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Saving Gateway Accounts Bill

Yes, they will. I will say more about that in a moment, but I want first to address the points that the hon. Member for Taunton (Mr. Browne) and others made about regulation. First, when formulating legislation there is always a balance to be struck between what should properly be put into primary legislation and what should necessarily be part of secondary legislation, through regulations. We believe that we have got the balance right in this case, in establishing the general principles in the Bill and leaving other matters to regulation, but that is something that we can return to in Committee. Secondly, regulations relating to eligibility were published yesterday, before Second Reading. The right hon. Member for Wokingham said that the issue of eligibility was not clear, but if he reads clause 3 and the regulations that we published in draft yesterday, he will see that they provide the answers he seeks. We intend to publish additional draft regulations before the Committee stage, which I am sure will help hon. Members who serve on the Committee. The next issue that I want to cover is eligibility. I want first to respond to my hon. Friend the Member for Northampton, North (Ms Keeble), who raised the issue of carers and suggested that they had been left out of the saving gateway. That is not the case. Carers in low-income households will be able to claim income support, including the carer's premium, in addition to carer's allowance. As income support is a qualifying benefit for the saving gateway, many carers will be eligible, and we expect around 230,000 to be so. We have thought carefully about making carer's allowance itself a qualifying benefit. However, although all recipients of carer's allowance will have low earnings, many may be in higher-earning households; in fact, carer's allowance recipients are less likely to be in poverty than the average adult. Extending the scheme to all carers regardless of their level of savings or other financial circumstances would therefore mean that it was poorly targeted. My hon. Friend the Member for Wolverhampton, South-West (Rob Marris) made a point about income-based jobseeker's allowance and questioned whether the legislation was defective. Let me say back to him that the policy intention behind the legislation is for the target population for the saving gateway to be working-age people with lower incomes. We believe that passporting through the benefits and tax credits specified in the Bill, including contributory jobseeker's allowance and incapacity benefit, is the most administratively simple and effective way of reaching that section of the population. If contribution-based JSA were not a qualifying benefit, some people who frequently move in and out of low-paid work may never become eligible for the saving gateway, because they never receive income-based JSA. That is why the legislation is framed in the way that it is. However, my hon. Friend will want to probe us to ensure that some of the people he was talking about, who are clearly from wealthy backgrounds, are not eligible for the saving gateway and the Government's matching contribution. I am pretty convinced that the legislation as it stands achieves that policy objective, but we can explore that further in Committee. The next issue that I want to cover is the pilots. Both pilots showed that many people saved more during the scheme than they did before it. Among participants in the first pilot, the number of people saving regularly quadrupled. The hon. Member for Carmarthen, East and Dinefwr (Adam Price) rightly said that we ought to be interested in evidence-based policy and that we need to consider closely the implications of both pilots and the variations between them, and we have done that. The second pilot showed that some participants who were higher up the income scale were more likely to recycle existing savings into saving gateway accounts. That provided a useful lesson for the national scheme, which targets those on lower incomes. In the first pilot, 89 per cent. said that they had saved exclusively from their regular income. The hon. Member for South-West Hertfordshire asked about the dead weight effect, and inquired what would happen after the saving gateway and what lessons had been learned from the pilots in that regard. According to the figures that I have, 16 per cent. of participants in the first pilot said that they had been saving regularly before, but nearly 80 per cent. said that they regularly paid money into their saving gateway. On average, people made deposits in more than 70 per cent. of the months in which their account was open. At least three months after maturity, over 90 per cent. of participants still had a savings account of some kind, and over 40 per cent. were still saving regularly. We take that as reasonable information, and we have taken it into account in the detailed design of the scheme. The hon. Member for Carmarthen, East and Dinefwr also asked why we had chosen a period of two years, noting that the accounts in the pilot scheme had run for 18 months. He suggested that the period should be longer. In our view, accounts running for whole years are easier for savers to understand, and more straightforward for account providers to operate. We believe that a duration of two years for an account strikes the right balance between giving people sufficient time to develop a savings habit and build up a reasonable match, and allowing them to access that match within a reasonable time scale. Many participants in the pilot schemes suggested that the accounts should run for two years. I want to turn now to the discussions that we have had with the banks. As I indicated from a sedentary position earlier, when I got slightly irritated with the right hon. Member for Wokingham, we have been discussing the saving gateway at official and ministerial level for a considerable period of time. We have had meetings with the banks, the building societies and the credit unions, and we expect that the saving gateway will be offered by a range of providers. We will continue to discuss this with them. We particularly welcome the commitment from the Post Office, and the support that we have had from the British Bankers Association. The hon. Member for Weston-super-Mare mentioned credit unions, and we are delighted to have the strong support of the Association of British Credit Unions. Its chief executive, Mark Lyonette, has said:"““This is a valuable initiative which will help to encourage low income savers and we look forward to working with the Government to ensure that the scheme is a success.””" The right hon. Member for Wokingham and others mentioned interest rates. It is important that we kick-start a regular savings habit. The hon. Member for East Antrim (Sammy Wilson) put it well when he said that the key point was to stimulate the savings habit, and the point about the match funding is that it will do exactly that. A match rate of 50p in the pound is the equivalent of an interest rate of 44 per cent. The interest rates will be very much a matter for the individual providers, however. We are not planning to see the accounts introduced until 2010, so I would not expect the providers to say now whether they will introduce interest rates or, if they were to do so, what those rates would be. Some potential providers have suggested that paying interest would result in significant costs and complexities in the design of the systems for these relatively low-level savings accounts. Some respondents to the consultation last year also suggested that the need to understand and compare different types of ratios could put off inexperienced savers. That reinforces the point about promoting financial literacy. This is something that we will continue to show an interest in, but we believe that the deciding factor for people opening a saving gateway account will be the match rate provided by the Government. If possible, we would like to see competitive market and good savings rates offered to those in saving gateway accounts. What happens at the end of the saving gateway is what is important, as both the hon. Member for East Antrim and the hon. Member for South-West Hertfordshire said. To clarify matters further, savers who have come to the end of a saving gateway account will be free to choose what happens to their money next. The Government believe that an element of choice is very important. We expect providers to treat customers fairly and we anticipate that they will want to help their customers to access the savings option that is most suitable to their needs. We will hold a dialogue with them to ensure that there are sensible default options for those who fail to express a preference during the two-year period of the saving gateway account. As I said earlier, it is possible for the account to be rolled into an ISA and some providers might set that as the default option. To be clear, if a provider offered a poor rate of return, it would be open to savers to move their money to another type of account or another provider with a better rate of return.