick up that question?

Stephen Ladyman (Labour, South Thanet)

Perhaps I can put it to you a slightly different way. At the moment, the Bill says that people who deliberately or carelessly mislead will be subject to the penalty; we will come back to what careless means in a minute. My concern about the £300 is that someone who deliberately misleads is probably not going to deliberately mislead once; they may well open 500 accounts under different names. Clearly, if it is a major front, £300 is not going to be a disincentive. Do you see obvious loopholes and obvious ways that people could criminally exploit the system?

Jeremy Browne (Liberal Democrat, Taunton)

Do not say it on the record if you do.

Stephen Ladyman (Labour, South Thanet)

What about the definition of careless? With “careless”, the £300 penalty is probably reasonable. It would be careless, in a sense, to think that people were entitled to open a second account—a person is only allowed to open an account once. Do you think it is going to be easy to define what careless means?

Stephen Ladyman (Labour, South Thanet)

I can see Mr. Pomeroy is getting agitated.

Stephen Ladyman (Labour, South Thanet)

That is not the way I look at it, but you might be right, and I will look at it again.

Stephen Ladyman (Labour, South Thanet)

But do you think that £300 is about right?

Stephen Ladyman (Labour, South Thanet)

One other area of exploitation is continuing eligibility, which I may have to explore with the Minister in Committee. Being on jobseeker’s allowance is one of the eligibility criteria, but we hope that people are not going to claim jobseeker’s allowance for the two years necessary for the account to mature. If somebody opens an account when they first become unemployed, who do they declare it to when they get a job again and are therefore no longer entitled to the gateway saving account?

Stephen Ladyman (Labour, South Thanet)

So are you saying that, in the unlikely event of the people of South Thanet turfing me out at the next election, in the short period while I was claiming JSA, I could open a gateway saving account?

David Taylor (Labour, North West Leicestershire)

I think that that question from the hon. Member for South Thanet brings us to the end of our session if you do not have any further questions. On behalf of the Committee, I thank the four witnesses for giving their time and expertise. There were some very helpful observations and advice to prepare us for the line-by-line examination of the Bill, which starts next week. The Committee will sit again at 4.30 this afternoon. The room will be locked between now and then, so any material that hon. Members have can be left here with confidence. I would normally call the Whip to move that further consideration on the Bill be adjourned, but I will ask the hon. Member for South Thanet to do so.

David Taylor (Labour, North West Leicestershire)

I remind Members and witnesses that we are bound by the deadline that we agreed this morning, which means that today’s sitting must end by 6.30 pm at the latest. If necessary, I shall interrupt Members or witnesses in mid-sentence.

We shall now hear evidence from Helen Banks of the British Bankers Association; Adrian Coles of the Building Societies Association; Mark Lyonette of the Association of British Credit Unions Ltd, Alan Cook of Post Office Ltd; and Kevin Seller, head of Government services for Post Office Ltd. You are most welcome. We are grateful that you have given us your time and experience this afternoon. We look forward to hearing your evidence.

First, I ask you all to say a couple of sentences about yourselves, so that we know what your involvement with the legislation might be.

David Taylor (Labour, North West Leicestershire)

We shall open with questions. First, we shall ask about provision of services, sales and interest. It will help our witnesses and me as your Chairman if you indicate whether the question is aimed at a specific person or is open to the whole panel. I shall ask Mark Hoban to start.

Mark Hoban (Conservative, Fareham)

I want to follow up on a couple of points that have been made. First, Helen, you talked about some of the things that you would like to happen to reduce the cost. Could you go into a bit more detail about what you would like to see in legislation to reduce the cost to banks in providing the accounts? I guess that that question applies to all of you.

Mark Hoban (Conservative, Fareham)

Alan, it sounds like you have gone the furthest in looking at this, and yours is the only body to have expressed an interest. What share of the market do you think that the Post Office would need to make the operation economically viable?

Mark Hoban (Conservative, Fareham)

Are we in danger of repeating the mistake made with Santa products, which were low-cost, simple products that were not attractive to providers to retail?

Edward Timpson (Conservative, Crewe and Nantwich)

On the back of those remarks, we heard evidence this morning from the Institute for Fiscal Studies and other bodies that they were looking at more of a one-size-fits-all, non-competitive product that would be the same wherever people went, yet we hear that you want more discretion over how you package the product. How far do you mean to go with that? Is the Bill’s basic premise of 50p saving in the pound, for example, a sacrosanct element to which you would adhere? Are you referring more to the administrative nature of the product when you talk about discretion?

Stephen Ladyman (Labour, South Thanet)

In your first answers, you all seem to reflect the accounts as a product from which you hope to make money, or at least not to lose it. None of you seems to factor in the business expansion premise behind them. If we take Adrian’s estimate of a market of £265 million, that is 500,000 new savers a year at worst. The Government’s figure is that 8 million people might start saving for the first time. Is there not a benefit to all of you in the fact that we are starting to inculcate the saving process in a huge number of people, from whom you can make money in future years? If you have thought about that, have you tried to quantify what that might mean to you?

Mark Hoban (Conservative, Fareham)

Can we assume that when an institution decides to offer the saving gateway product, it will be available at all its branches?

Siân James (Labour, Swansea East)

We have strayed into an area that I was keen to develop, and you have already answered some questions that I wanted to ask. Is there not a danger that you will be actively encouraging people to take up your products? We have seen where finance and financial products have been going over the past few years. Will those customers be appropriate? Will they be encouraged to take up products that they may not need, such as credit cards? Do you have any plans not to limit but to help people understand what commitments they are taking on and what dangers they may be facing?

Siân James (Labour, Swansea East)

It is a good habit, yes.

Siân James (Labour, Swansea East)

In your original evidence, you both quoted—Mr Lyonette and yourself—how many branches you have, and the comparison was quite stark: Mr. Lyonette, you have 500, and Mr. Cook, you have 11,500. Do you intend to grow the credit union network, Mr. Lyonette? You talked eloquently about developing the savings habit, but will your organisation provide enough coverage in comparison with the coverage that the Post Office can offer?

Stephen Ladyman (Labour, South Thanet)

The Bill is permissive on the subject of whether the Government should insist on interest being paid. It does not set any amount; it allows that to be set by regulation. Do you have a view about whether you should pay interest on the savings in the accounts, and, if so, what level it might reach?

Stephen Ladyman (Labour, South Thanet)

Let me explore that a little more. It was pointed out this morning that if interest is not paid, people begin to think that what the Government add is the interest. When the account finishes, therefore, they may look for the same interest and, when they cannot get it, stop saving. It was suggested that it might be worth paying some interest, so people could at least see the difference between the bonus at the end and the interest.

David Taylor (Labour, North West Leicestershire)

We will move on to the operation of the accounts.

Edward Timpson (Conservative, Crewe and Nantwich)

Mark Hoban touched on the collection of savings. The proposal in the Bill is that the accounts will be cash-based, to the exclusion of equity investment. Is there is a case for equity investment being part of these types of account? If so, what would be the benefit of having that option available? That question is to everybody.

George Mudie (Labour, Leeds East)

One of the issues thrown up by the pilot schemes was better-off people recycling their existing savings to get the match payment. The eligibility criteria include jobseekers, so they are not necessarily the people we have been speaking about so far. Do you think that this will be a problem?

Stephen Ladyman (Labour, South Thanet)

I was going to ask for the answer to the question that Mark just asked. Of course financial journalists will immediately say that at this rate of return, people must shift money from their savings account into a gateway account. However, has this been designed so that very few people will be in the position of having such a level of savings? Have you made an estimate of the number of people?

David Taylor (Labour, North West Leicestershire)

You mentioned borrowing. I will bring in George because he is interested in that area.

George Mudie (Labour, Leeds East)

Robert Chote, who gave evidence to the Treasury Committee—he is a very awkward man who asks awkward question, and we are fed up with him—suggested that there was a risk that people would be tempted to borrow in order to save. Do you agree with that, and how would you mitigate against it? I told you that he was a bloody menace.

John Bercow (Conservative, Buckingham)

Good afternoon, ladies and gentlemen. As you can see, there has been a change in the Chair, so I will do my best to keep up with the development of proceedings. I am John Bercow, the MP for Buckingham, and I am the co-Chairman of the Committee, along with my colleague, David Taylor.

Stephen Ladyman (Labour, South Thanet)

I want to come back to Mark. Do not most of your members save with credit unions precisely because their whole attraction is that you put a little bit of money away, establish that you can save, and are then able to borrow from someone who charges a reasonable level of interest, but who is not the tally man who breaks your arms if you cannot pay him back? Are not your customers exactly the ones who might be tempted to borrow something in order to save, as Mr. Mudie suggested?

Stephen Ladyman (Labour, South Thanet)

I want to look at the question of penalties and appeals. I do not know how many of you have seen what is proposed in the Bill for a penalty that is improperly administered—I think that it is £300 or a pound per account. Do you think that is reasonable? Will it be a sufficient disincentive to encourage people to administer these accounts properly, or is it the sort of penalty that might put people off getting into the market?

Stephen Ladyman (Labour, South Thanet)

Yes, that is an individual who is trying to cheat and have another one of these accounts. Particularly in your case, I am thinking about the penalty on providers.

Stephen Ladyman (Labour, South Thanet)

What about the situation where, for example, a bank decides it will go into this market and is trying to make the package look as attractive as possible—I am speaking hypothetically. Perhaps the bank tries to bundle something together with its basic account package and in doing that perhaps gets itself into trouble because it administers the scheme in a way that, technically, is breaking the rules and the regulations. Do you think that the process set out so far for appealing any charge put on that bank is reasonable? Do you feel that you would be able to make your case and defend yourself by saying that you were trying to do the right thing, even if it turned out that by accident you had done the wrong thing?

Stephen Ladyman (Labour, South Thanet)

Just one further question on this issue. I have tabled an amendment today to explore this matter with the Minister later in Committee. On reading the Bill, it did not look to me as if the accounts would necessarily come under the FSA and therefore you would have no right of appeal to the Financial Ombudsman Service if you had been misled in some way. Do you think that ultimately you should be able to go to the Financial Ombudsman Service?

Stephen Ladyman (Labour, South Thanet)

It is just that it is not specified in the Bill.

Stephen Ladyman (Labour, South Thanet)

So, if the Minister confirms in the Committee that all those protections are there, none of you would have any objections?

John Bercow (Conservative, Buckingham)

At the risk of allowing levity to trump sobriety, I feel bound rather prosaically—and from the point of view of some of you, probably boringly—to observe that at least three of you have names that add a particular piquancy to our proceedings. We have Banks, Seller and Cook. The other two can argue the toss as to the appropriateness of their names to the subject matter that we are considering, but it is all part of the sense of humour of the occasion. We will now proceed to Edward Timpson and then George Mudie.

Edward Timpson (Conservative, Crewe and Nantwich)

It is likely that when the take-up of this account starts to come to fruition, there will be different levels of financial understanding and acumen among the people who are opening the accounts. The pilots that have taken place have borne out some confusion among those who took part, as to exactly what will happen when they make repayments, or the timescales for repayments and withdrawals, and also on what happens when the account matures. Have you given it any thought, or is too early to say what type of mechanisms you will put in place to advise and provide guidance to account holders, to ensure that as part of their wish to embrace the savings culture, they actually understand the mechanisms for doing so?

John Bercow (Conservative, Buckingham)

Thank you. Stephen, is it on this point?

Stephen Ladyman (Labour, South Thanet)

Yes, it is. It concerns the issue of advice, which we discussed in considerable depth this morning. The people who gave evidence were firm about the need for proper support and advice when choosing the appropriate product, but also at the end of the scheme, on what to do with the money; whether to put it into an ISA or something else. I thought that they were all a bit po-faced this morning. They all seemed to think that the purpose of saving was to save for a rainy day. I acknowledge that that is one of the reasons for saving, but the other reason for saving is to buy yourself something nice when you saved up for it.

Stephen Ladyman (Labour, South Thanet)

Exactly. People borrow the money to buy themselves a pair of Jimmy Choose or whatever. But I do think that the witnesses were right in saying that these schemes will have to go hand in hand with proper advice and support to help people make the right decisions and benefit from them. One of you mentioned earlier that you are probably going to have to do that in partnership with somebody. What sort of partners were you thinking of that might provide this advice and support to people?

George Mudie (Labour, Leeds East)

This is a variation on that. Do you have an exit strategy thought out for individuals? In the Treasury Committee we have had terrible trouble with your industry in terms of basic bank accounts and getting people into a saving habit. You could get them to open basic bank accounts or even not so basic bank accounts. I get the impression that the Post Office is very keen to take the footprint because of its coverage, but would want the banks or building societies to administer it. Do you envisage them going into banks?

George Mudie (Labour, Leeds East)

Do your members welcome the prospect of this number of customers coming into the banks? They certainly did not with basic bank accounts.

George Mudie (Labour, Leeds East)

So they do not really, or you have not asked them yet. Is the number of basic bank accounts still growing?

George Mudie (Labour, Leeds East)

Alan, do you have a tailor-made exit strategy for these new savers, to keep them coming in and being customers?

Stephen Ladyman (Labour, South Thanet)

I asked earlier about paying interest on the account. It just occurred to me that one of the options at the end of the default might simply be that you start paying some interest on it. At least then, if the person does not move it, the money is not just sitting there doing nothing. Have any of you considered that?

Stephen Ladyman (Labour, South Thanet)

What happens if anyone puts more money into one of these accounts? By my reading of the Bill, that will be possible. If you put more money into this account than the Government will match, will that attract interest or will it sit there earning no interest? If it will, there may be a role for someone to say, “There is no point putting in this level of money, because the Government will match £25 a month, but with £30 a month, you are better off putting the £5 somewhere else.”

Mark Hoban (Conservative, Fareham)

May I go back to talk about ISAs and why they are not the right default option? My casual characterisation of an ISA would be that, on the whole, it pays a better rate of interest than most instant access accounts. If there was a default option, it would be much better for it to be an ISA because one would be saving at a higher rate of interest. Initially, it may be inconvenient to go into an ISA, but these people are on virtually no income and may not be paying any tax, so it is even better for them to go into an ISA because they will get a higher rate of interest, and they will receive it gross, rather than having to claim back the tax later.

John Bercow (Conservative, Buckingham)

Thank you, Helen Banks, Adrian Coles, Mark Lyonette, Alan Cook, Kevin Seller—otherwise known as the fearless five, the fabulous five, the formidable five—for sharing your time and expertise with us this afternoon and early evening. If hon. Members have no further questions, we have come to the end of our business for the day.