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Saving Gateway Accounts Bill

Yes, and the Bill certainly enables any roll-over to be treated as a subscription for ISAs, but it will be for account holders to decide what happens to the money—whether it goes into their current account or into a cash ISA. In many cases, the money will go into a cash ISA by default, which will have a lock-in effect. The evidence from the pilots was that many people were keen to put the money that they had built up into their current account and revert to more informal methods of saving. I was about to raise some questions about the amount of interest that institutions have shown in the account. I dealt with that in my comments about the Post Office and the lack of any clear evidence from the banking sector of a willingness to participate in the scheme. Without interest from the financial services sector, it will be a challenge to make saving gateway accounts widely available. There are questions that get to the heart of whether the scheme will work. Will it boost long-term savings, and will it change the behaviour of account holders? The pilot scheme demonstrated some benefits, but it demonstrated some challenges too. In an article that he wrote for this week's Parliamentary Brief, the Economic Secretary stated:"““The evidence is that it works.””" That is an emphatic statement, given that the pilots were not quite as emphatic as that. We know that user participation was high—seven out of 10 users contributed in 16 out of the 18 months of the trial run—but participation is not enough. What are the long-term benefits? What are we getting in return for the quite generous bonus that we are giving to savers? For the scheme to work, first, the savings made under it must be new savings, rather than a transfer of existing savings with a match from the Treasury, and, secondly, at the end of the life of the saving gateway account, savers must continue to save through other financial products. In other words, saving must become a permanent feature of people's lives, not a one-off opportunity for a windfall. In the second pilot, questions were raised about whether the scheme was effective in meeting those two objectives. First, there was no statistically significant evidence that, in delivering genuinely new savings, the saving gateway accounts delivered higher overall net worth. The number of anecdotes, rather than hard evidence, used to support the proposal is interesting. It appears that money was moved from one set of savings to another, perhaps from a current account to a savings gateway account, simply to secure the Government match. Despite offering a significant programme of financial education about the availability of saving gateway accounts, fewer than half the participants said that they would save all the money that they had accrued when their accounts were closed. Financial capability is an important part of tackling financial exclusion. The accounts should not be opened unless support is available. There was substantial support in the second wave of pilots. We must ensure that people are equipped with the knowledge and skills to judge the trade-off between paying off debt and saving—how to manage their bills and to save. People need to understand that the generous incentives offered by the saving gateway account are not replicated in other savings accounts. Tackling financial capability will help with saving gateway accounts, but it should be seen as an important part of rebuilding the savings culture. Tax incentives have a role in encouraging savings, as we recognised in our plans to scrap the basic rate of tax on savings for basic rate taxpayers in the 2009-10 fiscal year. That was a sign of our commitment to rebuild the savings culture. We also advocate an industry-funded national money guidance scheme to help improve financial capabilities. The Government announced today some partners in their roll-out of pilots, but the current financial crisis demonstrates how important it is that there should be a national money guidance scheme, so that people will be able to think more carefully about how they manage their money, so that they will be more likely to save and so that they will have greater confidence in savings and investment. There is a range of measures that we need to take if we are to rebuild the savings culture and the long-term health of the economy. The saving gateway could be a valuable tool if the incentive to save through the matching contribution creates a savings culture and results in a long-term increase in net wealth, but we need to be bolder in our vision. If it is right to encourage people on benefits to save, should not we be looking for ways to encourage people across the income range to save for their future, to cushion them against unexpected changes in their income and outgoings? The Government's record in the past 10 years has been one of presiding over a collapse in savings. We have talked about the calamitous decline in the savings ratio since 1997 and we need a change in Government if we are to change Britain's savings culture.