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Saving Gateway Accounts Bill

When I hear agreement breaking out on both sides of the House, I always feel that there is a faint echo of the 1931 national Government in the air. Perhaps that is appropriate at this time, and my party supports the Bill's fundamental aims, which are to regenerate a savings culture in the UK and to provide additional assistance for people on very low incomes. Those aims always deserve support, but, although I am in favour of evidence-based policy making, I think that this Bill has had a long gestation. It certainly predates the Conservative policy that was referred to earlier, as I think that the first announcement was made in 2001. Later that year, it was announced that there would be only a pilot project, of the sort that is much beloved of this Government. Pilots, pathfinders and so on can be valuable tools for learning lessons, but there will have been nine years between the first announcement of the policy and its full national roll-out. The hon. Member for Weston-super-Mare (John Penrose) was right to say that this measure, and others like it, is long overdue, as we in the UK have seen the decimation—literally so, almost to nothing—of the propensity to save. There have been two pilot projects, and changes have been made to the maximum that people may have in the savings account. It has now fallen to £300, and the matching amount has fallen from £1 to 50p. There might be good reasons for some of the changes, but one consequence is that whereas under the first pilot if one had saved the maximum amount and received the bonus one would have ended up with about £800 in capital, the maximum now would be £450—a significant difference for people on low incomes. The first press release suggested that there would be a saving period of up to five years, but then the period was cut to three years and now we are left with only two years. If, as the right hon. Member for Wokingham (Mr. Redwood) asked, we are trying to create a long-term savings habit, will a two-year period be sufficient to change people's behaviour? That is a legitimate question to which the Government might return. The evidence is disappointingly mixed for somebody who supports what the Government are trying to achieve. The second pilot certainly showed that there was no statistically significant evidence of a positive saving effect. The best evidence was qualitative, not quantitative—what people said in focus groups rather than hard statistical evidence, which was more mixed. In the eligible subset, people on higher incomes tended to respond more to the opportunities, but to substitute their saving gateway account for their savings in other accounts—quite logically, because there was a much higher return. People on lower incomes did not participate to the same degree. Other Members have expressed concern that the scheme might have a deadweight or displacement effect and will not really target the people we need to reach. Different opinions were expressed about whether people would continue to save after the two-year period. Our most pressing concern is that the saving gateway will simply be a flash in the pan for some people and that they will not begin a lifetime of thrift based on the Government's two-year programme. That raises a wider issue. When we look across the world and at our own history, we see that the creation of a savings culture is often associated with the creation of new institutions—a point touched on by the hon. Member for Weston-super-Mare in relation to credit unions. In the UK, the great flowering of saving, especially among the working class, came with the creation of friendly societies in the 18th century. Working-class communities were often frightened of ending up in the workhouse and developed their own saving institutions to avoid that circumstance. In the 19th century, the creation of a savings bank became a national movement targeting those on lower incomes. Those banks were not just financial institutions—there was a real movement, with a sense of evangelical zeal, to protect working-class people from a lifetime of penury. The creation of municipal banks was similar, and there are still six of them in Scotland. In the 20th century, post offices had a role, as we saw in countries with high savings rates—Japan in particular and Korea. Post offices have a large footprint, with many branches close to people. As the hon. Member for Fareham (Mr. Hoban) pointed out, people who lived closest to the Halifax—the bank used in the pilot—were more likely to participate. The presence of a local financial institution in the community is critical to the propensity to save. Postal banks in Japan and Korea and the local Landesbanks in Germany—state-owned savings institutions—have played a critical role in creating a long-term culture of saving. We in the UK had the Post Office Savings bank. Created in a different form but initially associated with the Post Office, we also had the so-called ““people's bank””—the Girobank, which was one of the most innovative banks in history. It was the first bank to develop an ATM network and, I believe, the first to develop telephone banking in the UK. The Girobank broke the monopoly of the traditional clearing banks and forced them to open themselves up to the working classes. When considering the saving gateway, the Government should ask whether there is a case for creating a new institution alongside the account. That idea has recently been floated by the Business Secretary, Lord Mandelson, who has asked whether we could build on the Post Office's existing financial services—the Post Office savings account it offers in conjunction with the Bank of Ireland and the ISAs it offers in conjunction with a friendly society—and create a new institution. Credit unions present an interesting alternative. They have developed in much the same way as the savings banks, starting from local and disparate grass-roots voluntary activity. Critical to the savings banks' success in the 20th century was their development of a national umbrella body and a clearing network, enabling them to spread the risk. I am sure that that is one of the Government's concerns about credit unions; as I am sure the hon. Member for Weston-super-Mare is aware, about 30 have become insolvent in the past six years, resulting in real concern about whether people's money is safe in credit unions, which often overreach themselves in their lending. Is there an opportunity to create an institutional umbrella—not just the existing Association of British Credit Unions, but a risk-sharing national body that could try to develop credit unions further than they have been able to develop hitherto?