Savings Accounts and Health in Pregnancy Grant Bill
Public Bill Committee, 2 November 2010.
Gary Streeter (Conservative, South West Devon)
Welcome, colleagues, to the opening sitting of the Committee stage of the Savings Accounts and Health in Pregnancy Grant Bill. Before we begin, I have a few preliminary announcements to make. First, the good news is that you may all take your jackets off during Committee meetings. Will you please all ensure that mobile phones, pagers and so on are turned off or switched to silent mode during Committee meetings?
As a general rule, my fellow Chair, George Howarth and I do not intend to call starred amendments that have not been tabled with adequate notice. The required notice period in Public Bill Committees is three working days, therefore amendments should be tabled by the rise of the House on Monday for consideration on Thursday, and by the rise of the House on Thursday for consideration on Tuesday.
Not everyone—including me—is familiar with the process of taking oral evidence in Public Bill Committees, so it might help if I briefly explain how we will proceed. The Committee will first be asked to consider the programme motion on the amendment paper, on which debate is limited to half an hour. We then proceed to a motion to report written evidence and then a motion to permit the Committee to deliberate in private before the oral evidence sessions. I hope that we can take those two motions formally—we are not expecting much difficulty with those issues. Assuming that the second of the two motions is agreed, the Committee will move into a private sitting. Once the Committee has deliberated, witnesses and members of the public will be invited back into the room, and our oral evidence session will begin.
If the Committee agrees to the programme motion, we will hear oral evidence this morning and this afternoon.
David Hanson (Labour, Delyn)
I thank you and welcome you, Mr Streeter and your co-Chair, Mr Howarth, to the Chair. I think that we will get on fine in the next eight or nine sittings. You and I were elected on the same day, Mr Streeter. Sir John Major was Prime Minister, and in those days we sometimes did not know the outcome of votes before the Tellers told us. They seem halcyon days in the current climate, but not to worry.
The Bill is important, and before we move on to the evidence sessions, I want to consider the programme motion briefly. I am grateful to my hon. Friend the Member for West Ham and to the hon. Member for Scarborough and Whitby for agreeing it in the Programming Sub-Committee last evening.
As you said, Mr Streeter, the programme motion gives us an opportunity for several evidence sessions today, Thursday morning and early Thursday afternoon, ending with a discussion with the Minister about the concerns that might have been raised in the evidence sessions. We will commence discussing the amendments on Thursday afternoon, and have two full sittings next Tuesday and two full sittings next Thursday.
Although I expect that we will have sufficient time to discuss the amendments, the Bill is controversial. My hon. Friends, including my hon. Friend the Member for South Down, will take a strong view on its contents. For those who are new to Committee Bill sittings—I include my hon. Friends the Members for Stretford and Urmston, for Makerfield and for Wirral South in that—it will be a new experience, but there will be serious discussion of some of the amendments. It may help if the Minister gave an indication of whether he was minded to accept any of them. That would shorten the time needed for discussing them. [Interruption.] I do not wish to discuss the amendments in detail now, but such an indication from the Minister would shorten the proceedings and give us an opportunity to plan our approach to them. For example, later we will deal with amendment 21 about looked-after children.
Gary Streeter (Conservative, South West Devon)
Order. I hesitate to interrupt the right hon. Gentleman, but we have not issued a selection list of amendments yet, so it is slightly previous to discuss them even en passant.
David Hanson (Labour, Delyn)
I am grateful for that advice, Mr Streeter. Perhaps I could frame my comments around the discussions generally. We have tabled amendments—which might be selected by you and Mr Howarth—about looked-after children, the poorest third of children being exempted from the child trust fund and the disability living allowance. The preparation for the Committee by my hon. Friends will be around discussions on those particular points. We currently have one hour on Thursday and two full sittings on Tuesday and on Thursday next week to discuss any amendments that you, Mr Streeter, may choose to select.
I would welcome it if the Minister gave any views on those issues first. Let me give as an example the issue of looked-after children. You will perhaps be aware, Mr Streeter, that during Prime Minister’s questions last Wednesday, my right hon. Friend the Member for Wythenshawe and Sale East (Paul Goggins) asked the Prime Minister whether he would consider looked-after children and child trust fund payments for looked-after children. It would greatly help my hon. Friends and the Committee if the Minister could give some indication as to what progress is being made on discussions with my right hon. Friend for Wythenshawe and Sale East on that particular matter.
There are three main clauses in the Bill: on child trust funds, the saving gateway and the pregnancy and maternity grant. We have four sittings and an hour to deal with them. In terms of our pacing any amendments that you, Mr Streeter, may wish to select and our discussions of them, it might be helpful if the Minister could give an indication now, as part of the programme motion debate, of any progress on discussions between the Prime Minister and my right hon. Friend the Member for Wythenshawe and Sale East, and of whether the Minister has made any approaches to my right hon. Friend, or has plans to do so, on the issue of looked-after children. That is important, and we may then need to table an amendment, or prepare discussions on an amendment.
I would also be interested, and this is still linked to the programme motion, Mr Streeter—
Gary Streeter (Conservative, South West Devon)
Tenuously.
I took the trouble of looking up the Conservative party manifesto on the child trust funds, the health in pregnancy grant and the saving gateway. There was no mention of abolishing the pregnancy grant or the saving gateway. We shall discuss under the programme motion how much time we can spend debating those issues, but in relation to clause 1, the Conservative party manifesto said that it would cut—
Gary Streeter (Conservative, South West Devon)
Order. I am very reluctant to interrupt the right hon. Gentleman. He is doing this very skilfully, but we are now straying into areas of debate rather than dealing with the programme motion.
David Hanson (Labour, Delyn)
I do not want to test your patience, Mr Streeter, but the reason why I ask these questions is that shortly we shall ask witnesses their views on a range of issues. I want the Minister to respond because, first and foremost, I would not want to ask questions about the poorest third of families or the potential for disabled children to receive a child trust fund if the Conservative Minister in Committee today was going to adhere to the Conservative manifesto commitment. I would not want to waste the time of witnesses or, indeed, the Committee by asking questions about whether the poorest third of families should be exempt from the abolition of the child trust funds, as per the Conservative manifesto, or whether disabled children should be exempt, as per the Conservative manifesto, if the Minister confirmed today that he and his hon. Friends are sticking to the manifesto on which they stood for election in May. That is an important issue in relation to the programme motion.
Gary Streeter (Conservative, South West Devon)
Shall we try to find out whether the Minister is going to do that?
David Hanson (Labour, Delyn)
I will in a moment, Mr Streeter. Without wishing to test your patience, these are important issues and I have the right to make my points on them. My hon. Friends feel very strongly about those matters and I think it important that we have an opportunity to hear from the Minister before we interview witnesses on the three key issues.
First, will the Minister make any movement on or have any discussions about looked-after children? We need not question witnesses on the matter if that is the case. Will he adhere to the commitments that he made in May on the poorest third of children in relation to trust funds, and on disability living allowance? If so, those issues need not be discussed today by members of the Committee. Will the Minister uphold the manifesto commitments not to abolish the health in pregnancy grant and the saving gateway? He needs to give some indication of his approach to those issues now, under the programme motion, so that we can at least examine it, pending the amendments that you may or may not select in due course, Mr Streeter. I fear that I have tested your patience considerably, but I hope that for the sake of those elected on 9 April 1992, we can at least remain friends.
Gary Streeter (Conservative, South West Devon)
Thank you, Mr Hanson. If I may say so, you did that very skilfully. Does the Minister wish to respond?
Mark Hoban (Conservative, Fareham)
It is a pleasure to serve under your chairmanship again, Mr Streeter. There is ample time in the evidence sessions and the scrutiny sessions to debate these issues. The right hon. Member for Delyn has clearly demonstrated his desire to speak at length on some of these issues at a later stage. I think that we should listen to the debate.
The right hon. Gentleman raised a point about manifestos. Clearly, he has forgotten that we are a coalition Government. My hon. Friends the Members for Birmingham, Yardley and for Bristol West would point out that in their manifestos, they advocated the abolition of the health in pregnancy grant and the child trust fund. We are dealing with a coalition matter and we shall work on that basis.
David Hanson (Labour, Delyn)
Will the Minister give way on that point?
Mark Hoban (Conservative, Fareham)
I am not prepared to give way. The right hon. Gentleman has already taken up quite enough time in debating these issues and it is time for the Committee to move on to scrutiny.
John Hemming (Liberal Democrat, Birmingham, Yardley)
On the programme motion, but with regard to the points raised about whether we need to have answers at this stage, it is indeed the case that our manifesto said that we should put money into the pupil premium and take it out of these particular schemes. There are many questions in this regard. For instance, 70% of looked-after children return to their families when they can escape the system. All that information informs the debate on how best to treat people, but I do not think that that information could be provided at this stage.
David Hanson (Labour, Delyn)
I welcome what the Minister said, but he may want to reflect on the programme motion and whether the wishes of 57 Members of Parliament should usurp the wishes of 593, because that is the frame in which the debate is being held today. We have a reasonable amount of time in which to debate the Bill, but we feel strongly about each of its clauses, and it would help us if we had some idea about whether the Minister intends to move on any of the issues. We need not ask questions of witnesses about those issues, nor in due course give you the opportunity, Mr Streeter, to select our amendments, nor indeed waste the Committee’s time discussing them if the Minister sticks to what he said in May, or says how he will act in response to the helpful points that the Prime Minister made in Prime Minister’s questions on Wednesday.
Gary Streeter (Conservative, South West Devon)
I think that the point has been made. I do not see another response coming from the Minister, so I shall put the programme motion to the Committee.
Gary Streeter (Conservative, South West Devon)
We will now take evidence from the Institute for Fiscal Studies. For the record, would witnesses please introduce themselves to the Committee?
Gary Streeter (Conservative, South West Devon)
Thank you, Mr Emmerson.
Before I call anyone to ask questions, I remind all Members that questions should be limited to matters within the scope of the Bill. We must stick strictly to the timings in the programme motion that the Committee has agreed. I hope that I do not have to interrupt anyone in mid-sentence, but I will do so if necessary —as it says here; I’m not really that kind of person. I call Mr David Hanson to ask the first question.
David Hanson (Labour, Delyn)
Good morning, Mr Emmerson. Thank you for appearing before the Committee. Will you give your initial assessment of whether the child trust fund has made a difference to the potential recipients who, in 18 years’ time, will ultimately receive the benefits? What is your assessment of its success to date?
David Hanson (Labour, Delyn)
Do you have a view as to whether the child trust fund has helped to encourage those who, prior to its introduction, would not necessarily have put money aside for their children before the age of 18 —either because they did not think to do so or because they were not able to do so?
David Hanson (Labour, Delyn)
In its representations to me, the Children’s Mutual Society has said that prior to the child trust fund only 18% of children had regular long-term savings made for them. That average has now risen to 31%. Does that indicate that there might be some benefit in helping to raise the level of saving on behalf of children?
David Hanson (Labour, Delyn)
Do you have a view on the fact that lower-income families might now be contributing towards their children’s savings, where previously they were not?
David Hanson (Labour, Delyn)
One of the discussions that we are having is on the number of other groups that might benefit, or potentially could benefit, downstream because of the introduction of the child trust fund. One of the key groups that we are concerned about —certainly on this side of the Committee—is looked-after children. Do you have any view on the fact that certain groups, such as looked-after children, do not necessarily have anybody, either the state or their parents, saving on their behalf before the age of 18? Could the trust fund provide a nest egg at that age?
David Hanson (Labour, Delyn)
If the IFS had the Minister’s role in this Committee, would you have chosen to do something different with the resource, or would you have maintained the child trust fund?
David Hanson (Labour, Delyn)
So you would discard completely the idea—one of the driving forces behind the child trust fund—that it was designed to drive up a savings culture for the child’s future and to encourage people, particularly those on low incomes, to contribute, who would not normally have contributed, either because they chose not to or because they did not have the resources.
David Hanson (Labour, Delyn)
Does the IFS have any view on the impact of this on the financial services sector? That sector has geared up a range of products for the child trust fund, invested in the potential to deliver it and established projections in terms of savings accrued on the basis of potential income from the fund.
David Hanson (Labour, Delyn)
I have one final question. In the event of the Bill progressing and the Government contributions to the trust fund ceasing, do you think that there would be value in the Government maintaining the infrastructure for the child trust fund to be developed on a voluntary basis from parental contributions?
John Hemming (Liberal Democrat, Birmingham, Yardley)
Your final answer on what is the best use of public money is what the Bill is all about, because it is all about whether we put money away for 18 years, or whether we should we spend it on education. I am listening to what you are saying. Would it be right to say that you think the pupil premium, which focuses resources on social mobility in education, is a better way of using the funds?
John Hemming (Liberal Democrat, Birmingham, Yardley)
In essence, there is nothing necessarily wrong about this, but there is nothing particularly good about it either.
John Hemming (Liberal Democrat, Birmingham, Yardley)
So you think the Government could do far better if they focused resources on the education of looked-after children and poorer families?
John Hemming (Liberal Democrat, Birmingham, Yardley)
In essence, the policy of shifting the money to the pupil premium is probably a positive move.
Lyn Brown (Labour, West Ham)
On a point of order, Mr Streeter. Will you rule in order a debate about the pupil premium, which will effectively take money from my poorest area in the east end of London to place it in other areas elsewhere in the country that are not as poor? If we are going to widen the scope of the debate to include the pupil premium, I would be very grateful for leave to take that argument on.
Gary Streeter (Conservative, South West Devon)
We have had that discussion at this end of the table. It is legitimate to put questions about what alternatives this money could be used for, but not to go into any detail on that. I am sure that that will be teased out in the debate. We will move on to Kate Green, who has some questions for Mr Emmerson, and we will come back to that side of the table in a second.
Kate Green (Labour, Stretford and Urmston)
Good morning, Mr Emmerson; thank you for coming to speak to us. What evidence are you aware of that shows the importance of asset holding among low-income households and by low-income individuals?
Kate Green (Labour, Stretford and Urmston)
Are you aware of particular expenditure that may need to be met at around that age, because while I can see your argument about the lack of evidence in terms of the ability to plan, none the less, an asset at the age of 18 has the potential to enhance social mobility by enabling people at a certain point in their life cycle to make certain choices.
Kate Green (Labour, Stretford and Urmston)
So a choice between the child trust fund and the pupil premium is not the only potential choice, is it? Indeed, what we are saying is that there are range of instruments both to boost income, and to give a lump sum at age 18 and support young people as they start in higher education. We cannot say that one precludes the others.
Kate Green (Labour, Stretford and Urmston)
What, if any, impact do you think receipt of a lump sum by low-income children at age 18 could have on inequality?
Sarah Newton (Conservative, Truro and Falmouth)
Thank you, Mr Streeter, it is a pleasure to serve under your chairmanship. I would like to return to child poverty. We have talked a lot about the pressures of deficit reduction and why they have led to these measures, but a key goal of the Government is to tackle child poverty. I am interested in your comments about alternative avenues the Government would have to reducing child poverty. What evidence do you have about the range of things the Government can effectively use to improve the situation of children in low-income families?
Sarah Newton (Conservative, Truro and Falmouth)
So household income and education are the key drivers for improving child poverty?
Alison McGovern (Labour, Wirral South)
Thank you, Mr Streeter, and likewise it is a pleasure to serve with you as Chair. Mr Emmerson, I have two questions that both relate to the substance of your research. First, you said that economists would say that there were no formal incentives to save involved in the child trust fund. I think some economists would certainly say that. What work has your organisation done to understand the informal incentives to save? We know that people do not necessarily respond to formal incentives to save involved in financial products, but sometimes they respond to other factors in the construction of schemes. I wondered what further insight you might be able to offer about what kind of incentives the child trust fund created.
Alison McGovern (Labour, Wirral South)
Sorry, may I interrupt you? What I was really asking is whether you have done any research on informal incentives that the scheme might offer. Do you have any data or any qualitative research?
Alison McGovern (Labour, Wirral South)
On the evidence that the Government had offered at the time of commencing the child trust fund, you felt that 18-year-olds with an asset do better. You felt that was correlation rather than causation. Could you say a bit about the data and why you thought that?
Stephen Williams (Liberal Democrat, Bristol West)
On Second Reading, those who wished to see the child trust fund preserved said that it gave young people a good start in life when they became adults. Of course, we will not know about that until 2020, in 10 years’ time. What do you think would give a young adult the best start in life in 2020? Free money—roughly £1,000—or investment in their education between now and 2020?
Stephen Williams (Liberal Democrat, Bristol West)
What do you think is the barrier to somebody saving? Is it their capacity to save, which must be related to how much they earn, how much they can cover their day-to-day expenses and, therefore, whether they have a surplus to save? Is that largely predetermined by how well you have done at school or college, or at acquiring a skill or degree thereafter? What fixes somebody’s capacity to earn as an adult?
Stephen Williams (Liberal Democrat, Bristol West)
So giving somebody £1,000 when they become an adult will not necessarily transform their capacity to save thereafter—possibly for the next 45 or 50 years of their productive working lives?
Harriett Baldwin (Conservative, West Worcestershire)
The child trust fund was set up for children born from 2002 onwards. You are from the Institute for Fiscal Studies, so what has happened to the UK’s fiscal position since 2002?
Harriett Baldwin (Conservative, West Worcestershire)
What has happened to the national savings ratio since 2002?
Harriett Baldwin (Conservative, West Worcestershire)
Around the world, is there any evidence of a link between dis-saving nationally and a higher propensity to save among individuals?
Harriett Baldwin (Conservative, West Worcestershire)
Have you done any work on the price that the Government have to pay for their national debt, and the rate of return on the accounts that individuals are holding? Is there a difference between those rates of return?
Harriett Baldwin (Conservative, West Worcestershire)
With these small amounts, are individuals able to get access to Government bond-type rates? Have you done any work on how people invested these funds?
Harriett Baldwin (Conservative, West Worcestershire)
Did you say in 2009 that, when the time came for tough choices about public spending, abolishing the child trust fund would be one of the less unattractive options?
Yvonne Fovargue (Labour, Makerfield)
I would like to return to the savings rate. According to the Office for Budget Responsibility, overall savings ratios are set to fall. Do you believe that the saving gateway and the child trust fund could reverse that trend?
Yvonne Fovargue (Labour, Makerfield)
There are high levels of personal debt, particularly in low-income households. How would you respond to people who say that this is not the right time to reverse a decision that encourages saving and financial inclusion?
Yvonne Fovargue (Labour, Makerfield)
Would you agree that building up the habit of saving, as credit unions have done with their schemes that encourage people to save before they can take out a loan, is one of the first steps towards getting out of a spiral of debt and loans?
Gary Streeter (Conservative, South West Devon)
We are moving on in a second to saving gateways, and I want to give David Hanson the last couple of questions on child trust funds. Are there any last questions on child trust funds, before I call David Hanson?
Kate Green (Labour, Stretford and Urmston)
Do you have a view on the suggestion in the Conservative party manifesto, which Mr Hanson has mentioned, that certain groups might continue to receive the benefit of a child trust fund, specifically families in low-income households, looked-after children and those with disabilities? Can you see how that may be administratively possible, and what sort of passporting, if it were possible, might make sense?
David Hanson (Labour, Delyn)
On Second Reading last week, the Government announced that they intend to establish a form of junior ISA, which will continue to encourage tax-free savings for those who are able to do so. Do you have any views on how that should operate, and, in particular, how it should operate in a way that encourages the people who I am concerned about—those who are not currently saving for their children’s future?
David Hanson (Labour, Delyn)
Do you expect that the Government will reach conclusions on those issues and, indeed, other issues in the next six weeks prior to the abolition of the child trust fund contributions, which is proposed in the Bill as 3 January 2011?
David Hanson (Labour, Delyn)
The point I am looking for is whether you believe that we can sufficiently plan for an alternative junior ISA, which was announced only on Second Reading last week, in the next seven to eight weeks, because the Bill currently proposes the abolition of the current proposals on 3 January 2011. In your view, what is going to happen to individuals on 4 January 2011 when the child trust fund ends and when there may not be clarity on the issues that you have rightly mentioned? Will the financial services sector be geared to manage that demand in as early as seven weeks’ time?
David Hanson (Labour, Delyn)
Without involving you in the deeply political issues that the Bill engenders, is it your view that there may be merit in postponing the date of 3 January 2011, so that those matters can be resolved, the industry can be geared up and, indeed, there can be fairness in relation to the contributions that are likely to be made for those who are able to afford the contributions to the junior ISA?
Kerry McCarthy (Labour, Bristol East)
Obviously, the difference between the child trust fund and a junior ISA would be that there is no financial contribution from the Government. Have you done any modelling of what sort of household is likely to invest in a junior ISA? Let us say that it is a household with one child. What would the likely household income have to be before they would be likely to be able to put some money away in a junior ISA?
Alison McGovern (Labour, Wirral South)
Your answer was helpful because it reveals an implied value of liquidity: that a parent would place value on liquidity, so they should save in their own ISA. Do you have any evidence about the value that is in fact placed by parents on that liquidity? We have had a lot of discussion and in a lot of your answers you have talked about the fact that the money is locked away in a child trust fund; but for some people there may be value in the illiquidity of that asset. Is there any research on that?
Alison McGovern (Labour, Wirral South)
But you would agree with me that your answer reveals a preference for liquidity, which is not necessarily what all parents would want.
Gary Streeter (Conservative, South West Devon)
That is a good note on which to end. We are moving on now to the saving gateway.
Sheila Gilmore (Labour, Edinburgh East)
To follow up a little further on what you were saying—that it might even be better for some low-income families to have a bit of money and not save during that time—is there not substantial evidence that one of the things that deepens people’s poverty is the lack of access to affordable borrowing; and that for many low-income families, particularly in certain areas, the only ability to borrow, perhaps to tide them over for a short period, not necessarily a long one, is by going for some very expensive forms of borrowing, which other people do not have to do? To some extent everyone borrows to overcome short-term difficulties. In that sense is there not a value in enabling people to build up savings, for example through something like a credit union, which will give them access in due course to much cheaper borrowing?
Sheila Gilmore (Labour, Edinburgh East)
The argument that people should be enabled and encouraged to save has a long history in discussions about alleviating poverty and deprivation. Am I hearing you say that you don’t think that that is the case, or are you saying that this particular mechanism is not able to deal with it?
Sheila Gilmore (Labour, Edinburgh East)
As you have said, people’s financial situations can fluctuate and they can be in work at one point and out of work at another. That is indeed a phenomenon that causes a lot of financial difficulty. For example, people can find it difficult to pay their rent during periods of unemployment. Is there not value in building a resource that enables people to save when they have more disposable income so that they have access to those savings or to further borrowing?
Sheila Gilmore (Labour, Edinburgh East)
You talked a little about physical access to savings accounts. Would it be beneficial for such a product to be available somewhere like local post offices, which might overcome the difficulty of physical access?
John Hemming (Liberal Democrat, Birmingham, Yardley)
Compared with the child trust funds, which you said did no harm, is your argument on the saving gateway that it could do harm by getting people to save when they should be paying off debt instead?
John Hemming (Liberal Democrat, Birmingham, Yardley)
Do you think it would be better to put more effort into ensuring that people avoid high interest rates on debt and loan sharks?
John Hemming (Liberal Democrat, Birmingham, Yardley)
Or potentially on a system with more crisis loans?
Yvonne Fovargue (Labour, Makerfield)
I heard you say that the distance from the financial institution was one of the reasons why people did not open the account. I accept that the pilot was with the Halifax, but the Government were looking to extend it to credit unions. A lot of credit unions are community-based, so they do not present the same barriers as going into the Halifax. Do you agree that the saving gateway would perhaps have been better if it had continued with those institutions?
Yvonne Fovargue (Labour, Makerfield)
You mentioned that financial capability and financial education were important. A lot of credit unions give financial capability training and budgeting training particularly when people start work, which you said was the time they should start saving. Would you agree that that should be continued?
Yvonne Fovargue (Labour, Makerfield)
People said they had more of a feeling of financial security when they saved, and they felt better able to control their lives. For a lot of people in debt, it is the feeling of lack of control that caused those problems, and the psychological problems. Do you think that the psychological problems and the psychological benefits of the saving gateway have been properly taken into consideration?
Sarah Newton (Conservative, Truro and Falmouth)
Given that we are absolutely determined to help as many people who want to work into work as possible, I was very interested in your comments about an ideal time to trigger people into regular saving being when they take a job. To what extent do you feel the auto-enrolment in pensions will be a good way to encourage people on low incomes to save for the future?
Gary Streeter (Conservative, South West Devon)
Obviously, we are referring this to the Bill.
Sarah Newton (Conservative, Truro and Falmouth)
Given what you were saying about the need for people to save for their futures, do you think that is a more appropriate time for them to be saving than in their childhood when, as you have said, the funds would perhaps be more locked up and would not actually help youngsters to improve their opportunities?
Gary Streeter (Conservative, South West Devon)
Are there any more questions on the saving gateway?
Sheila Gilmore (Labour, Edinburgh East)
There was some discussion among housing associations that they might have been able to take part in the saving gateway, and I am aware of some who were quite keen to get involved. That would provide people with access to a place to save, because they could save at the same time as making their rent payments. Were you aware of that, and would that help with accessibility?
Fiona Bruce (Conservative, Congleton)
I want to ask you about financial advice, because I have had mixed messages from you. You talked about how some longer-term reviews in America resulted in beneficial decisions being made, where people had been sent the national advice. Earlier on, you talked about youngsters at age 18 receiving a nest egg and that there may be a correlation between that and good role-modelling. Do you think that the best investment that we can now make, with the limited funds that the coalition Government have, to help people manage their finances, is not the proposed financial advice, but a broadening of that advice? As a country, do we not need to improve that overall, whether in schools or more generally, to help people manage what funds they have wherever they are in life?
Gary Streeter (Conservative, South West Devon)
We will now move on to our final group of questions to this witness—on the health in pregnancy grant.
Kerry McCarthy (Labour, Bristol East)
Has the IFS done any research into the impact of the health in pregnancy grant?
Kerry McCarthy (Labour, Bristol East)
I thought that that would be the answer, which is why I did not think that we would be focusing much on it.
On the measures introduced by the Budget and the spending review generally—such as restricting eligibility for the Sure Start maternity grant, and changes to child tax credit and child benefit—have you done any analysis of the impact on families with children and on whether they will be worse off as a result of the changes?
Kate Green (Labour, Stretford and Urmston)
You will be aware of the research carried out for the Joseph Rowntree Foundation into minimum income standards. What impact do you think the health in pregnancy grant has on meeting costs in low-income households during the late stages of pregnancy?
Kate Green (Labour, Stretford and Urmston)
It is interesting that you have drawn an analogy with child benefit. What do you see as the advantages of a universal payment?
Margaret Ritchie (Social Democratic and Labour Party, South Down)
I am pleased to serve under your chairmanship, Mr Streeter, and I welcome Mr Emmerson from the Institute for Fiscal Studies. I represent a constituency in Northern Ireland, where the Bill will apply as well. With particular reference to the health in pregnancy grant in clause 3(2), has the Institute for Fiscal Studies, in association with institutes in Northern Ireland, carried out any studies about the impact of the withdrawal of the grant, particularly from low-income households and where there is a high level of deprivation in many areas, especially urban areas?
Margaret Ritchie (Social Democratic and Labour Party, South Down)
As a supplementary question, may I ask whether you intend to have consultation with any particular areas? I think that there could be a particular area of work there.
Alison McGovern (Labour, Wirral South)
This is a straight transfer payment from the Government to the individual. Do you have any research or evidence about people’s propensity to spend the payments? I am aware of some evidence on winter fuel payment and comparative transfer payments, but is there any evidence on this specifically?
Gary Streeter (Conservative, South West Devon)
Thank you. Colleagues, any more questions for this witness? Mr Emmerson, thank you very much for your evidence. It has been extremely helpful, and we are grateful to you.
Gary Streeter (Conservative, South West Devon)
We now call the next group of witnesses, who seem to be assembled. I invite them to step forward. Gentlemen, thank you for joining us and for being here nice and promptly; we appreciate it. For the record, can you introduce yourselves for the purposes of Hansard?
Gary Streeter (Conservative, South West Devon)
We have a number of questions for you, but first, Mr Hemming must declare an interest.
John Hemming (Liberal Democrat, Birmingham, Yardley)
I register an interest, which is declared in the Register of Members’ Financial Interests. I chair JHC, John Hemming and Co., which provides software for people to run ISAs and things like that. It is on the edge of this.
Gary Streeter (Conservative, South West Devon)
We wish you every success with your business. Our first group of questions is on the child trust fund.
David Hanson (Labour, Delyn)
Welcome, gentlemen. As a general opening point, can you give your assessment of the success or otherwise of the child trust funds, from your perspective, over the past few years of operation?
Gary Streeter (Conservative, South West Devon)
Do not feel that you all have to answer every question. Perhaps one from each witness will be fine.
Gary Streeter (Conservative, South West Devon)
We will have an answer from each of you. Forgive me; I thought you were two organisations when you are, of course, four.
Gary Streeter (Conservative, South West Devon)
If we target the question to one or two individuals, others can chip in. We do not want all of you on every question, otherwise we will be here all day.
David Hanson (Labour, Delyn)
I will commence with Mr Vine-Lott. Do you have any views on the success of the child trust fund in generating savings among those who did not save before it was introduced?
David Hanson (Labour, Delyn)
Do you have any figures on the percentage of parents, or indeed other relatives, who were contributing to the child trust fund over and above the initial grant?
David Hanson (Labour, Delyn)
One area of concern for Committee Members is how we encourage savings for those such as looked-after children, who do not have a parent or a local authority to contribute to their savings post-18, or children with a disability, for whom the Government previously gave an additional premium to support the extra needs they may have post-18. Do you have any assessment of how the loss of either or both of those will impact on the future ability of individuals to meet those needs post-18?
David Hanson (Labour, Delyn)
The Government announced on Second Reading that they would establish a tax-free ISA for younger people, to mitigate the impact of the loss of the child trust fund. There are three issues. First, has there been sufficient consultation on the implementation of that new proposal? Secondly, is there sufficient clarity on how it will operate in respect of your businesses or sectors? Thirdly, will it do what the child trust fund did in part, which was to encourage people who were not saving to save?
David Hanson (Labour, Delyn)
Can you offer it from 3 January 2011?
David Hanson (Labour, Delyn)
Can I press you on that? In the Committee next week we will be asked to abolish the child trust fund from 3 January 2011. I am interested in whether there is an alternative product available from 4 January 2011, as promised by the Government, for the people who will not be able to access this particular product after that date.
John Hemming (Liberal Democrat, Birmingham, Yardley)
Just one question on the current situation with child trust funds. I am interested in the difference between the wealthy and the less wealthy families. Do you have any information on the current value of those funds held by deciles?
John Hemming (Liberal Democrat, Birmingham, Yardley)
You do not have it here, but you can send it to us?
John Hemming (Liberal Democrat, Birmingham, Yardley)
Do you know roughly on average what they are?
John Hemming (Liberal Democrat, Birmingham, Yardley)
Do we know what they are worth now?
John Hemming (Liberal Democrat, Birmingham, Yardley)
And that is each?
John Hemming (Liberal Democrat, Birmingham, Yardley)
What does that make the funds worth now?
Gary Streeter (Conservative, South West Devon)
If you have further information, you can send it to the Committee Clerk. That would be most welcome.
John Hemming (Liberal Democrat, Birmingham, Yardley)
The evidence, obviously, is that low-income families find it much harder to contribute.
John Hemming (Liberal Democrat, Birmingham, Yardley)
Do you have any comments about whether the child trust fund as a model with its lock-in has advantages or disadvantages?
John Hemming (Liberal Democrat, Birmingham, Yardley)
As an alternative model, which is a lock-in model, would it be possible to have similar terms and conditions for any other savings model?
Alison McGovern (Labour, Wirral South)
Specifically on that point, Mr Coles, we heard before—this morning—about the pro and the against of the lock-in. Do you have any evidence on what customers want out of financial products? Are you describing a problem that might occur, or is that an assertion based on knowledge of customers’ needs?
Alison McGovern (Labour, Wirral South)
I was interested in the conflicting answers that you seemed to be giving about the impact on the industry, the financial services sector, at the opening of your evidence. Perhaps people could describe what the impact would be on the industry. There seemed to be a suggestion from the deposit-based institutions that, really, the child trust fund was not central, so in terms of increasing deposits, it is not seen as having a large impact. My understanding is that the sector at the moment is looking to increase deposits, so I would suppose that removing the child trust fund would be seen as a disbenefit. There seemed to be some conflicting evidence, so I am looking for a bit more information.
Gary Streeter (Conservative, South West Devon)
Mr Leenders, anything to add?
Harriett Baldwin (Conservative, West Worcestershire)
What sort of rates of return have children been earning in these accounts?
Harriett Baldwin (Conservative, West Worcestershire)
And for the non-equity based products?
Harriett Baldwin (Conservative, West Worcestershire)
For your respective industries, over the period that child trust funds have been in place, what would you estimate the charges that your organisations have been able to charge on these products?
Gary Streeter (Conservative, South West Devon)
Do you have the same answer, Mr Vine-Lott?
Kate Green (Labour, Stretford and Urmston)
For institutions that have chosen to make the child trust fund central to their business model, how important has the Government contribution been in making it a cost-effective product for them to develop?
Stephen Williams (Liberal Democrat, Bristol West)
I want to follow up on Harriet Baldwin’s question about charges; 1.5% sounds innocuous but the Library briefing for the Bill estimates that your collective industry has earned £700 million, over the last eight years, presumably, in commission, fees and so on. Do you think that is a fair estimate of how the industry has benefited from this policy?
Gary Streeter (Conservative, South West Devon)
Who wants to go first? Mr Leenders, you are keen to go first.
Gary Streeter (Conservative, South West Devon)
Does anyone want to comment on that figure? Do you recognise it, Mr Shaw?
Stephen Williams (Liberal Democrat, Bristol West)
That is why I am surprised the amount was that large. Would you say that thus far it has not been a profitable line of business for your relative sectors?
Stephen Williams (Liberal Democrat, Bristol West)
Although the Government, should the Bill be passed, will not put further contributions into the fund, they will continue until the 18-year-olds become legally entitled to them in 2020, for the first tranche. Presumably you will accumulate charges and management fees for the next decade at least?
Gary Streeter (Conservative, South West Devon)
The witnesses are nodding.
John Hemming (Liberal Democrat, Birmingham, Yardley)
Earlier there was a diversion of views between keeping the CTF model, if the Government do not put any money in, and using the ISA model, if there is to be a junior ISA. Obviously it is feasible to have a junior ISA on the ISA model and the CTF model in place, but there is one question that should be asked of those who have CTF-model products. If no Government funds are going into them to start out, would they still open new accounts? You may not have full information now and this is obviously an issue to respond to in consultation, but do you have any guidance on it at the moment?
Kerry McCarthy (Labour, Bristol East)
The current tax-free limit on an adult ISA is £10,600. Suppose somebody had four children—nieces, nephews, godchildren or whatever. How would they be stopped from abusing a junior ISA by effectively putting their own money into it and using it as another ISA to take advantage of the tax-free amount?
Kerry McCarthy (Labour, Bristol East)
Presumably, one of the reasons why it is not open to abuse is because the funds are not accessible until a child reaches 18, whereas an ISA is accessible.
Fiona Bruce (Conservative, Congleton)
I think Mr Vine-Lott said at the outset that there had been a successful take-up of 72% for this project. My maths is not as good as yours, but that means that 28% of people have not taken it up. Can you give us any thoughts on that? I realise that it is only speculation, but you are the industry experts. Why has there been a 28% non-take-up?
Fiona Bruce (Conservative, Congleton)
Thank you, Mr Shaw. I think that it was you who said that one of the elements included in this was financial education. I know that the industry has provided a lot of good financial education, but personally I would like to see that built on. I am pleased that the coalition Government are looking at how they can improve and co-ordinate that. Would it be fair to say that one in four children and their families are not benefitting from an element—the financial education element—of this investment?
Fiona Bruce (Conservative, Congleton)
I applaud those schemes, but active involvement by the parents is still missing, and that was a key aim of the fund for one in four childhoods. That is the point that I wanted to establish.
Kate Green (Labour, Stretford and Urmston)
Mr Coles, you mentioned the existence of more than 100 commercial child savings products that are available from your members. Who would the providers of such products tend to direct their marketing at? In particular, how interested are they in attracting savers from lower-income households?
Gary Streeter (Conservative, South West Devon)
We move on to saving gateway accounts.
Kerry McCarthy (Labour, Bristol East)
Will those of you who are interested say how you think the saving gateway pilots have worked so far? Do you think that the scheme should be continued? Has it been a useful experiment?
Kerry McCarthy (Labour, Bristol East)
Is there an analogy to be drawn with the basic banking account? Several years ago, when the Treasury Committee took evidence from high-street banking institutions, there was clearly a reluctance by some to enter the market—Nationwide was an honourable exception—because it was not seen as profitable. It was thought to be a lot of hassle to deal with people who would never bring great returns for the institutions. Is it a similar scenario now? You seem to be saying that is not worth your while.
Kerry McCarthy (Labour, Bristol East)
But the basic bank account took a long while to get off ground, did it not? Some institutions had to be dragged to it, kicking and screaming.
Stephen Williams (Liberal Democrat, Bristol West)
I direct my question to Mr Vine-Lott in his role as director general of the Tax Incentivised Savings Association. Given that an incentive is meant to change behaviour, who do you say best responds to a tax incentive to change savings behaviour? Is it the top 15% of earners who are higher-rate taxpayers, or the bottom 15% of earners?
Stephen Williams (Liberal Democrat, Bristol West)
If the tax incentive was restricted to basic-rate taxpayers, would it be more likely to cause a shift in savings patterns and presumption patterns than general tax relief across all income groups?
Sheila Gilmore (Labour, Edinburgh East)
Obviously, we are hearing of limited involvement—there were pilots in any event—and perhaps of some practical difficulties. However, in general terms, does anyone think that the concept of the saving gateway would get people on low incomes started on the process of saving and interacting with financial institutions?
Gary Streeter (Conservative, South West Devon)
Any other responses on the concept?
David Hanson (Labour, Delyn)
Just as a general assessment, regarding the costs that you have incurred for the administration to date, do you feel that the Government should examine those costs in relation to potential reimbursement to you for the end of a scheme that you believed would go ahead?
David Hanson (Labour, Delyn)
Can you put an assessment on how much resource you have invested in the scheme to date that you feel will now be effectively dead money if the scheme is abolished?
Gary Streeter (Conservative, South West Devon)
If you have any further thoughts on that, by all means feel free to write to us, of course, with your observations.
Claire Perry (Conservative, Devizes)
I recall from my examination of this area while working for the then shadow Chancellor that the fees charged on some of these investment vehicles were relatively high compared to other products, particularly index-linked products. So that might be one of those things that come out in the wash—the industry has actually done rather well on a fee basis and therefore would not seek compensation for the cessation of these schemes. Would you agree with that, or is that just my misremembering of the facts?
Gary Streeter (Conservative, South West Devon)
We did tackle that one earlier actually and there was a substantive reply.
Thank you very much indeed to our witnesses. Thank you for your very expert evidence, which is much appreciated by the Committee.
George Howarth (Labour, Knowsley)
May I welcome our two guests, Mark Lyonette from the Association of British Credit Unions and Graeme McAusland from The Children’s Mutual, to give evidence? Thank you very much for giving up the time to give evidence. We will now hear evidence from The Children’s Mutual and the Association of British Credit Unions. I know that I have already introduced you to some extent, but perhaps you could introduce yourselves to the Committee, and then we will get into the questioning.
George Howarth (Labour, Knowsley)
For the benefit of the record, I remind members of the Committee that the questions they ask should be within the scope of the Bill. I am sure that you would not want me to interrupt you mid-sentence to point out that you were straying from the scope of the Bill.
John Hemming (Liberal Democrat, Birmingham, Yardley)
I am pleased to serve in front of you, Mr Howarth. My question is for both of you, although it is more directly for The Children’s Mutual. David White, the former chief executive of The Children’s Mutual, said at the time of the announcement to abolish the child trust fund that it was
“the single most successful savings policy to date”.
In one regard, it is not surprising that that would be the case, if you tell parents, “Here’s some free money for you child.” On what basis was that assessment made? In particular, did the fund result in additional saving or just a transfer from other sources?
John Hemming (Liberal Democrat, Birmingham, Yardley)
There is quite a difference. If you actually told people, “Here’s a cheque for £250 to put in your ISA,” a lot of people would accept it. The question is whether the child trust fund encouraged additional saving or just transferred saving from other sources. There has been disagreement between witnesses about this, and we have not as yet had any clear evidence that there has been additional saving. Have you got any clear evidence to that effect?
John Hemming (Liberal Democrat, Birmingham, Yardley)
What is the basis of that?
John Hemming (Liberal Democrat, Birmingham, Yardley)
Will you submit that to the Committee?
John Hemming (Liberal Democrat, Birmingham, Yardley)
Could I suggest that it might be useful if that was earlier rather than later?
Alison McGovern (Labour, Wirral South)
As a fellow Merseysider, it is a pleasure to serve under you, Mr Howarth. Graeme McAusland, we have already heard from representatives of friendly societies and mutuals about the impact of the child trust fund on their business and financial models. Could you say a bit more for the benefit of the Committee about how the particular model of the child trust fund worked in your business environment?
Alison McGovern (Labour, Wirral South)
May I pick up on a specific point? This morning, the Institute for Fiscal Studies told us that the child trust fund did not offer an incentive to save. It sounds from your evidence that your customers—that is, parents and grandparents—liked the child trust fund. What was it that your customers liked about it?
Alison McGovern (Labour, Wirral South)
How does it compare with products such as ISAs?
Harriett Baldwin (Conservative, West Worcestershire)
May I ask some questions about the Children’s Mutual? Is it a mutual company in that anyone who opens an account with you becomes a part-owner of the company?
Harriett Baldwin (Conservative, West Worcestershire)
Our notes say that you are a leading provider. Can you give us an idea of your assets in managing child trust funds and what your market share is?
Harriett Baldwin (Conservative, West Worcestershire)
Is it a significant part of your overall revenue? What will be the economic impact if these funds are ended?
Harriett Baldwin (Conservative, West Worcestershire)
What sort of fee were you charging on the funds?
Kate Green (Labour, Stretford and Urmston)
Can you tell us a little bit more about the behaviour of your savers: the patterns of saving, the typical amounts that they were saving into the child trust fund accounts and any projections that you have of the likely asset that they will have, in value terms, at the end of the period?
Kate Green (Labour, Stretford and Urmston)
Per 18-year-old?
Fiona Bruce (Conservative, Congleton)
One of the stated aims of the child trust fund is to develop the savings habit and engage with financial institutions. I am interested to know what practical steps you are taking to engage with the young people for whom the funds are invested, not with their families. In what practical ways are they different at 18 from how they would have been if you had not engaged with them?
Fiona Bruce (Conservative, Congleton)
About 72 or 74% of young people are getting some benefit from this if the parents or grandparents have engaged with the child trust fund arrangements, but about 26 or 28% of young people would not gain any benefit at all from the financial education that is connected to the investments.
Fiona Bruce (Conservative, Congleton)
I know that you cannot be definitive, but do you think that perhaps the hardest to reach are the ones who most need the help but are not in fact receiving it at all? Perhaps there are other ways through broader financial education in schools that we could target some of this investment to reach more of those harder to reach young people.
George Howarth (Labour, Knowsley)
May I remind Members that an electronic device near a microphone causes interference? I would be grateful if those who have electronic devices near a microphone would put them to one side. Thank you.
David Hanson (Labour, Delyn)
Have you noticed since the payments were reduced in August any discernible reduction in the contributions from parents and others to child trust funds?
David Hanson (Labour, Delyn)
Is it your assessment that if the junior ISA scheme were to replace the child trust fund, parents from all strata of society and all incomes would contribute to it, or would it be solely the preserve of those who are better off?
David Hanson (Labour, Delyn)
In the event of the Bill going through—clause 1 being carried and the scheme being abolished—how prepared are you for the introduction of the junior ISA scheme? Could you meet the deadline of 3 January 2011? Do you understand the scheme that is being proposed by the Government? Have the complexities been explained to your potential constituents and investors? How prepared are you to gear up training and information about such schemes before 3 January 2011?
David Hanson (Labour, Delyn)
So is your understanding that that is what the Government are intending, or are they intending a brand new product?
David Hanson (Labour, Delyn)
Without putting words into your mouth, would it be fair to say—although the Minister is not here to listen to these concerns, which is a concern for us generally—that the scheme that the Government are developing is not very fleshed out, that you have no idea how it will operate on 3 January 2011 and that your team are not prepared in any general sense to understand what the replacement would be for the child trust fund?
David Hanson (Labour, Delyn)
Do you have a view as to whether—this was part of the coalition’s manifesto commitments—it would be workable for the Children’s Mutual, if children receiving disability living allowance or children who live in the poorest third of households were to receive continuing support via the child trust fund as a financial contribution from the Government?
David Hanson (Labour, Delyn)
With regard to looked-after children, who are of concern to a number of members of the Committee, in the event of the child trust fund contributions being abolished, what alternative methods should we consider to ensure that children who are in care, who have no parents, who potentially have no grandparents and who are the responsibility of the local authority, have some form of financial support at 18 years old? Are there alternative models that you would suggest that the Minister and the Committee examine?
David Hanson (Labour, Delyn)
In the event of clause 1 being enacted, how do you think that will impact upon your ability to deliver any form of help and support for individuals who are currently within the scheme, and how do you feel your scheme will respond to that particular abolition in due course?
David Hanson (Labour, Delyn)
Would it be fair to consider the possibility of a further delay, where the Government could effectively meet their obligations, should they so wish to, but that you have further time to plan a potential exit from the scheme and also to plan for alternatives for looked-after children, for the poorest third, for those on disability living allowance and for the changes that any enactment of clause 1 would mean?
David Hanson (Labour, Delyn)
I am interested in that. I want the scheme to remain, and I will be opposing clause 1. From your perspective, in the event of clause 1 being enacted, what would be a better timetable for your organisation to manage that enactment in a way that militated against the speed and the necessity that the Government think is needed by enacting it on 3 January 2011? What would be a reasonable period for you to consider?
David Hanson (Labour, Delyn)
We are considering the Bill in Committee next week, and probably by Tuesday evening, and at the latest Thursday morning, we will have gone through clause 1 and will have received representations and debated it, and it will have been enacted as far as the Commons is concerned, pending Report and consideration in the House of Lords. Given where we are now, if you had an opportunity to say to the Minister what the timetable would be—given the Minister’s wish to abolish the scheme—to give you sufficient time to ensure that that was managed in an effective way and that a replacement was considered and in place, what would that be? Would that be 3 January 2011, or would you seek 2012, 2013 or 2014? What would that be?
George Howarth (Labour, Knowsley)
Order. Before Mr McAusland answers that question, could I gently point out to Mr Hanson that I think he is repeatedly asking the same question in different words? I am going to allow the answer, but I do not think that I would like to see another formulation of the same question.
David Hanson (Labour, Delyn)
I am seeking a date, Mr Howarth, and how long it would it take.
George Howarth (Labour, Knowsley)
I know, but you’re not getting the date, and I think Mr McAusland has been circumspect in his answer.
John Hemming (Liberal Democrat, Birmingham, Yardley)
There is an interesting issue in all this that if the average contributions are £200 to £300 a year on a basic of £250 or £500, so far we do not have evidence suggesting that that produces additional saving, although you said that you have got evidence yourself.
What has been said is that the process of opening the account was quite easy, and I had a big struggle opening accounts for my children, so I know all the money laundering regulations and the difficulties. I wonder if what you are saying in all of this is that having a simple way of opening a savings account for a child would be a good thing to have.
John Hemming (Liberal Democrat, Birmingham, Yardley)
This morning, we were discussing the ISA model and the child trust fund model. There is a question, of course, for the Government as to what the costs are of maintaining both of those, which are probably not so great considering that they are already in existence, and you would continue the child trust funds that go. Do you think that that would be a reasonable way forward?
John Hemming (Liberal Democrat, Birmingham, Yardley)
If you are going to a have children’s saving thing, you could do it by both facilitating ISAs for children—for people who are not adults—and also maintaining the child trust fund infrastructure, and the marginal cost for the Government would probably be relatively low. Obviously, there are different providers providing different services, and I am asking for your comments as to whether you think that is a good idea or a bad idea.
John Hemming (Liberal Democrat, Birmingham, Yardley)
The advantage of the child trust fund as a mechanism is that anybody can pay into it. Is that anyone related to the child or anyone?
John Hemming (Liberal Democrat, Birmingham, Yardley)
Anyone. There is obviously a money-laundering issue in that but, because they are electronic transfers, one knows where they have come from.
John Hemming (Liberal Democrat, Birmingham, Yardley)
Yes—to age 18, so it is not an efficient way of laundering money.
Another thing confuses me a little on the numbers game. If you have 900,000 accounts and assets under management of about £700 million, that gives an average value of just under £800 per child trust fund, and we are talking about £200 to £300 going in each year. That slightly conflicts with the figures you gave for estimates for the future, although we know that people can be very positive on estimates for the future. Am I right that on average the accounts are worth about £800?
George Howarth (Labour, Knowsley)
Before I invite Kerry McCarthy to begin the questioning on saving gateway accounts, in relation to clause 2, does anybody on the Committee who has not asked a question want to do so? No, in which case—Kerry McCarthy.
Kerry McCarthy (Labour, Bristol East)
Could I start by asking you both what your experience has been of the saving gateway pilots? Do you think they have been successful and something that, in an ideal world, would be rolled out further?
Kerry McCarthy (Labour, Bristol East)
You say that your members were enthusiastic about moving forward with the saving gateway.
Kerry McCarthy (Labour, Bristol East)
Going back a few years to when Farepak collapsed, I know that the credit union movement stepped into the breach, in terms of encouraging people to save in the equivalent of a Christmas club. Do you think that that was something that the customers of the credit unions would have been keen to take up?
Kerry McCarthy (Labour, Bristol East)
Is there a concern that if there is no opportunity to save through reputable organisations such as credit unions, people will then resort to doorstep lenders, loan sharks and companies—I cannot remember what they are called—that lend you money until your pay cheque comes in?
John Hemming (Liberal Democrat, Birmingham, Yardley)
One of my particular concerns is keeping people out: particularly the loan sharks and those with high interest rates, but even the more established institutions that charge fee after fee. That is depressingly bad. Obviously, we want people to be bound to have accounts of some form or other, but is it not better to focus on trying to ensure that people do not incur debts rather than saving, although obviously there is a correlation between the two?
Yvonne Fovargue (Labour, Makerfield)
Do you agree with me that people actually incur debt because they have no savings and something happens? If their washing machine or their cooker breaks, they have to have another one. That is why they incur a debt. Therefore, to have a couple of hundred pounds in savings is absolutely vital. Encouraging people to save with a reputable organisation also means that they can go to that organisation for a loan.
Yvonne Fovargue (Labour, Makerfield)
To go back to the credit unions, the saving gateway pilot wasn’t as successful through the Halifax. It was agreed that it should be extended to the credit unions, partly to encourage their growth. Would you say that the effect on the credit unions of the last minute withdrawal was that, for some, their business plans became no longer viable, and it had unintended consequences?
Yvonne Fovargue (Labour, Makerfield)
Do you have any evidence of how many credit unions have financial capability schemes? Of people going in as savers under the saving gateway or any other scheme, how many people actually use the financial capability advice that is given by the credit union?
Claire Perry (Conservative, Devizes)
I want to commend the credit union industry for dealing with these incredibly difficult decisions and helping to recapitalise some of the most disadvantaged people. It sounds to me as though you read “Nudge” before the Prime Minister did, in terms of making it incredibly easy for people to save. A couple of things occur to me: one is the point you made about channels. Is it your view that, even with the saving gateway, there were still insufficient channels available for some of Britain’s poorest families to make a savings decision?
Secondly, it concerns me that in many of the savings examples that you have described, people were not saving for the long-term future, such as retirement or pensions, but for Christmases and holidays, which are worthy, but not the long-term aim of the saving gateway. Can anything be done to encourage people—particularly women—to save for an uncertain financial future?
Claire Perry (Conservative, Devizes)
May I follow up on that point? You have mentioned this innovative way of allowing people to save from their payroll and their benefit payments. Is there a potential option to split that into short-term and long-term savings, perhaps by going down the superannuation route? Again, that would nudge people into saving for the long term when it is not something that they would think about on a daily basis.
Margaret Ritchie (Social Democratic and Labour Party, South Down)
Mr Lyonette, I represent a constituency in Northern Ireland and you mentioned potential savers in Northern Ireland. Could you elaborate on that?
Sheila Gilmore (Labour, Edinburgh East)
Many credit unions—certainly the local one in my constituency—have problems of financial viability, because people who might want to borrow from credit unions are not necessarily high savers, so it has always been an issue.
It seems to me that the saving gateway idea would be a considerable boost to credit unions. The same person would not necessarily always be the saver or the borrower at the same time, but that is the whole basis on which banks and building societies have depended. There is a bit of community coming together there, and we are all aware and perhaps agree that the importance of credit unions is that they are able to offer a form of credit to people—in the kind of situation that Yvonne mentioned, for example—rather that actually deepening their poverty instead of helping it. So, this would have induced a lot of business for credit unions.