Saving Gateway Accounts Bill

Public Bill Committee, 5 February 2009.

Clause 13

Stephen Ladyman (Labour, South Thanet)

I beg to move amendment 20, in clause 13, page 6, line 8, leave out ‘may’ and insert ‘must’.

Good morning to you, Mr. Taylor and to other members of the Committee. I shall not detain the Committee long. I tabled the amendment because I wanted to explore the Economic Secretary’s attitude to whether these accounts should pay interest. If you will give me the leeway to refer also to amendment 21, it will not be necessary for me to move it subsequently.

David Taylor (Labour, North West Leicestershire)

I am happy to allow that flexibility.

Stephen Ladyman (Labour, South Thanet)

Amendment 20 would make it compulsory for these accounts to pay interest. If we wanted to stop some bank paying a nugatory level of interest it would be necessary to include in the Bill the minimum level of interest that could be paid. That is where amendment 21 would come in.

Mark Hoban (Conservative, Fareham)

Will the hon. Gentleman clarify this for me? I looked at the amendment and was slightly perplexed. Clause 13 refers to interest payable to the commissioners, not to interest payable on saving gateway accounts. So his amendment would provide that a payment be made to the commissioners rather than that interest be paid on accounts.

Stephen Ladyman (Labour, South Thanet)

The hon. Gentleman may be right and I may have misread the clause. My purpose was to explore the Government’s attitude to whether these accounts should provide interest to the saver. That is what I hope the Economic Secretary will refer to.

One of our expert witnesses told us that they regarded it as essential that these accounts should pay interest to the saver because otherwise the saver would not become inculcated with the idea that money put into a bank account earns interest. Another expert witness told us that these accounts would generate a market of around £250 million. If the banks used that money for their personal loan businesses—

David Taylor (Labour, North West Leicestershire)

Order. The impact of the clause may have been misunderstood. The apparent objective might well be secured by moving an appropriate amendment to new clause 2, which deals with this issue.

Stephen Ladyman (Labour, South Thanet)

That may well be the case. If the Economic Secretary indicates that my amendment is ill founded and will not serve the purpose that I hoped it would, I will certainly accept that and withdraw it. Perhaps in telling me that he will still indicate whether he believes that the accounts should pay interest. If he will take into account my point that these accounts are likely to raise sufficient profit for the banks to make about £21 million. That is more than enough for them to—

David Taylor (Labour, North West Leicestershire)

Order. I am sorry to interrupt the hon. Gentleman yet again, but we are on clause 13, which refers to interest payable to the commissioners, not to the depositors. If he wishes to return to his remarks when we debate new clause 2 the Chair will be quite content.

Stephen Ladyman (Labour, South Thanet)

I understand what you are saying, Mr. Taylor. I have concluded my comments. I have raised the issue that I want to raise and I hope that the Economic Secretary will find either now or under new clause 2 the opportunity to respond and give us an indication of whether he thinks these accounts should pay interest to the saver.

Ian Pearson (Labour, Dudley South)

Good morning, Mr. Taylor. It is a pleasure to serve under your chairmanship again today. I can confirm that amendment 20 relates only to interest being paid on amounts owed to Her Majesty’s Revenue and Customs. The effect of amendment 21 would be to make saving gateway accounts inconsistent with what happens elsewhere in HMRC.

My hon. Friend rightly wants to have a debate about the general principle of interest and whether or not it should be paid on saving gateway accounts. We can have that debate when we come to new clause 2. There have been extensive discussions between the Government and potential account providers about that issue. I will say more on it at a later date.

Stephen Ladyman (Labour, South Thanet)

I have no further comments to make. I beg to ask leave to withdraw the amendment.

Clause 14

Mark Hoban (Conservative, Fareham)

I rise to speak to amendment No. 35, in clause 14, page 6, line 24, leave out ‘may’ and insert ‘will’.

I welcome you to the chair this morning, Mr. Taylor. Amendment No. 35 is now redundant, because it was a probing amendment to establish the tax arrangements for saving gateway accounts. I was operating on the basis that they should be exempt from both capital gains tax and tax on any interest. The regulations now address that issue. I shall therefore not move the amendment.

David Taylor (Labour, North West Leicestershire)

The amendment is not moved.

Clause 15

Mark Hoban (Conservative, Fareham)

I have a quick question about the clause. My thinking behind this is that the Minister is seeking to ensure that saving gateway accounts can be sharia-compliant. Does he share my understanding that if the requirement is to pay interest on these accounts, they would not be sharia-compliant?

Ian Pearson (Labour, Dudley South)

Certainly, the purpose of the clause is to ensure that saving gateway accounts could be sharia compliant. The hon. Gentleman is right; my understanding of sharia law is that if interest were paid on saving gateway accounts, they probably would not be sharia compliant. That is something that potential providers of sharia-compliant saving gateway accounts could certainly consider. He makes a relevant point.

Stephen Ladyman (Labour, South Thanet)

My understanding is that the sharia-compliant account can still pay a bonus at the end in exactly the same way that the Government intend. If that bonus at the end happened to be the same as the amount of interest earned, then, as it were, my hon. Friend the Minister might say “tomato” and I might say “to-may-to”.

Ian Pearson (Labour, Dudley South)

Indeed. I am not a sharia theologian. [Laughter.] That is abundantly obvious to the Committee. Sharia compliance is a judgment to be made by a theologian. It would be up to those theologians to decide whether the accounts were sharia compliant. It is too early to say whether or not account providers will offer sharia-compliant accounts. Ultimately, that is a commercial decision for them to make and it would be up to the sharia theologians to decide whether a bonus is compliant with sharia law or not.

Clause 16

Mark Hoban (Conservative, Fareham)

I beg to move amendment No. 36, in clause 16, page 7, line 9, at end insert—

‘(1A) Funds in the account will be transferred into an Individual Savings Account as set out in the Finance Act 1998 (c. 36) of the kind prescribed by regulations and operated by the provider of the Saving Gateway account in question.’.

One of the debates that we had in the morning evidence-giving session last week was about what would happen to the money in the saving gateway account when the account matured and the account-holder received the matching maturity payment, as it is described in the Bill. We had quite an interesting debate on that point with the various witnesses and it was a subject that we returned to in the afternoon evidence-giving session.

It is an important issue, because the Bill’s objective is to try to develop a savings culture in the target group and we want that savings culture to extend beyond the end of the two-year period. Therefore, it is important to understand what will happen to the balance at the end of that period.

I propose in my amendment that the balance on the account should be automatically transferred into a cash individual savings account and that that would, in effect, be the default setting. The Government, following discussions with various potential providers and the savings industry, have already said that if amounts are transferred from a saving gateway account into a cash ISA they will not count towards that year’s subscription. That is a welcome move. The amendment takes things one step forward from that, making the automatic default setting a cash ISA. That will help potential savers.

Cash ISAs, on the whole, tend to pay a much more generous rate of interest than most instant access accounts; they are a product that the Government have supported and they would provide the right default setting in such a situation. However, that was not a universal view in the evidence sessions. There was some suggestion in the afternoon session with the potential account providers that they might prefer another option—they said that some accounts might provide a higher rate. I suspect that they would prefer a default option into an account that perhaps offers a lower rate than a cash ISA, because such accounts tend to offer higher rates than most instant access accounts.

Matt Wakefield from the Institute For Fiscal Studies, who did a lot of the relevant evaluation, said:

“I do not see why, if it is possible to organise, it should not be an ISA that is tax free—just a cash ISA that operates as a cash savings account.”——[Official Report, Saving Gateway Accounts Public Bill Committee, 27 January 2009; c. 16.]

There is some debate about whether a cash ISA is difficult or complex to explain to someone who has had a saving gateway account. We could surmount that barrier by ensuring that, alongside the saving gateway programme, there is financial education for people who take out such accounts. The national money guidance scheme, which we are committed to, would provide such guidance to people who have a saving gateway account.

Stephen Ladyman (Labour, South Thanet)

I wonder whether the hon. Gentleman shares my concern that many people with such accounts will not be paying income tax, therefore a cash ISA might not be the most sensible form of saving for them. Perhaps a national savings account might be more appropriate.

Mark Hoban (Conservative, Fareham)

That is a good point. Some people will not be paying income tax, but they would be in the same position if the default was a savings account that paid them a lower rate of interest net, whereas at least the interest on a cash ISA at maturity is paid gross. The interest rate on a cash ISA is higher as well. We should think not just about ISAs in the context of their tax treatment but about their characteristics in terms of the interest that they pay. People can exit a cash ISA before its maturity period ends and they will benefit from a higher rate of interest on that. Yes, interest may be deducted, but under our plans we would ensure that that interest was paid gross rather than net and if people did not pay tax they would receive the full benefit of that. From our perspective we have squared that circle in our policy. Perhaps the plans that the Chancellor seems keen to bring forward in the Budget will also help people in this situation, by exempting them from payment of the basic rate of income tax on their savings income. If the Chancellor does that, we will support that measure.

There is a clear benefit to savers from the saving gateway account defaulting into a cash ISA, where returns tend to be higher. Cash ISAs are well marketed, are increasingly better understood by consumers and offer the best deal to savers. The better option is for the saving gateway account to default into a cash ISA, rather than simply defaulting into a current account, where it is available to spend. The fact that the money is not locked away but set in a separate account might encourage people to leave it alone for a bit longer, help them build up that nest egg and continue to pay sums into that account, whereas if it defaults into a current account the temptation might well be to spend it. We would all want to see more and more people who have had a saving gateway account continue to save. Therefore, defaulting to a savings account will help further to develop the saving culture that we are seeking to achieve through the Bill.

Ian Pearson (Labour, Dudley South)

I understand the sentiment behind the amendment, which is that it should be made as easy as possible for account holders to continue to save once their accounts have matured. We also agree about the advantages that the ISA offers: the benefits of tax advantage, saving and ISAs are enjoyed by 18 million people in this country.

However, my hon. Friend the Member for South Thanet makes a good point, and we considered the issue carefully before reaching the decision that we did not want to mandate a roll-over account. Let me explain why and briefly mention something about the process. We want to make it as easy as possible for people to continue to save, so we need to make sure that people have a choice. However, we also need to ensure that something is in place for those people who do not make an active decision. Providers will therefore put in place default roll-over accounts, about which customers will be told when they open their saving gateway accounts. That information will be there up front.

As the end of the two-year maturity period of each saving gateway account approaches, providers will remind savers of the default option at maturity, as well as inform them about other options. If the saver does not make any active decision about what should happen to their money, it will move into the providers’ default roll-over account. Providers will be able to choose what that default account should be; it might be a cash ISA, or it might not. The amendment would take away that element of choice, and I understand why the hon. Member for Fareham thinks that that is a good idea.

We have considered carefully whether the type of default roll-over account should be mandated, and specifically whether it should be mandated to be an ISA. However, we have decided to take a flexible approach for three reasons. First, different potential providers have different views on the matter, as the Committee heard in the evidence sessions. A further reason is the point made by my hon. Friend the Member for South Thanet: if people are in different circumstances, it might be that mandating an ISA would not be in their best interests. Secondly, in support of that, last week, Adrian Coles from the Building Societies Association said that doing so

“could preclude an institution offering a better account in some circumstances.”——[Official Report, Saving Gateway Accounts Public Bill Committee, 27 January 2009; c. 42, Q78.]

Again, I think that we can all envisage what those circumstances might be. Thirdly, we want to make sure that potential saving gateway providers who do not offer ISAs—and there will be some who do not do so, for whatever reason—are not excluded.

For those reasons, it is right not to be too prescriptive about the matter. Obviously, we will want to keep the issue under review and the Government would, indeed, be very concerned if we thought that the default roll-over accounts that were being proposed when the saving gateway accounts were initially offered were not going to offer reasonable levels of interest.

Different savers will have different needs and we want them to have a choice about what should happen to their money. An ISA will certainly be the right choice for many people, but not necessarily for all. Having heard those reasons, I hope that the hon. Gentleman will seek leave to withdraw his amendment.

Mark Hoban (Conservative, Fareham)

I am not entirely convinced by the Economic Secretary’s argument and neither was I convinced by the arguments made by some of the potential account providers at the evidence session. The Economic Secretary occasionally accused me—jokingly, I think—of being the banker’s friend in debates on the Banking Bill. I was not entirely convinced by the evidence that potential account providers gave that they might wish to offer higher rate accounts and a cash ISA. I hope that my scepticism is ill founded and that in reality, they will offer higher rate accounts. The Economic Secretary has said that he will keep this under review.

Jeremy Browne (Liberal Democrat, Taunton)

One of the best ways to sell this legislation to the taxpayer—who, it is estimated, will pay in excess of £100 million a year to finance the scheme—is that it should imbue a saving culture among the people who participate. Surely, that goes to the nub of the issue. We should not compel people to save, but we should do our best to ensure that there is some easy provision for continuing to save beyond the two-year period.

Mark Hoban (Conservative, Fareham)

I agree completely. The default should be an easy way of ensuring that people continue to save and put into practice the habits that they develop over the two-year period. That is important.

The Committee should send a clear message to potential providers that we expect them to provide a reasonable rate of return on the default account—it should not pay only a fraction of 1 per cent. interest, as some accounts do at present. These people should not be treated as second-class citizens. They should have access to default accounts with a good rate of return, and I believe that we all agree about that. I would prefer a bit more compulsion and less emphasis on encouragement, but I beg to ask leave to withdraw the amendment.

Clause 21

Jeremy Browne (Liberal Democrat, Taunton)

I beg to move amendment 12, in clause 21, page 9, line 39, leave out ‘£300’ and insert ‘£3,000’.

Good morning, Mr. Taylor. We just passed clause 19 rather quickly, but Members who look at it will see that it includes a provision for imposing a £3,000 penalty on account holders who break the rules. We have just agreed to put that into effect.

Clause 21 sets out the penalties and sanctions for account providers if they break the rules, but we can see if we compare clause 19 with clause 21 that, whereas an account holder can be fined up to £3,000 for violating the rules, an account provider can be fined only one tenth of that amount—£300. There is a long list of rules that they are compelled to keep—nine of them in subsection (1). It would seem reasonable that account providers who break the rules should be subject to the same penalties as account holders who break the rules. That is the purpose of my amendment.

Ian Pearson (Labour, Dudley South)

It might be helpful if I explain that the penalty regime for saving gateway accounts has been modelled closely on the one for child trust funds, as the schemes share several common features. We have not experienced any difficulty with the operation of child trust funds, and this penalty structure closely mirrors that one. The penalty will not exceed the greater of £300 or £1 per account affected. Saving gateway providers may also be child trust fund providers, so having the same penalties will provide consistency.

In any event, we consider that setting the penalty at £300 is proportionate in all circumstances. Banks and other institutions that may offer saving gateway accounts—there are other providers of child trust fund accounts, including credit unions—will be familiar with this regime. We do not expect it to cause any complication and so do not believe that the amendment is necessary. I ask the Committee to resist it.

Jeremy Browne (Liberal Democrat, Taunton)

I wanted to test the water on that one. It was helpful to hear the Economic Secretary’s comments, although the situation still seems somewhat anomalous. I hope that there will be no violations and that we will therefore never find out whether the anomaly would be keenly felt by my constituents. With that, I beg to ask leave to withdraw the amendment.

Clause 22

Jeremy Browne (Liberal Democrat, Taunton)

I beg to move amendment 13, in clause 22, page 10, line 24, leave out ‘issued’ and insert ‘received’.

This amendment is more likely to affect our constituents than the one that I have just tried, unsuccessfully, to make to the Bill. Subsection (7) states:

“A penalty must be paid within 30 days beginning with the date on which the notice of the penalty was issued.”

The amendment would replace “issued” with “received”. I accept that that change would not make much difference in most cases. However, I am told that I will struggle to get back to my constituency later, because the west country is covered in snow, and although I accept that it is unlikely that snow will continue to lie deep on the ground for the next month, one could imagine how an extreme weather event, as BBC meteorologists have started to call them, or a postal strike could mean that the 30-day period would be considerably reduced by the time someone received the notice. Similarly, someone who lives in two places or who works away from home for a period or who comes back from a two-week holiday to find that a notice was issued in their absence will have a reduced period in which to pay. In such cases, the period of 30 days, which sounds generous, might be less generous if taken from the date of issue, rather than the date of receipt. I suspect that the Economy Secretary will say that it will be difficult to measure the date on which a notice is received, but, nevertheless, my purpose is to try to ensure that no one is unfairly penalised, because of factors outside their control.

Ian Pearson (Labour, Dudley South)

I have a great deal of sympathy with what the hon. Gentleman is trying to do. He wants the penalty charge to be payable within 30 days of its receipt, rather than its issue from HMRC, and he rightly points out that the notices could be delayed in transit. If a big freeze-up lasted for a considerable time and post could not get to account holders, HMRC would want to address that issue and, I expect, allow some flexibility. The key reason why the time limit runs from the date of issue is to provide certainty, because HMRC will know that date without needing to investigate further.

It would be a complete change from HMRC’s normal operating procedures to do what the hon. Gentleman suggests for saving gateway accounts. As he is aware, there is frequently debate about whether documents have been received, and creating potential for dispute between HMRC and people who have been issued with penalty charges about when notices were received and whether penalties have been paid within the permitted time period would add unwarranted complexity. We do not expect that penalties will be required on many occasions, and it is right to mirror current provisions, such as those on the issuing of notices in relation to child trust funds. Similar provisions on tax debts, which are charged under section 100(3) of the Taxes Management Act 1970, established the normal way of doing things. If the hon. Gentleman thinks about this at any great length, he will appreciate the difficulties of using the date of receipt, such as the lack of legal certainty that would be involved in any dispute between parties. I hope, therefore, that he will withdraw his amendment.

Jeremy Browne (Liberal Democrat, Taunton)

The Economic Secretary is helpful and if I were in his shoes, I would take the same view. I am sympathetic to the Government’s position that there is greater clarity in the current legislation, because it has allowed me to make a valid point. I sign letters that are sent to me in big bundles from my constituency office sometimes a few days after they have been dated, so I hope that the Economic Secretary will do his best to ensure not only in this legislation but more generally that HMRC does not routinely send out letters or penalty notices several days after the letters have been dated. There is no provision to prevent that from happening. HMRC could send out letters several weeks later and people could be unreasonably penalised, even though, in law, HMRC is entirely in the wrong. I hope that that scenario is entirely hypothetical, and on that note, I beg to ask leave to withdraw the amendment.

Clause 24

Jeremy Browne (Liberal Democrat, Taunton)

I rise to speak to amendment 14, in clause 24, page 11, line 7, leave out ‘given’ and insert ‘received’.

The amendment has exactly the same purpose as that which we have just rejected. The clause says that an appeal must be given

“30 days after the date on which the notice of the decision was given”,

and the amendment seeks to change “given” to “received”. However, I think that we examined the issue during our previous discussion, so I do not know whether it is good form to carry on. I shall let the Economic Secretary say his bit and then I shall defer, unless he says something truly shocking. [Interruption.] I am happy—unless he feels it discourteous—not to move the amendment.

David Taylor (Labour, North West Leicestershire)

The amendment is not moved.

Ian Pearson (Labour, Dudley South)

I beg to move amendment 40, in clause 24, page 11, line 8, leave out ‘an appeal’ and insert

‘a tax appeal or a Northern Ireland appeal’.

David Taylor (Labour, North West Leicestershire)

With this it will be convenient to discuss Government amendment 41.

Ian Pearson (Labour, Dudley South)

These are the only two Government amendments to this Bill, unlike the Banking Bill, in which the hon. Member for Fareham and I have participated, which required extensive amendment. I congratulate my team on this Bill for the diligence and thoroughness with which they have prepared the original legislation.

The Government propose a minor amendment to subsection (2). Hon. Members will know that the subsection sets out the requirement for the content of the notice of appeal to be submitted by the appellant when an appeal is made under clause 23. The amendment would restrict those requirements so that they applied only to those saving gateway appeals that concerned tax matters, and to tax and non-tax saving gateway appeals in Northern Ireland. We intend that other saving gateway appeals should be covered by the separate provision on this point, and that was recently made in the tribunal procedure rules for the social entitlement chapter of the first-tier tribunal. There is little difference in substance between the requirements set out in this Bill and those in the tribunal procedure rules. Both require that the notice of appeal be signed and the grounds for appeal be specified. However, the Government believe it neither necessary nor appropriate for the Bill to contain provision on that point when provision has already been made in the tribunal procedure rules. The rules can be amended in due course so that they apply to saving gateway appeals where appropriate. The amendment would remove any scope for confusion about which set of rules apply.

Clause 27

Jeremy Browne (Liberal Democrat, Taunton)

I beg to move amendment 15, in clause 27, page 13, line 1, leave out ‘The first’.

David Taylor (Labour, North West Leicestershire)

With this, it will be convenient to discuss the following: amendment 16, in clause 27, page 13, line 4, leave out subsection (6).

Amendment 17, in clause 27, page 13, line 7, leave out ‘The first’.

Amendment 18, in clause 27, page 13, line 11, leave out subsection (8).

Jeremy Browne (Liberal Democrat, Taunton)

There is a somewhat ritualistic quality to these amendments, in that they require subsequent changes to the Bill, subject to the positive procedure. In a way, therefore, we are making a more general point about the right of this House to scrutinise legislation—a point that parties in opposition tend to make with greater zeal than those in government do.

Having said that, on this occasion the amendments are slightly more than just ritualistic, because the Committee will see that there are some particularly high-profile provisions such as the 50p rate of Government contribution—we touched on that in our previous discussions—that will come back to this House for any changes that the Government envisage ought to be made at a future date. However, there are endless provisions for which that is not the case. In fact, I think that I said on Second Reading that there are 32 clauses in the Bill and 29 delegated powers, so we are almost at the point where what the Government get to decide on is greater than what we are passing into law in this Committee and in the Commons Chamber.

As we have discussed in our deliberations on previous clauses, some of the powers that the Government have taken upon themselves, without our having the opportunity to consider them with any great certainty in this Committee, are quite substantial and would affect the workings of the provision of the saving gateway accounts and thereby affect our constituents. If the Government are going to go down the path of allowing a huge amount of flexibility, which is clearly the preferred option, when they come back with changes in practice to the Bill, we, as Members of the House of Commons, should have the opportunity to scrutinise those changes as fully as we think appropriate.

Mark Hoban (Conservative, Fareham)

I partly support the hon. Member for Taunton in his amendments. On the first two, it is right that any changes to the tax status of these accounts should be dealt with by affirmative resolution not just in the first use of these powers but subsequently. We could end up with a situation in which a future Government decided to tax the income or the matching payment on these accounts without the requirement to debate that measure in Parliament unless someone prays against it. So, the key features of this Bill should be subject to affirmative resolution when there are subsequent amendments.

I am very sceptical about the requirement for every subsequent adjustment to be covered by affirmative resolution. We need to be pragmatic in deciding where the use of affirmative resolution is appropriate and where it is not. I am also minded to say that it is all very well for the hon. Gentleman to propose these measures, but in the end, he or his colleagues are required to turn up to the relevant debates. I found that out in a debate on Monday afternoon, when it was just the Economic Secretary and myself on the Front Benches, with no representative on the Liberal Front Bench. So the hon. Gentleman should be very wary about what he calls for in these amendments.

Ian Pearson (Labour, Dudley South)

As hon. Members appreciate, clause 27 relates to the delegated powers in the Bill. We have debated these issues at several points in this Committee already. It is clear that the Bill contains a number of delegated powers. These amendments would not remove the delegated powers, but they would affect the procedure to be followed when they are used. It might therefore be helpful if I set out the position as the Bill stands and the rationale behind it. As the hon. Member for Fareham said regarding the amendments tabled by the hon. Member for Taunton, it simply would not be appropriate to deal with every such proposal through the affirmative procedure. It would not strike the appropriate balance, and we think that we have struck the right balance.

Generally, the first use of the delegated powers in the Bill will be subject to the affirmative procedure, but subsequent uses will be subject to the negative procedure, and hon. Members will be familiar with the process by which they can pray against statutory instruments and debate them. This approach is intended to allow appropriate parliamentary scrutiny of the details of the saving gateway when it is introduced, and to provide the subsequent flexibility to make minor or technical changes to the scheme.

There are five exceptions to the rule, however. The use of the order-making power in subsection (5) will be subject to the negative procedure on each use. The power allows an order to amend the list of enactments in subsection (4), which may, by the regulations under subsection (3) be applied to saving gateway appeals. This may be necessary to ensure that the appeals procedure for the saving gateway remains consistent with other appeals regimes. Any enactments that are added to the list in subsection (4) would have been subject to full parliamentary scrutiny already, and that is a narrower power, so the negative procedure is appropriate.

Four delegated powers will be subject to the affirmative procedure on each use. These include all three delegated powers on eligibility to the saving gateway: the power in clause 3(1)(b) for regulations to set out the UK connection that is required of a person to be eligible to open a saving gateway account; the power in clause 3(4) for regulations to prescribe the conditions that must be met for a person to be eligible through entitlement to tax credits; and the power in clause 3(6) for an order to amend the list of qualifying benefits and tax credits. Eligibility is a central feature of the saving gateway, so it is right that any change be subject to full parliamentary scrutiny. The same is true of the match rate—the maturity payment amount that will be earned for each pound saved. The power to set the amount under regulations under clause 8(1) is, therefore, the fourth delegated power that will be subject to the affirmative procedure on each use.

The amendments would mean that the use of all the Bill’s regulation-making powers—not just those four—would be subject to the affirmative procedure on each use, and, as I hope I have explained, we do not believe that that would be appropriate. On the point that the hon. Member for Fareham made about tax relief and whether the affirmative procedure should be used every time, we have no intention of changing the fact that saving gateway accounts will be tax free. The powers might be used to reflect changes in tax legislation and they are likely to be technical. On our general position, however, we want the accounts to be tax free, and that is why the Bill is structured as it is.

The general rule of following the affirmative procedure for the powers’ first use and the negative procedure on subsequent uses strikes the right balance between ensuring that Parliament can fully scrutinise the details—we all appreciate that much of the Bill is left to the details—and, once scrutiny has taken place, having the flexibility to make minor or technical subsequent changes to the scheme through the negative procedure, which can be prayed against. We have reached our position based on those reasons, so I hope that the hon. Member for Taunton will withdraw his amendment.

Jeremy Browne (Liberal Democrat, Taunton)

Without wishing to be disloyal to my colleagues, I should clarify for the record that I was not due to serve on the Committee. In centuries to come, when people read the account, they may not appreciate how bad the weather was on Monday. It meant that quite a few Members missed the proceedings in the House, although I was not one of them; I was busy elsewhere in the building.

On the substantive point, I appreciate that the Economic Secretary has sought to try to find a sensible position from which to pitch the Government’s stance on the matter, and I understand the logic of his position. The hon. Member for Fareham made a reasonable point about tax exemption, and although the Economic Secretary is entirely trustworthy, it is a good idea in general to make the assumption that future Ministers might not always have the best will of the House at heart. Nevertheless, I understand the Economic Secretary’s point, and having made my argument through my amendments, I beg to ask leave to withdraw the amendment.

Stephen Ladyman (Labour, South Thanet)

I have a quick question for my hon. Friend the Economic Secretary that I am happy for him to answer in writing if he cannot answer it immediately. Under subsection (2), the Government seem to have a wide power to exercise discretion by regulation. How far can that discretion extend? If I were to fail to convince my hon. Friend to include recipients of carer’s allowance in the Bill when we come back to the matter on Report, would that discretion allow him to include those recipients at a later date, without having to introduce primary legislation?

Ian Pearson (Labour, Dudley South)

Very briefly, I shall explain subsection (2). It provides that any order or regulation made under the delegated powers given by the Bill may allow a person to exercise discretion in relation to any matter, including residential, supplementary, consequential or transitional provision or savings. It also provides for a person to exercise discretion in relation to making different provision for different cases. That is necessary to allow regulations or orders to contain some flexibility. The power in clause 3(6) allows qualifying benefits to be amended under the affirmative procedure. I think that my hon. Friend will be looking to that clause, rather than clause 27, if he wants to seek the remedy that he is proposing.

New Clause 2

Mark Hoban (Conservative, Fareham)

I beg to move, That the clause be read a Second time.

I am not sure whether new clause 2 would add anything to the Bill. However, it would make it explicit that it is permissible for interest to be paid on saving gateway accounts, but that it is not a requirement to do so. In part, the permissive nature relates to a comment that I made in the debate on clause 15: if interest was required to be paid on the accounts, they would not be sharia compliant. That would close off the accounts to a significant part of the population with whom we want to engage in terms of financial inclusion.

We had a debate with the various witnesses who gave evidence to us on that point. There were two extremes—perhaps that is not the right word, because I do not think that I would ever accuse Teresa Perchard of being extreme. Teresa took the view that interest should be paid on the accounts. Her perspective was that it would educate people on the sort of terms that they could expect an account to have in the future. I put a question to her about the requirement to pay interest and she said:

“I have strong views on this. If this product is designed to get people who have not been saving into the savings habit and it does not include the key feature that you would find in a standard savings account, you are losing the opportunity to engage people with the idea that they earn interest on the money that they put aside.”

So, notwithstanding the fact that, with today’s interest rates, the amounts involved might be relatively small, the educational benefit that comes with seeing how much interest is payable on one of these accounts is important. People would also see that the matched amounts were much more generous than the interest, and when they came to the end of the two-year period, they would understand that they were moving on to lower rates. That is what they should expect. They should not expect another 50p-in-the-pound match in other, standard savings products. Teresa saw this issue very much from the educational aspect.

Brian Pomeroy, who chairs the Government’s Financial Inclusion Taskforce said that he agreed in principle with the idea that interest should be paid. However, he also made an important point when he said:

“It would be unfortunate if the Treasury were to mandate a rate of interest and as a result killed off interest in being a provider.”——[Official Report, Saving Gateway Accounts Public Bill Committee, 27 January 2009; c. 20, Q40.]

We touched on this dilemma on Tuesday. Do we encourage as many people as possible to provide this product by making the cost of provision as low as possible, or do we set high standards—whether on savings, transferability or, in this case, the payment of interest—that force up the cost of the product, thereby restricting the number of providers? The question is whether we want a monopoly on provision by default or design.

In the afternoon sitting, it was interesting that one of the people who expressed the need for a permissive Bill was Mark Lyonette, from the Association of British Credit Unions. He understood the points about the financial education benefit, but he said that, for this marketplace, the motive was not necessarily the matching contribution or the interest. Mark’s experience of working with credit unions suggested that many people save to provide a buffer for a rainy day. I know from my discussions with the credit union to which I belong that many people put aside relatively small amounts to provide that buffer. They are not looking to earn interest, but simply want to put money aside.

Adrian Coles, from the Building Societies Association, felt that the interest rate would not be relevant to a saver’s decision on where to save or, indeed, whether to save. A variety of views have been put forward, and although I argued in favour of compulsion in the context of the product defaulting to an ISA when it matures, I favour a more permissive regime. I am mindful, however, of Teresa Perchard’s point about education, as that is part of the overall package.

We have talked about this being a stand-alone product, but we need to ensure that people will understand what the saving gateway product entails and what they will move on to afterwards. One lesson that was learned from the second pilot was the importance of having financial education alongside these products and the value of using third sector groups and others to help to encourage people to save.

I am content with the permissive nature of the Bill, but I thought that the new clause would give the Committee an opportunity to debate this issue, as there is no other opportunity to do so.

Stephen Ladyman (Labour, South Thanet)

I have already made my key points, and I remind my hon. Friend the Economic Secretary of them, so that he can address them. An important point was made to us in evidence: if we are to encourage people to get the saving habit, which is what these accounts are for, it is necessary to pay some interest on them, so that people understand that, once the Government have paid the bonus on maturity, there is still a good reason for keeping money in a savings account and adding to it from time to time, because interest will be added.

I confess that I did not find the people from the banking industry who gave evidence particularly sympathetic characters. Their cries of poverty stretched credulity a little. By their own figures, this market will be worth about £250 million a year. Even at today’s rates of interest, a back-of-the-envelope calculation based on the typical annual percentage rate offered on personal loans gives them a profit of £20 million on the money that they will get free from these savers and the Government.

The £20 million of profit has to go to administering these accounts, but that is not an insignificant amount of money for the banks to use for that, given that the Bill is about building their future customer base and encouraging people into the saving habit, which will stay with them in the long term. Having done the paperwork involved in getting people to open these accounts, the banks will not have to do it again when they transfer the matured funds either into ISAs or some other sort of savings account. That is another area of savings for them.

Even if the banks paid interest set at the current low rate, I estimate that they would still make about £14 million out of that £20 million, and they could use it to administer these accounts. I appeal to my hon. Friend not to take the banks’ cry of poverty and hardship too seriously when he is discussing whether interest should be paid on these accounts.

Jeremy Browne (Liberal Democrat, Taunton)

I am listening to the hon. Gentleman with interest and a lot of sympathy. Would he consider another valid point? To give people who hold saving gateway accounts a sense of what it is like to be a saver beyond the two-year period, it would be a good idea if the accounts bore some resemblance to a conventional savings account. People could see the little increments. Even the fact that the pounds do not round up, that there are a few pennies here and there and that it all looks like the money is growing in that incremental way will give the holders of these accounts, if they have no previous experience of saving, a sense of what it is like to have a conventional savings account. That may be beneficial as well.

Stephen Ladyman (Labour, South Thanet)

The hon. Gentleman is absolutely right. This is about teaching people how savings work and how beneficial to them holding these accounts can be in the long term. I hope that they will take that message very seriously.

I return to my core point: I do not want my hon. Friend the Economic Secretary to think that the banks are not getting anything out of this. They are getting something very considerable. They are getting free money to help them to expand their customer base. Any other industry in this country that could make a claim for getting free money to expand its customer base would be falling over itself to get it. We have just had a debate about the car industry, and we are essentially helping the car industry to expand its customer base. I do not see how this is any different. The banks should be doing their bit by making money available.

To come back to the point made by the hon. Member for Taunton, perhaps the banks will want to structure their interest differently, so that someone who puts in their money regularly each month and does not withdraw it in the meantime will get more interest than someone who operates an account by putting in money and taking out money all the time in a way that is difficult to administer. Perhaps someone who puts in a lump sum at the start and keeps it there until the maturity period will get a bigger rate of interest than someone who puts in money differently. There are different ways of structuring the account, but I encourage my hon. Friend to remember, as I am sure that he does, that these accounts are about teaching people the benefits of saving. If we are to do that, the banks, building societies and others should be encouraged to pay interest on the accounts.

Ian Pearson (Labour, Dudley South)

It is fair to say that there has been a healthy debate on whether there should be a mandated rate of interest on saving gateway accounts or whether, as in the Government’s view, it should be left to the banks, building societies and other potential account providers to decide whether they wish to pay interest.

Let me explain how we have reached the judgment that we have made. I note in passing that my hon. Friend the Member for South Thanet seems to have made common cause with the right hon. Member for Wokingham, although perhaps for different reasons, in wanting the compulsory approach. I seem to remember his arguing on Second Reading that the payment of interest should be compulsory, but I share the view expressed by the hon. Member for Fareham: we should be permissive in this area.

Let me be clear that, in principle, the Government want to see account providers offering rates on saving gateway accounts. We also want them to offer good defaults for when accounts roll over after the two-year period. We want to engender a market with a number of account providers wanting to compete in offering saving gateway accounts. In those circumstances, relatively few people will want to take out a saving gateway account with no interest if an alternative product on the market offered a good level of interest and a good default option after the end of two years. At the moment we do not think that it is appropriate to specify and mandate a rate of interest.

It is clear that the match rate is by far the most important feature of saving gateway accounts and is the biggest incentive to encouraging individuals to open such accounts. That rate would dwarf any interest that is likely to be awarded during a two-year period. That is the real driver for the programme. However, I take closely into account the comments made by Teresa Perchard of Citizens Advice, and those of my hon. Friend the Member for South Thanet and others, which were that getting into the saving habit is about learning about savings products. Having a savings product that is a gateway account, which looks like an ordinary savings product, can have benefits in that regard.

Stephen Ladyman (Labour, South Thanet)

I fear that some banks will rely on the generous bonus as a way of attracting people into these accounts and that they will take the same view as the bankers who gave evidence, which is that any rate of interest that they could possibly offer will be dwarfed by the bonus, so it is not worth paying it. They may then say, “Okay, we won’t give you any interest, but we’ll transfer your money at the end of this account into a savings account that gives a generous rate of interest.” They might take that approach, but we should not be encouraging them to rely on that big bonus. We should be trying to put as much pressure on them as possible at least to pay a low level of interest during the maturity period.

Ian Pearson (Labour, Dudley South)

I understand how my hon. Friend gets to that point of view. As I have explained, the Government’s preferred position is to engender competition so that a wide range of institutions participate and offer saving gateway accounts. We hope that a number of those institutions will want to offer interest on those accounts, as well as good default options, so that people wanting to open a saving gateway account will have a choice of places to go.

The advice that I have received and the detailed work that we have done on the cost of operating saving gateway accounts clearly shows that there are costs involved in opening accounts for significant numbers of people who will be saving relatively small amounts of money. I ask my hon. Friend to take that into account. It is not as simple as he suggests. He says that banks are being given free money to expand their customer base, but it is not like that.

Stephen Ladyman (Labour, South Thanet)

These will be my last words on this matter. The banks seem to want to invest in children; their websites are currently offering quite generous rates of interest by today’s standards for young people, who do put small amounts of money in and out, to inculcate the saving habit in them. However, I do not see why their attitude should be any different when they are operating the saving gateway accounts. Banks invest in children because they are their business of the future. Why should they not be encouraged to invest in people who are eligible to open a saving gateway account?

Ian Pearson (Labour, Dudley South)

I certainly do want to encourage banks to offer saving gateway accounts. I do not want to put them off; I want to continue to listen to them when they say that significant business issues will determine their decision whether to offer the accounts. The Government are not credulous about that, and we will hold a detailed dialogue with the banks to come to an understanding on their offering of saving gateway accounts. Having talked to them, we remain of the view that it is not the right approach to prescribe that interest must be offered on saving gateway accounts. It is far better to create a market to encourage a variety of providers. Our approach is the right one.

I appreciate the comments made by the hon. Member for Fareham and the reason for his new clause, which he correctly said does not add anything to the Bill. I am happy to assure him that account providers will not find that the regulations suddenly change, imposing on them a new requirement to pay interest to account holders. That is the decision that we have reached—it is the settled view of the Government. However, that does not mean that it would not be wise to provide flexibility in case we change our minds in the future—perhaps we will be persuaded by the right hon. Member for Wokingham or my hon. Friend the Member for South Thanet. That is why the legislation, and secondary legislation, is so framed. However, were we to go down that road, we would want to conduct a full consultation. We think that the Bill is far better as it stands now, with its voluntary approach. Let us get these accounts up and running and get people saving. We need to encourage that saving habit. Let us try to create a market so that account providers will want to offer attractive rates of interests as default positions. We ought to proceed on that basis; that is the Government’s intention.

Mark Hoban (Conservative, Fareham)

We have had a very useful debate about the role that interest plays in such accounts and the economics of providing them. I am keen to ensure that we have as many providers of such accounts as possible. The cost issue weighed on the minds not only of banks but of the Building Societies Association and the credit unions. If we want financial mutuals to participate, they need to be confident about the financial return. Often they are thinly capitalised compared with banks. They do not necessarily have the wherewithal to open some of these things. It is important to ensure that the provision is attractive to a range of providers. However, I take on board the comments of Teresa Perchard and Brian Pomeroy about education and ensuring that people understand what a savings account will be like in the future. That is an important part of the process. Given that, as I said earlier, the new clause adds little, if not nothing, to the Bill, I beg to ask leave to withdraw the clause.

Ian Pearson (Labour, Dudley South)

I was going to do this on a point of order, but I am happy to speak to the question formally. We believe that the Saving Gateway Accounts Bill offers an important opportunity to encourage people of working age or on low incomes to acquire the saving habit. We think that there are strong advantages in promoting this policy. It only remains for me to thank you, Mr. Taylor, and Mr. Bercow for the efficient way in which you chaired the proceedings. I thank the Clerks for faithfully dealing with our debates. I thank my Bill team for the sterling work that they have done. I thank the hon. Members for Fareham and for Taunton for the good-natured manner in which they have probed us on the proposed legislation during Committee stage and I thank my hon. Friends for their contributions to the debate. Our proceedings have not been conducted through the best of weather, but we have had a good turnout.

There is a high level of interest in saving gateway accounts and wide cross-party support for them. That is to be welcomed. I am sure that on Report and in the other place, the Bill will continue to progress in good shape. I am sure that it will get on to the statute book and will kick-start the saving habit for the future.

Mark Hoban (Conservative, Fareham)

I add my thanks to you, Mr. Taylor and your co-Chairman, Mr. Bercow. I also thank the Clerks and the Hansard reporters for their assistance.

The Minister commented that only two Government amendments had been tabled to the Bill. That is a tribute to the Bill team. Saving gateway accounts were possibly easier to cast into legislation than the proposals in the Banking Bill, which will come back to us on Tuesday having been heavily amended in the Lords and the Commons. There has been a great deal of consensus on this Bill. I wonder whether this is the political equivalent to Stockholm syndrome for Opposition Members. I am grateful for the way in which the Minister has engaged in the debate. In contrast to many Public Bill Committees, Labour Back Benchers have seen fit to take part. They are always very loyal in attending and usually in being very quiet. It has been helpful to have participation from both sides.

Stephen Ladyman (Labour, South Thanet)

I was working on the basis that if I interrupted enough, I would not be invited on to too many more Public Bill Committees.

Mark Hoban (Conservative, Fareham)

I hope that the hon. Gentleman has impressed the Whip sufficiently that he will not be called on to participate in the Finance Bill Committee. He should be careful what he wishes for.

There is widespread agreement on the Bill and we all share the aims of encouraging a saving culture among those who feel excluded from saving. We hope that it is successful in encouraging more people to enjoy the benefits that most other people enjoy from having savings, such as protection against uncertainty and the opportunity to provide for their future.