Income Tax

HC Deb 10 November 1998 vol 319 cc249-74

10.1 pm

Mr. Nick Gibb (Bognor Regis and Littlehampton)

I beg to move, That an humble Address be presented to Her Majesty, praying that the Personal Equity Plan (Amendment) Regulations 1998 (S.I., 1998, No. 1869), dated 31st July 1998, a copy of which was laid before this House on 31st July, be annulled.

Mr. Deputy Speaker (Sir Alan Haselhurst)

With this it will be convenient to discuss the following motions: That an humble Address be presented to Her Majesty, praying that the Individual Savings Account Regulations 1998 (S.I., 1998, No. 1870), dated 31st July 1998, a copy of which was laid before this House on 31st July, be annulled. That an humble Address be presented to Her Majesty, praying that the Individual Savings Account (Insurance Companies) Regulations 1998 (S.I., 1998, No. 1871), dated 31st July 1998, a copy of which was laid before this House on 31st July, be annulled.

Mr. Gibb

We are glad to have an opportunity to debate the regulations on the Floor of the House. There is concern outside the House, as well as among the Opposition—[Interruption.]

Mr. Deputy Speaker

Order. Hon. Members must not continue extraneous conversations when an item of business is before the House.

Mr. Gibb

There is concern that the Government are over prone to using secondary legislation, particularly under the negative resolution procedure, on tax matters. I trust that our debate will prove to be a precedent for dealing with future important, tax-related, negative resolution statutory instruments on the Floor of the House.

The regulations are the latest, but undoubtedly not the last, stage in the catalogue of disasters that makes up what might be called the Government's savings policy. The Government themselves predict that their policy will lead to a fall in the savings ratio from 10.5 per cent. when they took office to 7.75 per cent. over the lifetime of a Parliament. Their savings policy has in fact already led to the ratio falling to 7.75 per cent. within 18 months of their coming to power. That is not so much a savings policy as a dis-savings scandal.

Labour's election manifesto said that the Government would introduce a new individual savings account to extend the principle of TESSAs and PEPs to promote long-term savings. True to his word, the Chancellor announced in his first Budget that the Government would introduce from 1999 individual savings accounts, extending the principle of TESSAs and PEPs and continuing to offer favourable tax reliefs for savings."—[Official Report, 2 July 1997; Vol. 297, c. 306.] The Government then inflicted enormous damage on people's confidence to save, first, by their imposition of a £5 billion a year tax on people's pension funds, and, secondly, in December 1997, by the Paymaster General's announcement that personal equity plans and tax-exempt special savings accounts would be abolished, and that individual savings accounts would be introduced. Abolition is hardly an extension. It is totally at odds with the Labour manifesto, and flatly contradicts the words of the Chancellor in his first Budget. [HON. MEMBERS: "Where is he?"[Yes, where is he?

The new ISA, with its initial £50,000 lifetime limit, penalised the thrifty and the self-employed whose savings had been built up in lieu of a pension. With the announcement of those retrospective and draconian changes to the taxation of savings, people became understandably concerned that at some future date a Labour Government might do the same again. The damage inflicted by the announcement last December alone is incalculable—another major success of the Paymaster General. Perhaps that is why he is not here to defend the regulations which he published on 31 July 1998; he cannot be trusted to defend them himself.

The fanfare and hype that accompanied the Paymaster General's announcement last December, with the Prime Minister boasting that there would be 6 million extra savers—6 million people who would be able to save who could not then—were outdone only by the shock that Treasury Ministers received when faced with the public outcry.

There was outcry at the £50,000 limit on transferring from PEPS into ISAs. There was outcry at the retrospective taxation that was inherent in the new regime as it was introduced. There was outcry at the reduction in tax relief for savers from £10,800 a year to £5,000. There was outcry from the Financial Times, which said that the new system was "unfair", "unattractive" and "bureaucracy gone mad". There was outcry as well from the Consumers Association, which said that it could not see the point of ISAs. It said: We see no real advantages but a lot of problems.

There was outrage from the Government's favourite economists, the National Institute of Economic and Social Research, which said that the replacement of PEPs and TESSAs by the ISA would reduce the pool of savings; how right it was with that forecast, with the savings ratio already down to 7.75 per cent. That outcry extended to the postbag of every hon. Member and to the 5,900 letters received by Ministers from members of the public.

I note that, yet again, the Economic Secretary is to defend the Government's case this evening. I cannot understand why the Government do not put up the gaffe-prone Chief Secretary, the Paymaster General or the Financial Secretary. What is up with the rest of the Treasury team that the Chancellor seems able to trust only the Economic Secretary? She is to be congratulated on that, or perhaps pitied for it.

Will the Economic Secretary answer the following points tonight? The Government's stated objective was to have millions of new savers depositing their spare cash at supermarket checkouts. Last March, the then Chief Secretary said that he wanted to extend the variety of outlets from which ISAs can be bought, including supermarkets.

In defending the regulations, will the Economic Secretary say how many supermarkets will be selling cash ISAs, or equity or insurance ISAs, at the checkout? Will she not admit that the ISA regulations before the House today contain complexity and costs which make it impossible for supermarkets to sell them at the till, which is why the supermarkets have said that they will not be doing so? Does the Economic Secretary agree with Marks and Spencer that ISAs cannot be offered through the till, or does she agree with Stuart Sinclair, the chief executive of Tesco personal finance, who said: Like many in the industry we believe that the Government missed an opportunity to put together a basic plan to appeal to the mass market. It is a bit of a non-event. Or perhaps the Economic Secretary agrees with Roger McArthur, chief executive of Sainsbury's bank, who said: We believe that it is important to recognise the commercial realities in which the potential ISA providers operate … the ISA will work properly only if it is cost-effective for providers as well as customers. Many supermarkets such as Marks and Spencer may well provide ISAs through their normal mail order financial services operation, but none will operate ISAs through the checkout till, which was a central plank of the Government's objective of extending the number of savers by 6 million. Nothing in the regulations is likely to make that a realistic target.

The catalogue of incompetence continued. In March, the Government finally backed down on their absurd £50,000 lifetime limit and the Chancellor announced details of his proposed scheme. He said that the individual savings account will … offer complete freedom to move cash in and out".

That is not true, as the details published by the Treasury make clear. Cash can be moved out, but investors can reinvest it only if they have not already put in £1,000 in that tax year, regardless of whether the £1,000 remains.

The Chancellor also said that the individual savings account will receive a 10-year guarantee that savings up to £5,000 a year can be invested with all existing… reliefs."—[Official Report, 17 March 1998; Vol. 308, c. 1102.] That is not true either, because after five years the tax credit rebate disappears—a slight case of ISA mis-selling by the Chancellor. Many people suspect that the 10-year guarantee introduces a £50,000 lifetime limit by the back door.

ISAs were not really intended to extend savings, but are yet another method by which the Government hope to raise tax revenue. In March, the Chief Secretary admitted that. He said that the problem was that the cost in terms of lost revenue of tax relief for TESSAs and PEPs was £1.5 billion a year, rising on current trends to £2 billion by 2007. That seems a small price to pay when some 3 million people have PEPs and 4.5 million have TESSAs, and those numbers were increasing.

TESSAs and PEPs were very successful savings incentives. As Andrew Dilnot of the Institute for Fiscal Studies said, almost all the objectives of the ISA could equally have been achieved by abolishing the five year lock-in period on TESSAs and leaving things as they were. The Institute of Chartered Accountants—[Interruption], which I am always keen to quote, said: It is our conclusion that it would be more straightforward to amend the existing PEP and TESSA savings schemes rather than introduce a wholly new scheme, particularly as the … ISA does not appear to offer improved savings incentives, and in fact may well discourage many individuals from saving.

The tax incentives set out in regulation 22 of the ISA regulations are much less. The shares ISA will have a tax credit of only 10 per cent. and only until 2004, whereas under the previous Conservative Government PEPs had the full 20 per cent. tax credit. Will the Economic Secretary tell the House what the tax advantages are for a basic rate taxpayer who holds equities through an ISA? Given that such an individual is unlikely to use his annual capital gains limit, and that ISA charges, even with the cost access terms standards, are likely to exceed the tax credit, what are the advantages? If the hon. Lady insists that there are advantages, will she tell the House by what date she expects the Prime Minister's forecast of 6 million more savers to have been met?

Despite all the changes to ISAs since their original launch last December, the savings industry still believes that they are too complex. The regulations add to that complexity. The PEP and ISA Management Association points out that a significant number of PEP holders broke the rules, usually by subscribing to two managers in one year, and had their PEPs declared void; and that, as ISAs are even more complicated, more mistakes will be made.

There are three types of ISA: cash, shares and insurance. They have different limits, but a higher limit in the year 1999–2000. There are maxi and mini ISAs. Mini ISAs are designed so that investors can chose different managers, but maxi ISAs can have only one manager. One cannot have both a maxi and a mini ISA in one tax year. On top of all that, there are the continuing rules for PEPs and transitional rules for moving from a TESSA to a cash ISA, at regulation 5 of the Individual Savings Account Regulations 1998. Today, The Sun exposes an enormous loophole in the regulations—an ISA and a TESSA can be held in the same tax year.

There is concern in the industry that the regulations make it difficult for any one organisation to offer an ISA with a full range of cash, life assurance and equity components, because the regulations allow ISA providers to link up with only one other specialist organisation. There is also concern about the absence of statutory compensation for depositors if an ISA manager who is not himself a deposit taker defaults on cash held before passing on the cash to the deposit taker. Why is there nothing in the regulations to deal with that?

Those problems are compounded for the industry by continued Government delays in publishing regulations and details, which make it nigh on impossible to develop the necessary information technology systems by April 1999, when the regulations come into force—particularly given that there are millennium bug problems to deal with as well. We believe that the Government should delay the introduction of the ISA for at least a year to give the industry the chance to implement new IT systems correctly. They should allow new PEPs and TESSAs to continue during that period.

In its compliance cost assessment of ISAs, the Inland Revenue calculates that the cost of running a cash ISA will be up to £4 per annum per account higher than the annual running cost of a TESSA, and that the cost of running a shares ISA will be up to £2 per annum per account higher than the cost of running a PEP. That is in addition to the £250 million set-up cost which the Inland Revenue estimates for the new ISA.

Those are significant extra costs, and I cannot understand how a more complex and more expensive savings regime with fewer tax incentives will encourage lower-income individuals without savings to start to save. Perhaps the Economic Secretary would elucidate. No wonder that Standard Life, the largest mutual life assurer in Europe, is refusing to offer the insurance ISA. Peter Robinson, the marketing manager at Standard Life, said: We did some focus groups with customers. The Economic Secretary and her party know all about focus groups. They could see the point of the cash ISA and the Stocks and Shares ISA but not the insurance ISA. If they are struggling with the point of it, we were going to be struggling with selling it. Gordon Maw, of Virgin Direct, said: We wouldn't touch it with a barge pole. Other companies simply think that it is not commercially viable. Nothing in the Individual Savings Account (Insurance Companies) Regulations 1998 makes it an appealing stand-alone product. Perhaps the Economic Secretary can tell the House how she expects the insurance ISA to succeed.

There are a huge number of concerns about cost access terms marks in the savings industry. They appear to give a halo to the ISA provider—almost a Government guarantee, even though the standard concerns itself only with administration charges and accessibility. The Personal Investment Authority, for instance, has said: The development of the CAT standards amounts in effect to product endorsement. This could lead to the danger that investors could be steered away from other products … more suitable for their needs, but which did not meet the CAT requirements. The level of charges will also act as an anti-competitive barrier to entry. Only those equity ISA providers with large portfolios will be able to charge only 1 per cent. per annum, thus keeping new providers out of the market altogether.

Can the Economic Secretary also clarify a point on which the savings industry is finding it difficult to get an answer? Will she confirm that, for the purposes of the CAT mark, the 1 per cent. charge permitted for shares ISAs does not include costs incurred by the fund in relation to stamp duty on share transactions in the underlying investments?

Although Conservative Members welcome some of the changes to the regulations that have been made since they were published in draft in May, especially those relating to the transitional rules and the extended time limits for reporting requirements, there are still many concerns in the industry over issues such as the determination by the Inland Revenue that protected funds and short-term gilts should be excluded from ISAs because of concern that they will become cash substitutes.

Some in the industry think that the restriction in regulation 7(6) is unnecessary and counterproductive in that these are the very products that best fit the Government's objective of encouraging people to save for the long term, and to obtain a return that is better than that from a deposit account.

There is also concern about the constitutional propriety of CAT marks that have been issued in a Treasury press release, without any legislation or statutory instrument—under either the negative or the affirmative procedure—coming before the House, and which the Financial Services Authority considers binding as law.

The introduction of ISAs and the abolition of PEPs and TESSAs has been a catastrophic mistake by the Government. It has been a catalogue of incompetence by a Minister who is not even here to defend his policy, but has left it to the Economic Secretary to pick up the pieces. This policy is costly to the savings industry, has damaged savings and has added to the Government's macro-economic blunders. The Government's savings policy is a shambles, and I urge the House to oppose these regulations.

Mrs. Angela Browning (Tiverton and Honiton)

On a point of order, Mr. Deputy Speaker. Is it in order that, when my hon. Friend the Member for Bognor Regis and Littlehampton (Mr. Gibb) referred to the Institute of Chartered Accountants, the hon. Member for Croydon, Central (Mr. Davies) said, from a sedentary position, although his remarks were audible to us, "How much are they paying you?"

Mr. Deputy Speaker

That is not a point of order for the Chair. The matter may come up in debate, but I did not hear that remark.

Mr. Christopher Leslie (Shipley)

On a point of order, Mr. Deputy Speaker. Is it in order for a signatory to the motion—

Mr. Deputy Speaker

Order. I can already advise the hon. Member that that is pursuant to a point of order that I have ruled is not a point of order.

10.21 pm

The Economic Secretary to the Treasury (Ms Patricia Hewitt)

I thank the Opposition and the hon. Member for Bognor Regis and Littlehampton (Mr. Gibb) for giving us another opportunity to debate individual savings accounts. We have done precisely what the Opposition did when they introduced PEPs by way of regulations rather than through primary legislation. However, what we have done that the Opposition did not do with PEPs when they were in government is to consult widely about the detail of ISAs. The House has already debated ISAs on a number of occasions and at some length.

The consideration that the House has given to ISAs and the extensive consultation outside the House have helped to lay the ground to make the introduction of ISAs a success. ISAs are, indeed, going to be a great success, and that is now widely accepted within the savings industry.

A recent circular sent out by a stockbroking firm says: We were pleased to see so many readers at our recent presentation. Some were surprised by our comments on the new Individual Savings Account. Contrary to what newspapers may say, readers should be in no doubt. ISAs should be big, very big. After April, they will be the prime savings product, heavily promoted, with much greater investment scope than PEPs. And Catmarking should be beneficial. It will encourage the development of direct marketing of low cost products.

Mr. Tim Loughton (East Worthing and Shoreham)

Who said that?

Ms Hewitt

Hoare Govett. Annulling the tax regulations now, as this motion seeks to do, would spread uncertainty and alarm throughout the savings industry. That is what the Opposition are seeking to do, and such a step would be deeply unpopular. Firms are currently busy designing their ISA products and their advertising campaigns.

Mr. Loughton

Of the more than 7 million people who own PEPs and TESSAs, how many does that financial, foreign-owned firm have on its books?

Ms Hewitt

I am astonished to hear a Conservative Member apparently objecting to a stockbroker firm operating in this country because it is foreign owned. I shall happily quote the literature of Virgin Direct and Marks and Spencer, which enthusiastically welcome ISAs.

Let me return to my point about the Opposition motion. Firms are busy designing their ISA products and their advertising campaigns. The time and effort that they are putting into ISAs would be wasted if the regulations were annulled, and that would certainly not be well received—especially when it was discovered that the motions were technically flawed, as they are.

Let me give two examples. First, the motions seek annulment of only three of the four ISA-related sets of regulations that were laid before Parliament on 31 July. Secondly, they would leave cash savers high and dry. I think I am right in saying that the hon. Member for Bognor Regis and Littlehampton served on the Finance Bill Committee, on which I understand he was known to his colleagues as "Mr. Bean from Bognor". The Act that the Bill became prevents tax-exempt special savings accounts from being opened after April 1999.

I see no merit in the motions, but what I can do is commend the ISA initiative. We designed ISAs to encourage people to save in a fair and efficient way, and to raise the level of long-term savings. Half the population have less than £200 in savings, and half those people have no savings at all. Many people—I know this from my constituency, Leicester, West—have no bank accounts, let alone any form of savings. This Government are determined to help people who are not saving to get started, and to help people who are already saving to save more.

Offering tax incentives is an important way of encouraging people to save, but we need to balance that against the cost to the public purse. As a new Government, we set about looking at how we could rebalance the cost of the PEP and TESSA schemes that we had inherited. We wanted to encourage more people to save, and at the same time to distribute the available tax relief more fairly.

It may be helpful if I now dispel one of the common myths about ISAs. They were not introduced to reduce the cost of tax relief. The cost of ISAs to the public purse is broadly what PEPs and TESSAs would have cost if they had continued unchanged. That cost is forecast to grow to about £2 billion in five years' time. ISAs are very much about distributing tax relief more fairly among more people; they are not about reducing the overall tax relief on savings.

Mr. Steve Webb (Northavon)

Does the Minister accept that PEPs and TESSAs probably did little to increase aggregate savings, simply encouraging people to put whatever they were already saving into more tax-privileged facilities? What does she think ISAs will do to change that?

Ms Hewitt

The hon. Gentleman makes an important point. As I shall explain in a moment, in the design of ISAs—and the design of CAT standards—we have overcome some of the most important barriers that are mentioned when those who would like to save, and know that they should be saving, are asked why they are not doing so.

As well as ensuring a wider distribution of tax relief, we were determined to widen the range of savings products in comparison with what had formerly been available. A wider range, including life insurance, will attract new savers and encourage small savers to save more. It was clear to us that PEPs and TESSAs could not be modified in a practical way to meet our objectives. We therefore decided that a completely new approach was needed, and the ISA was developed.

We appreciated that we would get a better product if we tapped into the experience and expertise of savers and the savings industry. We therefore engaged in open, wide-ranging and constructive consultations at every stage in the development of the ISA. Consultation papers have been issued on the structure of the scheme, the detailed tax regulations, CAT standards and product regulation.

It has been widely recognised that the Government listened during the consultation, and that we have acted on what we heard. When I spoke at a recent conference of PEP and ISA managers, several speakers praised all involved for the constructive way in which they had listened and responded. Praise for the Inland Revenue, the Treasury and the Financial Services Authority all at the same time is not, in my experience, common, but I heard it, and on several occasions.

The results of that approach are often presented by the Opposition as some sort of climbdown or U-turn. That completely misunderstands what consultation is about. Consultation is a much better approach than the excessive secrecy under which such changes were introduced in the past. The previous Government introduced PEPs in 1987 without such consultation and had to relaunch them in a substantially modified form just two years later.

We are committed to open, genuine and honest consultations and we are grateful to all those who contributed to the ISA consultation. Their input has been highly valued and highly valuable. We have modified our approach, including the detail of the regulations, as a result of their comments. We have a better product as a result.

I turn to the details of the ISA. It offers, of course, tax-free savings, with a broad and flexible range of schemes. As the hon. Member for Bognor Regis and Littlehampton said, it has three different components: cash, a life insurance policy or stocks and shares. It offers the flexibility of one manager managing all three components within a so-called "maxi" account, or the different components can be managed by up to three different managers with so-called "mini" accounts. That flexibility is one of the features that was introduced into the scheme as a result of the consultation. Research that we have commissioned in the Treasury, confirming results of research by other people, shows that 90 per cent. of people want easy access to savings and that two thirds of them are worried about the small print. ISAs address both those points.

Mr. Loughton

The hon. Lady again mentions research done within the Treasury. How does she gel that with the statement by Paula Diggle, head of financial services at the Treasury, who said at a PEP conference in June: We do not have a market research budget—I wish we did"?

Ms Hewitt

I am delighted to say that the civil servant to whom the hon. Gentleman refers assisted me in the research that I commissioned.

ISAs and CATs are designed to address those barriers to savings that our research and that of many other people have established are a problem. At the moment, someone investing in a TESSA has to lock their money away for up to five years to qualify for tax relief—one of the biggest barriers to saving by people who would like to save, but are terrified that their money will not be available in an emergency when they need it. With the ISA, there is no minimum lock-in period and, indeed, no minimum subscription. That is why saving with a cash ISA is so simple.

Mr. Gibb

If the hon. Lady has done so much research, perhaps she will tell the House by which date the Prime Minister's forecast of 6 million new savers will be met.

Ms Hewitt

There is no target for the number of new savers or new accounts, but we are confident, because of the way in which the design of ISA and CAT standards responds to the concerns of those who are not currently saving, or those who are only saving very little, that, over some years, ISAs will build up extremely successfully.

As I have said, half this country's population have savings of less than £200. There is a large market out there, which we need to reach. I hope that Opposition Members will support us in that aim.

Mr. Loughton

Will the hon. Lady give way?

Ms Hewitt

I have already given way twice to the hon. Gentleman. I am sure that he will forgive me if I try to make some progress.

The ISA scheme is guaranteed to run for 10 years. We will review the future of the scheme at the seven-year point, but it means that anyone contributing to an ISA will have a level of certainty that has never been available in the past. Of course, we will keep the scheme under review and we will make changes where necessary to help ISAs run more smoothly. However, the scheme itself is secure for 10 years. Existing PEP and TESSA holders will not be disadvantaged in any way. PEPs can run on, though without additional contributions, and TESSA holders can continue to contribute to existing schemes within the current limits. When the TESSA matures, the capital can be rolled over into an ISA.

I shall deal now with the CAT standards, a feature of the ISA scheme which we believe will help to attract new savers and new savings. I have referred to the research which shows that people are worried about the small print on existing savings products. It puts many people off saving. They fear that they may be ripped off by people who know considerably more than they do about finance. It is not surprising that people have those fears when, as we all know, too many people have been ripped off in the past. The pensions mis-selling scandal, which we are now having to clear up, shows that only too clearly.

The Government have looked at ways to help investors. For some years now there has been a regime of disclosure. It has been beneficial, but insufficient to increase competition when inexperienced consumers are faced with expert providers. So we opted for a system of voluntary benchmarks that will empower consumers and strengthen competition in the financial services marketplace.

We have introduced CAT standards. The term is designed to avoid any confusion and describes quite succinctly the purpose of the benchmarks. CAT standards will set levels for costs, for access and for terms of ISA products. If an ISA account meets the CAT standard, people will know that it offers fair charges, easy access and decent terms.

Under the CAT standard, charges will be fair and transparent and will not exceed the set upper limits. For example, on a standard stocks and shares ISA there will be an annual charge that cannot exceed 1 per cent. and the saver will not face the hidden charges which, all too often, exist at present in addition to the annual charge.

The hon. Member for Bognor Regis and Littlehampton asked about precisely what is covered in the annual charge. There is no confusion on that point. Let me make it clear that, whenever they have been asked, Treasury officials have spelt that out to applicants who want to become managers for ISAs, and to others seeking guidance. The annual charge includes dilution levies and the stamp duty on the individual investor's unit, but it does not cover the cost of transactions in the underlying fund. The single price that will be required for a fund to meet the CAT standard is struck after the costs of transactions, stamp duties and dealing costs have been covered. In other words, the price automatically takes account of them and they are not logged against the annual management charge.

Mr. John Butterfill (Bournemouth, West)

Is it not possible that people may be misled into thinking that something that has a CAT standard is entirely appropriate for their circumstances, whereas it may be inappropriate for that investor? Is there not a danger that the introduction of CAT standards will lead to even more widespread mis-selling?

Ms Hewitt

That is an important point and it is something that we thought about carefully before deciding on the nature and design of the CAT standard for the equity ISA.

It is clear from research carried out by the Financial Services Authority and on its behalf, that investors faced with the sort of basic information that will be required for a CAT standard ISA understand very well that it is not a Government guarantee. The CAT standard spells out that there will be an investment risk. We believe—we have good reason to believe it on the basis of that research—that the CAT standard will strengthen consumers in inquiring about the difference between a CAT standard equity ISA and a non-CAT standard product. Therefore, providers offering non-CAT standard products, either instead of or alongside CAT standard equity ISAs, will be able and even encouraged to explain to potential investors why their product, although its annual charge may perhaps be higher than that for a CAT standard ISA, may none the less be more appropriate for a particular investor. That is precisely what we mean by empowering consumers, making the market more transparent and enhancing competition.

Mr. Douglas Hogg (Sleaford and North Hykeham)

How does the hon. Lady respond to the suggestion that the CAT standard will prevent smaller and more recently established providers from coming into the market?

Ms Hewitt

I do not accept that there is any evidence for that proposition. It is obvious that the CAT standards that we have set—although they are challenging, and deliberately so, to the market—are sustainable. New providers are already coming into the market. On cash ISAs, National Savings—which was debarred from the market by the previous Government—has announced its intention to offer a CAT standard ISA.

On access, the important point about a CAT standard ISA is that access will be easy and that people can have confidence that they will be able to get their money out if they need it. With an insurance ISA, for example, people will be able to get at least their premiums back after three years or more. There will also be no discovering—as currently happens all too often—that one's money has vanished if one has to cash in a policy early.

The third element of the CAT standards is that terms will be fair. Nothing will be hidden, and there will be no nasty surprises in the small print. There will be no restructuring of accounts once customers have signed up or interest rates cut after deposits are made.

There are those in the savings industry who have been concerned about the CAT standards and claim that the limit set for charges is too challenging. We shall certainly be monitoring the impact of the CAT standards once the system goes live, and we shall make changes if they are needed.

I should stress that the CAT standards are voluntary. Firms will offer CAT standard products if they want to, and some have already said publicly that they intend to do so. Other firms have said that they will offer products that do not meet the CAT standard but that—as the hon. Member for Bournemouth, West (Mr. Butterfill) suggested—may be more appropriate for certain consumers, perhaps covering riskier investments, and therefore requiring more management and higher fees but offering the potential for higher returns. That is precisely the type of choice that we want in a competitive marketplace for savings.

If firms decide not to offer a CAT standard ISA, their marketing will have to show that the ISA does not meet the CAT standards.

The other main criticism of CAT standards has been that they will be seen as a form of guarantee. As I said, CAT standards give no guarantee—because nobody can—about the performance of an investment. CAT standards themselves require providers to make the investment risk clear in marketing information on the product, just as the Government's publicity will make it clear that a CAT standard is not a Government guarantee.

CAT standards will address features of savings that we know worry the small saver or put off entirely the potential saver. They will help to remove the worry of getting ripped off, help savers get fair and decent treatment and give savers greater confidence.

There is now less than six months to go before the launch of ISAs, and a great deal of work has been done by ISA managers to prepare products for launch in April. The Government still have their part to play. The Inland Revenue will shortly be tendering for the publicity campaign that will increase awareness of ISAs and ensure that they get off to a good start next April. As part of that awareness campaign, a leaflet will be produced later in the year to provide details of the ISA and how it can be used.

The savings industry wanted early notice of the rules for ISAs, so that it could move ahead with its planning. The Inland Revenue's tax regulations give them that notice, and the work that is now being done by the industry is based on the detailed tax regulations that were laid before Parliament on 31 July 1998. The industry wants to be left to get on with its work. It wants to be able to develop its products, so that when April comes, ISAs will be widely available in the market. We can see the early signs of its work in the information that is already coming through our letter boxes and in the pre-ISA accounts being offered on the high street.

What the industry and the consumer do not need is indecision. The Opposition's prayers do nothing constructive. If accepted, they would introduce unnecessary worry and concern and would result in the waste of a great deal of time and money already invested by savings firms. We should be thinking about our constituents—how we can help them consider their existing savings plans or how they might start to save.

Sir Sydney Chapman (Chipping Barnet)

I have been listening to the hon. Lady with great interest. One thing that unites all parts of the House is that we should encourage our constituents to save. Given what the hon. Lady has said about promoting ISAs, not in opposition to PEPs and TESSAs but as a complement to them, how much does she think her proposals will increase the amount that our constituents save in net terms next year?

Ms Hewitt

As I said, half the people in this country have savings of less than £200 and some have no savings at all. One of the biggest barriers to saving for people who could afford to save a bit and who know that they ought to be saving is the danger that they will not be able to get their money back when they want it. The cash ISA, especially the CAT standard cash ISA, removes that and other barriers that my constituents have outlined to me. We are confident that new savers, as well as existing small savers, will take advantage of the new ISAs next April and in the months and years that follow.

We now need to let the savings industry get on with the work that it has in hand. With the Government Departments involved and with, I hope, the support of the Opposition, the savings industry will then be able to make ISAs a success for all our constituents. We should reject the prayers, and I am sure that the House will support me in doing just that.

10.46 pm

Mr. Tim Loughton (East Worthing and Shoreham)

I am grateful for having caught your eye, Mr. Deputy Speaker. I must declare an interest, as set out in the Register of Members' Interests, in that I am guilty of professionally managing personal equity plans since their inception in 1987 and have owned some for many years.

The independents savings account debacle is a textbook example—

Mr. Christopher Leslie (Shipley)

On a point of order, Mr. Deputy Speaker. My memory was jogged by talk of Members' interests. The right hon. Member for Horsham (Mr. Maude), the shadow Chancellor, is a director of Gartmore Shared Equity Trust plc, which manages PEPs and from which the right hon. Gentleman receives £8,500 a year. Is it in order for him to fail to draw attention to that fact when he is a signatory to one of the motions that deals with PEPs?

Mr. Deputy Speaker (Mr. Michael J. Martin)

That is not a matter for the Chair. Any complaint of that nature should be made to Sir Gordon Downey.

Mr. Loughton

Labour Members become very anxious when a Conservative Member who knows something about the subject being debated rises to speak. When we debate financial affairs, it is only a matter of nanoseconds before a Labour Back Bencher comes up with that well-worn phrase "pensions mis-selling", whatever the subject we are debating, because that is the sum total of Labour's knowledge of the financial industry in general.

The episode started on 2 December last year with the publication of the ill-fated Green Paper by the Paymaster General, who I regret is not here to see through the fruits of his work, which has not yet ended. The regulations that we are now debating eventually crept out during the recess at the beginning of October after numerous delays and, whatever the Economic Secretary says, after numerous U-turns and double U-turns. The main document was entitled "Making Savings Easy", but it actually made saving rather more difficult and met with widespread outcry or outrage from the professional investment community. It was all in aid of a vastly inferior product to the highly successful PEPs and TESSAs, as my hon. Friend the Member for Bognor Regis and Littlehampton (Mr. Gibb) said, because of the Chancellor's need to produce a new-labelled product for savings with his own name on it.

The whole debacle has not been helped by the last-minute regulations, directive and instructions that have sneaked out. There are now just 146 days to go until ISAs supposedly go live. It has been estimated that it will cost the financial community more than £100 million just to set up the computer systems. Inevitably, those costs will be passed on to the users and consumers of ISAs. A survey has found that probably at least one third of potential ISA fund managers will not be ready to go live with ISAs on 6 April next year and that is almost exclusively down to the dilly-dallying, delay and obfuscation of Ministers and Treasury officials.

However the Economic Secretary may dress it up, Mr. Deputy Speaker, ISAs will cost you, me and all our constituents more. The Treasury has estimated that ISAs will be between 30 and 40 per cent. more expensive to run than PEPs and TESSAs. In August, the Inland Revenue estimated that the cost of setting up and running ISAs for the first year would be about £250 million—a sum that has increased because of the Government's delay and dilly-dallying. ISA fund managers will also have the added computer costs of dealing with the year 2000, the single pricing that will come in with open-ended investment companies—OlECs—and a whole raft of other new financial measures.

As for the Economic Secretary saying that it has been absolutely clear what the charges would include, that only crept out about a week ago. Until the end of October, the national financial press was still raising questions about that matter. This evening provides the first record of a Minister making it clear—if, indeed, it is clear—what the charges will include, only 146 days before ISAs start.

Standard Life, one of the largest mutual societies in Europe, has condemned ISAs as being generally seen as substandard replacements for PEPs and TESSAs. Whatever gloss the Economic Secretary puts on it, ISAs are inferior to PEPs and TESSAs because the amount that people will be able to invest in them after the first year will be £5,000 per annum. Under the PEPs and TESSAs regime, the annual amount was £10,800 per annum—more than double. It is an inferior product that will encourage less savings into the tax-advantageous environment. ISAs will also be inferior because the tax credit goes down to 10 per cent. For the average taxpayer, that means a saving on the income by being in ISAs of just £15 a year at most before charges. In reality, charges will rub out the whole tax saving that they may have gained.

Mr. Butterfill

Does my hon. Friend agree that the view of Standard Life is all the more pertinent since the Government recently invited the chief executive of Standard Life to be a deputy governor of the Bank of England?

Mr. Loughton

My hon. Friend makes a fair point, but it is yet another inconsistency in the way in which the Government work.

When the Paymaster General deigned to come to the House after announcing the whole ISA scheme outside, he reminded us that simplicity, flexibility, accessibility and fairness were the hallmarks of that great new product, but as time went on certain of those terms disappeared.

Let me dwell on the accessibility argument and the new providers, or rather their absence. I am sorry that the Economic Secretary declined the challenge made by my hon. Friend the Member for Bognor Regis and Littlehampton to name some of the new providers. As he succinctly put it, the supermarkets have given it a serious thumbs down. Tesco, Sainsbury's and Marks and Spencer are unlikely to be offering the products at the checkout, as was specifically encouraged in the preface to the Green Paper on 2 December.

Some of the larger providers in the financial community have also given the plan the thumbs down. Pearl Assurance is concerned that the charges will be set so low that it will not be able to produce a CAT standard ISA. Standard Life has decided not to sell mortgages backed by ISAs, claiming that they offer no advantages over traditional endowment policies. It has also decided not to sell the life assurance element of the ISA. Its chief executive said that the company did not expect that the tax treatment of ISAs would make it any more attractive to invest for mortgage repayment through them than through an endowment. It has decided to withdraw its PEP mortgage product from sale.

That has implications for those who have regular PEP savings plans–1.5 million people choose to save in PEPs in that way—particularly those who use them to fund their mortgages. If new ISA providers do not appear and if their existing PEP mortgage provider decides not to provide ISAs, how will they save every month against their mortgages using a tax-advantageous scheme? It has been claimed that the drop-out rate will be as high as 20 per cent. for those whose firms do not roll over into ISA schemes. That is a damaging possibility for those who fund their mortgages in that way.

At the press conference that launched ISAs, the Paymaster General said that marketing was key. We seemed to be promised that a duff product would yet again be dressed up in Labour spin doctors' best clothes and flogged to an unwary public. Yet the princely sum of £1.2 million has been set aside as the promotion budget for ISAs. That includes nothing for television or major media coverage and compares with the £25 million that was set aside to promote Hector the friendly tax man. It will need a lot more than hope and £1.2 million of flimsy marketing budgets to explain the complexities of the ISA scheme to savers, particularly the ubiquitous 6 million virgin savers, if I may call them that. Whatever the Economic Secretary may say and however she may try to wriggle out of the target of 6 million savers that was bashed at us time and again, the Prime Minister said on 3 December: The announcement … is good news for middle Britain. There will be 6 million extra savers as a result—6 million who will be able to save but at present cannot."—[Official Report, 3 December 1997; Vol. 302, c. 349.] That sounds to me like a target. I should like to know when, on the long road between 2 December last year and tonight, that ceased to be a target. It sounds like one of those early pledges that are not, in fact, early.

Mr. Nick St. Aubyn (Guildford)

Does my hon. Friend agree that, whereas last week we were treated to Peter Pan economics, this is a case of Tinkerbell targeting?

Mr. Loughton

That is a soundbite worthy of Labour's best spin doctors, if I may compliment my hon. Friend.

The 6 million virgin investors are the great mystery of our times. Where is the great queue of people clamouring outside the doors of the Treasury to hurl their money into the new ISA schemes? Who are these people? In the final list, the Economic Secretary may even be able to name them, because there will be very few. The mystery of the 6 million is a mystery greater than the Loch Ness monster, large cats in Norfolk and anything that could be thrown at us from "The X files".

All the inferior considerations of the ISA scheme that I have listed might just imaginably be worth while if the Government could prove that it really would encourage a greater saving mentality among the supposed 6 million people. There is no evidence whatever—there has been no evidence since 3 December—that the scheme will encourage a single virgin investor to become a saver. I challenge the Government again: who are the 6 million people?

I was not comforted by the Economic Secretary's disclosure that Paula Diggle helped her in the research. It has been plain all along that, before the Treasury produced the Green Paper, it had done no research into the savings mentality and regime. It is now patently clear that, since then, it has still conducted no such proper research. The finance industry has been left to do its own research.

A MORI poll, commissioned by the Midland bank and the Financial Mail on Sunday in the summer, found the following. Only 47 per cent. of the public are aware that PEPs and TESSAs are to be replaced by ISAs in April—quite a challenge for the £1.25 million promotion budget—but 51 per cent. of them are unlikely to take out an ISA. Only 3 per cent. of adults earning less than £11,500 per annum said that they were very likely to invest in an ISA, and 32 per cent. said that PEPs offered greater tax efficiency—against only 12 per cent. who said that ISAs did.

A similar poll, carried out at the same time by the Association of Unit Trusts and Investment Funds, found that only 18 per cent. of PEP holders plan to invest a similar amount or more in ISAs when they are introduced next year. That is the research that the Treasury failed to do when it embarked on this lamentable scheme. If such research is correct, the start for ISAs next year and the subsequent few years will not be attractive.

I shall touch on the many other complications in the ISA scheme. The Inland Revenue will have one hell of a job monitoring maxi and mini ISAs, all the different providers that one ISA investor can employ, and the scale of withdrawals and subsequent reinvestment. The news that there is a substantial logjam in many Inland Revenue offices, such that sacks of mail from as early as April lay unopened and tagged with the date, and are being opened in chronological order only now; the fact that an estimated 1 million people were last year sent incorrect tax bills during the first year of self-assessment; and the future challenge of corporate self-assessment later this year do not instil confidence in me that the Inland Revenue will be able to cope with the complexities of the scheme.

I will not touch on CAT standards—my hon. Friend the Member for Bognor Regis and Littlehampton covered that issue satisfactorily. Suffice it to say that, right from the start, it was clear that the cat had used up its nine lives before it was born. The ultimate absurdity of CAT standards, as the Economic Secretary almost admitted, is the fact that savings and investment accounts backed by the Government at the moment fail signally to meet such standards—even though the Government envisage national savings playing an important role in the development of ISAs.

I shall skim through several other minor details. Cheap capital protective funds have been excluded from ISAs, yet futures and options funds can reduce the risk for cautious new investors. Until the Financial Services Authority assumes full control of ISAs—if such a Bill proves to be part of the Queen's Speech—a dissatisfied ISA holder may have to deal with three separate regulators. The Government could have amended PEPs and TESSAs—an already successful savings culture. If it ain't bust, don't fix it.

How many providers have registered an interest in providing ISAs from 6 April next year, and is the financial press right to say that, far from the target of 500 to 600 which appeared in the Economic Secretary's answer to one of my parliamentary questions, little more than a dozen have so far signalled their intent?

The ISA programme represents a major lost opportunity to update and streamline the existing PEPs and TESSAs and to encourage savings. The system could perhaps have been linked with benefits system, to provide a kickstart incentive for the less well off to save.

Instead, as my hon. Friend the Member for Bognor Regis and Littlehampton said, the initiative is harming the existing savings mentality and driving down the savings ratio. It is a sorry tale, and I back the calls by my Front-Bench colleague for a 12-month moratorium during which PEPs and TESSAs continue with their full allowances until the Government have proved that a substantial number of new investors will be attracted in by the ISA scheme. If they fail to prove that, as I am sure they will, we should stay with what we already have, because it works rather well.

11.5 pm

Mr. Nick St. Aubyn (Guildford)

I follow on from what my hon. Friend the Member for East Worthing and Shoreham (Mr. Loughton) has said by observing how clear it is that the Government's decision to change the savings schemes was simply an attempt to rebrand a Conservative success story. Only someone who lived in wonderland would believe that changing the name from "PEP" to "ISA" would increase the number of people who want to subscribe to savings schemes.

The almost 8 million people who had either a PEP or a TESSA before the Labour party came to power had saved a total of more than £60 billion between them—a sum greater than the pension savings in the entire German economy. Such an achievement in the 10 years since PEPs were launched by the Conservative Chancellor of the day is a measure of the success of the previous Government in targeting and promoting genuine long-term savings.

The Minister complained that under the Conservative scheme there was a five-year lock-in. However, as everyone knows, if one invests in the share market there may be ups and downs in the short term, and only if one is prepared to invest in the longer term do the benefits show through.

Ms Hewitt

Will the hon. Gentleman correct that statement? TESSAs, which had a lock-in period, were cash accounts.

Mr. St. Aubyn

That is correct, but PEPs were not.

Ms Hewitt

But as the hon. Gentleman, I am sure, was about to say, there was no lock-in period for PEPs.

Mr. St. Aubyn

There was a penalty for withdrawing from PEPs in the early years, as the hon. Lady well knows. The point is that long-term incentives coupled with a tax incentive are part of the winning formula that the previous Government developed.

That follows on from the principle of pension savings. Those have a much longer lock-in period, and let us consider how successful they have been. Pension savings, with the tax incentives that the Conservative Government promoted, have given us in this country the best savings rate for our retirement of almost any country in the world. Our pension savings are greater, cumulatively, than those of the rest of the European Union put together.

Long-term savings with long-term tax breaks and a long-term lock-in are a successful formula for savings in our country. Does the Economic Secretary believe that the level of national savings matters? There are left-wing economists who maintain that in the new global economy, the level of savings in one individual country is not especially significant.

Perhaps the hon. Lady has that sophisticated point of view, and does not worry about the fact that the savings level in this country has declined so disastrously since her party came to power. Does the Economic Secretary care about that, and what, in practical terms, will she do? The evidence from my hon. Friend the Member for Bognor Regis and Littlehampton (Mr. Gibb) is that ISAs are not part of the solution to the fall in the savings rate that has occurred since Labour came to power.

Mr. Nick Hawkins (Surrey Heath)

Does my hon. Friend agree that part of the disaster of the Government's plans has been that, when they were announced, they included the particularly unattractive ceiling of £50,000, and it was only because the feelings of so many constituents of all Members of Parliament were that that was a completely disastrous policy that the Government were forced to change their mind? Does he agree that that completely undermined the City's faith in what the Government were originally setting out to do, which was to change PEPs and TESSAs?

Mr. St. Aubyn

My hon. Friend makes a valid point, which I was about to make myself. The implication is that, without the stout opposition of Conservative Members of Parliament, the Government would have got away with a mis-selling that would have put any other mis-selling in the shade. The Government promised in their manifesto that they would not jeopardise PEPs and TESSAs; yet, until we piled on the pressure, that is exactly what they proposed doing.

Many other hon. Members wish to speak, and I wish them to have full force. I therefore conclude by saying that a tax break was involved in PEPs and TESSAs, but it was available to those who were prepared to take responsibility for their own lives. In changing to the ISA, there is a suspicion—as pinpointed by The Economist—that, by putting a cap on new savings, far from trying to appeal to those who do not have the money to save anyway, the Government are attempting to attack the middle classes and their attempts to look after their own lives and to provide for their own futures.

11.11 pm

Dr. Vincent Cable (Twickenham)

When the concept of ISAs was introduced, my colleagues and I were complimentary about the vision of a large expansion of savings, which was initially envisaged as being from £6 million to £12 million. In the early stages of the discussion, the Government showed some willingness to listen to criticism, and that is why we had the retreat on the lifetime savings question. However, as the details of the proposal have developed, there has been a growing scepticism—even among those of us who are well disposed to the idea—about how it will work in practice.

The first important issue is whether the proposal satisfies the problem of low-income savers. The Economic Secretary described the underlying reasons behind ISAs—that providing liquidity for low-income savers would encourage savings behaviour. All the research has shown that that is totally inadequate as an incentive for the low-income saver. Roughly 30 per cent. of households pay no tax and will derive no tax benefit from a scheme of this kind.

A more serious problem is the large number of people on very low incomes—who are in debt in many cases—and the many people who are in the benefits system. The Government have understood, particularly in relation to work, the extent and difficulty of the poverty trap: as people work more, they lose benefit and run into tax threshold problems, and there is a disincentive to work. The Government have begun to address those difficulties, but there is a similar poverty trap in relation to savings, as represented by the capital limits. The Government have shown no move so far to address that problem.

I recall addressing that point to the Paymaster General more than a year ago, and he promised us a comprehensive review of the savings trap for low-income savers. Nothing has been said about it. Judging by the development of Government policy—particularly the growth of means testing for the elderly—all the signs are that the poverty trap for low-income savers will become more, rather than less severe.

I hope that the Economic Secretary will tell us what the Government plan to do in parallel with ISAs to deal with the problem of savings for those who are not tax beneficiaries. That also links to the question of CAT marking. I have spent a lot of time talking to people who are in the specialist business of trying to market savings instruments to low-income savers. Pearl—a company that has a niche in that area—has been mentioned. The friendly societies also do so. Over and again, those providers of means of saving to low-income families say that, to do the job, they have to do it on a house-to-house basis. They collect regular, small-scale contributions and offer advice with their products. That cannot be done within the charges limits that the CAT system operates. It is a major disincentive, which is why the Economic Secretary to the Treasury will find that friendly societies will not offer CAT-marked ISAs. Perhaps, in her reply, the hon. Lady can summarise the evidence that she has received from that group of providers in response to her consultation.

CAT marking has been dealt with, but it is important to emphasise that many of the reservations about the principle have been expressed not merely by those who have a vested interest but by objective analysts. I do not know whether the Economic Secretary to the Treasury has seen the evidence supplied by the Consumers Association—a totally impartial body that caters particularly to middle and low-income savers. It makes the explicit point that, while it is a strong supporter of benchmarking and product rating, it is nervous about the idea of CAT-marking ISAs. It feels that awarding kite marks may lead to a false confidence on the part of consumers that ISAs are suitable for them at all times and in all circumstances. The Government must reflect carefully, given the force of the objections from such bodies.

Finally, some of our growing reservations about the way in which the ISA system is being implemented concern its budgetary implications. Some time ago, we asked a City accountant, together with the House of Commons Library, to estimate what the change in the tax system would mean for the budget over the next five years. We came up with a global figure of about £3 billion to £5 billion in savings to the Treasury as a result of the shift from TESSAs and PEPs to ISAs. I want some sign from the Government as to their arithmetic. If there will be substantial savings, clearly the Government could respond to many of the concerns expressed in the debate. They could rescind the ceiling, for example, and provide more generous bounties to people at the low-income end of the savings bracket. It is important that we have confirmation from the Treasury of its estimate of the impact of the reform on total tax take.

11.16 pm

Mr. Howard Flight (Arundel and South Downs)

First, I must declare an interest as the chairman of an investment management business that offers PEPs.

When the Government announced their proposed changes, they made it clear that their key objective was to offer something that would be attractive to the less well off—to lower income groups. The Economic Secretary to the Treasury also argued that the new arrangements were not motivated by the desire to save the tax cost of the scheme and that they would be redistributive. However, the Green Paper made it abundantly clear that one of the key objectives was to stop the growing tax-loss cost of the old PEPs and TESSAS. Also, the new arrangements will be tax disadvantageous to those paying no income tax or the lowest rate after the loss of the 10 per cent. advance corporation tax refund in 2004.

I cannot understand how the new scheme will be the slightest bit attractive to those in low-income groups. The Economic Secretary argued that many people will use the cash ISA and that the old cash TESSA was unattractive because of the lock-in. We all know that it would not have been a problem to abolish the lock-in on the TESSA. That is a false argument and, if it is the sole argument on which the Government base their case, it is a pretty poor case.

The attitude of the industry has been illustrated in tonight's speeches. In the main, it is, "Let's get on with it. We've got to make it work. We've got to do the best." However, without party political prejudice, the industry in general regards ISAs as an inferior product to the old PEPs and TESSAs. The ISA has one advantage, which is the wider flexibility of equity investment. The rules on PEP equity investment—and for that matter on bond investment—had little logic.

I want to highlight some mechanical problems. The principal stupidity is that two different systems will run in parallel, with all the costs and problems that that will involve. Even the advantage of flexibility will be undone by the need for parallel vehicles to meet the PEP rules and the ISA rules. Client reporting will differ for ISA clients and PEP clients. Reporting to the Inland Revenue will also change, and that will add extra administration costs. The mini and maxi schemes are quite incomprehensible to most of the industry. How on earth the Government can believe that someone passing through a supermarket will understand them, I simply cannot imagine. As has been said, virtually all supermarkets have made it clear that they will not offer ISAs, although the Government's key message was that supermarkets would sell ISAs.

I am greatly relieved that the Government have climbed down on their half-baked proposals to CAT-mark indexed schemes. That would have sent investors a most unwise message. As the pension trustees of the House of Commons pointed out to me recently, indexed investment is likely to perform less well in bad markets, although it may outperform in good markets. There are arguments both ways, but to favour one over the other would have been foolish.

I broadly welcome CAT-marking principles, if they merely show that a product is reasonably and fairly priced, and properly run. I have written to the Economic Secretary with a question, but I have received no reply in a month. The proposals for cash ISAs seem most peculiar in that they give deliberate advantage to large, cartelised banks and building societies. America has been successful in developing money funds to compete with banks and to improve people's returns. The CAT marks will apply to money ISAs in relation to the rates of interest that they will pay, not the charges. That means that only a bank or a building society will be able to provide a CAT-marked cash ISA. The Association of Unit Trusts and Investment Funds has confirmed that money funds—no matter how cheap and efficient—cannot qualify for CAT marking. Will the Economic Secretary clarify that point? If it is correct, it seems wrong in principle. A major objective should be competition with the banks, which will drive down their charges and drive up their competitiveness.

The change does not meet the Government's original targets. The Opposition want more and more people to own capital, not fewer and fewer. I should like to see a real fiscal incentive for those who have lower incomes. Perhaps some subsidisation would be appropriate if the Government mean what they said about increasing wide ownership of capital.

11.22 pm

Ms Hewitt

With the leave of the House, Mr. Deputy Speaker, I shall reply to this interesting debate. Just as the president of the Confederation of British Industry yesterday dismissed the views of the shadow Chancellor on the public finances, so the savings industry does not share in the cynicism and nit picking that we have heard from the Opposition. The industry is getting on with making ISAs a success. Virgin Direct says that individual savings accounts combine the most attractive elements of personal equity plans and tax-exempt special savings accounts, and that CAT-marked ISAs are likely to have wide appeal. Midland bank says that the new scheme has features that will attract many new savers, particularly those with smaller amounts to invest. Fidelity says that 80 per cent. of its PEP and TESSA holders are considering investing in ISAs.

Some 200 managers are already approved by the Inland Revenue, a point raised by the hon. Member for Guildford (Mr. St. Aubyn). Another 100 have applied for a help visit from the Revenue. From April, ISAs will be available by phone and mail, through the internet and by personal application.

The hon. Member for Twickenham (Dr. Cable) raised the specific point about the savings disincentive, something that we are considering in the context of the pensions review. That is not an issue for that half of the population with savings below £200 for the simple reason that a means-tested benefit results in a savings disincentive—a benefit reduction—only if savings are £3,000 or more. It is obviously a concern for people, particularly elderly people, with savings at that level, but it is not an issue for those who have little or no savings.

With the help of consultation, we have achieved what we set out to do with ISAs and CAT standards, which is to overcome so many of the barriers that stand in the way of people who, at the moment, have little or no savings—the many not the few; the people who are of concern to Labour. They are the people who will particularly benefit from the new ISAs and CAT standard regime; they are the people whom the new regime is designed to assist.

As there have been some unfair implications this evening, I end by paying tribute to civil servants at the Treasury and the Inland Revenue who have worked so hard with the industry to ensure that the scheme will be the success that we believe it will. I hope that, in future debates on the subject, Conservative Members will join me in welcoming the extension of safe savings products to low-income and below-average-income savers and potential savers in Britain.

11.26 pm

Mr. Gibb

This has been a short but important debate on the regulations which dismantle the PEP and TESSA reliefs and replace them with the inadequate ISA regimes.

Just to put the record straight, I do not receive any money from the Institute of Chartered Accountants; I pay it an annual membership fee.

We have heard an enormous amount of complacent language from the Economic Secretary. She insists that ISAs will attract more savers, yet refuses to give a target date for achieving the 6 million new savers. She talks about consultation, but it is clear from her response that she has not listened to people's concerns about complexity, cost and the lack of tax relief, and she is not even listening to me now.

My hon. Friend the Member for East Worthing and Shoreham (Mr. Loughton), in a well-informed contribution to which the Economic Secretary would have done well to listen, pointed out that we now have an inferior savings scheme, introduced all in the name of producing a new scheme for the new Labour Government. He was right to point out that the 6 million target has somehow been dropped tonight on the road to 2 December.

My hon. Friend the Member for Guildford (Mr. St. Aubyn), in a short but high-quality contribution, talked about the highly successful TESSA and PEP schemes, which have added £60 billion to savings in Britain. The hon. Member for Twickenham (Dr. Cable), who is not in his place now, as he was not at the beginning of the debate—[Interruption.] I apologise; he is present. He pointed out that people initially well disposed to ISAs have now become disillusioned with them. My hon. Friend the Member for Arundel and South Downs (Mr. Flight) rightly pointed out that a key motive in abolishing PEPs was to reduce the tax relief costs, which is what the Chief Secretary said in March.

Two months after coming to power, the Government began their assault on savings. A £5 billion a year tax on people's pension funds was followed a few months later by an announcement of the end of PEPs and TESSAs, which inflicted a colossal cost in reducing people's confidence in the continuity of tax incentives to save. The initial £50,000 lifetime limit and the retrospective element to the change in the reliefs caused people to believe that the savings regimes were no longer to be relied upon for the long term.

Long-term confidence is the key to a successful policy. The Government's savings policy has resulted in a huge drop in the savings ratio—from 10.5 per cent. when they came to office to 7.75 per cent. now. The Prime Minister claimed that 6 million new savers would result from ISAs, but the savings industry believes that ISAs are over-complex, expensive to administer and offer tax relief that barely covers the charges. ISAs are unattractive to non-taxpayers and to basic-rate taxpayers—the very people whom the Government claim to want to encourage. They are unattractive to supermarkets, insurance companies and the public.

Many people now believe that we should keep PEPs and TESSAs. Their abolition was an act of wanton vandalism that has damaged savings. I urge the Government to withdraw the regulations or, at the very least, delay them for a further year. That would give them time to put right the regulations, and industry time to upgrade their IT systems. In the meantime, I urge the House to vote against these badly thought-through regulations.

Question put:-

The House divided: Ayes 116, Noes 293.

Division No. 374]	[11.30 pm
AYES
Amess, David	Cormack, Sir Patrick
Ancram, Rt Hon Michael	Cran, James
Arbuthnot, Rt Hon James	Davies, Quentin (Grantham)
Atkinson, David (Bour'mth E)	Davis, Rt Hon David (Haltemprice)
Atkinson, Peter (Hexham)	Day, Stephen
Bercow, John	Dorrell, Rt Hon Stephen
Blunt, Crispin	Duncan Smith, Iain
Body, Sir Richard	Evans, Nigel
Boswell, Tim	Faber, David
Bottomley, Peter (Worthing W)	Fabricant, Michael
Brady, Graham	Flight, Howard
Brazier, Julian	Forth, Rt Hon Eric
Brooke, Rt Hon Peter	Fowler, Rt Hon Sir Norman
Browning, Mrs Angela	Fox, Dr Liam
Bruce, Ian (S Dorset)	Gale, Roger
Burns, Simon	Garnier, Edward
Butterfill, John	Gibb, Nick
Cash, William	Gill, Christopher
Chapman, Sir Sydney	Gillan, Mrs Cheryl
(Chipping Barnet)	Gorman, Mrs Teresa
Chope, Christopher	Green, Damian
Clappison, James	Greenway, John
Clifton-Brown, Geoffrey	Grieve, Dominic
Collins, Tim	Hague, Rt Hon William
Colvin, Michael	Hamilton, Rt Hon Sir Archie

Hammond, Philip	Paice, James
Hawkins, Nick	Paterson, Owen
Hayes, John	Pickles, Eric
Heald, Oliver	Randall, John
Heathcoat-Amory, Rt Hon David	Redwood, Rt Hon John
Hogg, Rt Hon Douglas	Robathan, Andrew
Horam, John	Robertson, Laurence (Tewk'b'ry)
Howarth, Gerald (Aldershot)	Rowe, Andrew (Faversham)
Hunter, Andrew	Ruffley, David
Jack, Rt Hon Michael	St Aubyn, Nick
Jackson, Robert (Wantage)	Sayeed, Jonathan
Jenkin, Bernard	Spring, Richard
Key, Robert	Stanley, Rt Hon Sir John
King, Rt Hon Tom (Bridgwater)	Streeter, Gary
Kirkbride, Miss Julie	Swayne, Desmond
Laing, Mrs Eleanor	Syms, Robert
Lait, Mrs Jacqui	Taylor, John M (Solihull)
Lansley, Andrew	Taylor, Sir Teddy
Leigh, Edward	Tredinnick, David
Letwin, Oliver	Trend, Michael
Lewis, Dr Julian (New Forest E)	Tyrie, Andrew
Lidington, David	Wardle, Charles
Lilley, Rt Hon Peter	Waterson, Nigel
Loughton, Tim	Wells, Bowen
Luff, Peter	Whitney, Sir Raymond
MacGregor, Rt Hon John	Whittingdale, John
MacKay, Rt Hon Andrew	Widdecombe, Rt Hon Miss Ann
Maples, John	Wilkinson, John
Maude, Rt Hon Francis	Wilshire, David
Mawhinney, Rt Hon Sir Brian	Winterton, Mrs Ann (Congleton)
May, Mrs Theresa	Woodward, Shaun
Moss, Malcolm	Young, Rt Hon Sir George
Nicholls, Patrick	Tellers for the Ayes:
Norman, Archie	Mrs. Caroline Spelman and
Page, Richard	Sir David Madel.
NOES
Adams, Mrs Irene (Paisley N)	Caplin, Ivor
Ainger, Nick	Casale, Roger
Alexander, Douglas	Caton, Martin
Allan, Richard	Chapman, Ben (Wirral S)
Allen, Graham	Chaytor, David
Anderson, Janet (Rossendale)	Clapham, Michael
Ashton, Joe	Clark, Rt Hon Dr David (S Shields)
Atherton, Ms Candy	Clark, Dr Lynda
Atkins, Charlotte	(Edinburgh Pentlands)
Baker, Norman	Clark, Paul (Gillingham)
Barnes, Harry	Clarke, Charles (Norwich S)
Barron, Kevin	Clarke, Rt Hon Tom (Coatbridge)
Battle, John	Clarke, Tony (Northampton S)
Beard, Nigel	Clelland, David
Beckett, Rt Hon Mrs Margaret	Clwyd, Ann
Benn, Rt Hon Tony	Coaker, Vernon
Benton, Joe	Coffey, Ms Ann
Bermingham, Gerald	Coleman, Iain
Berry, Roger	Connarty, Michael
Best, Harold	Cooper, Yvette
Blackman, Liz	Corbett, Robin
Blizzard, Bob	Corbyn, Jeremy
Boateng, Paul	Corston, Ms Jean
Borrow, David	Cox, Tom
Bradley, Keith (Withington)	Cranston, Ross
Bradley, Peter (The Wrekin)	Crausby, David
Bradshaw, Ben	Cryer, Mrs Ann (Keighley)
Brinton, Mrs Helen	Cummings, John
Browne, Desmond	Cunliffe, Lawrence
Buck, Ms Karen	Cunningham, Jim (Cov'try S)
Burgon, Colin	Curtis-Thomas, Mrs Claire
Butler, Mrs Christine	Darvill, Keith
Cable, Dr Vincent	Davey, Valerie (Bristol W)
Caborn, Richard	Davidson, Ian
Campbell, Alan (Tynemouth)	Davies, Rt Hon Denzil (Llanelli)
Campbell, Mrs Anne (C'bridge)	Davies, Geraint (Croydon C)
Campbell-Savours, Dale	Dawson, Hilton
Cann, Jamie	Dewar, Rt Hon Donald

Donohoe, Brian H	Keen, Alan (Feltham & Heston)
Dowd, Jim	Keetch, Paul
Drew, David	Kemp, Fraser
Drown, Ms Julia	Kennedy, Jane (Wavertree)
Eagle, Maria (L'pool Garston)	Khabra, Piara S
Edwards, Huw	Kidney, David
Efford, Clive	Kilfoyle, Peter
Ellman, Mrs Louise	King, Andy (Rugby & Kenilworth)
Ennis, Jeff	King, Ms Oona (Bethnal Green)
Etherington, Bill	Kingham, Ms Tess
Ewing, Mrs Margaret	Kumar, Dr Ashok
Fisher, Mark	Ladyman, Dr Stephen
Fitzsimons, Lorna	Lawrence, Ms Jackie
Flint, Caroline	Laxton, Bob
Flynn, Paul	Lepper, David
Foster, Rt Hon Derek	Leslie, Christopher
Foster, Don (Bath)	Levitt, Tom
Foster, Michael J (Worcester)	Lewis, Ivan (Bury S)
Foulkes, George	Lewis, Terry (Worsley)
Fyfe, Maria	Linton, Martin
Galloway, George	Lloyd, Tony (Manchester C)
Gardiner, Barry	Llwyd, Elfyn
Gibson, Dr Ian	Lock, David
Gilroy, Mrs Linda	Love, Andrew
Godman, Dr Norman A	McAllion, John
Godsiff, Roger	McAvoy, Thomas
Goggins, Paul	McCabe, Steve
Golding, Mrs Llin	McCafferty, Ms Chris
Gordon, Mrs Eileen	McDonagh, Siobhain
Griffiths, Jane (Reading E)	McDonnell, John
Griffiths, Nigel (Edinburgh S)	McGuire, Mrs Anne
Griffiths, Win (Bridgend)	McIsaac, Shona
Grogan, John	McNamara, Kevin
Hain, Peter	MacShane, Denis
Hall, Mike (Weaver Vale)	McWalter, Tony
Hall, Patrick (Bedford)	McWilliam, John
Hamilton, Fabian (Leeds NE)	Mallaber, Judy
Hanson, David	Mandelson, Rt Hon Peter
Healey, John	Marek, Dr John
Henderson, Ivan (Harwich)	Marsden, Gordon (Blackpool S)
Hepburn, Stephen	Marshall, Jim (Leicester S)
Heppell, John	Marshall-Andrews, Robert
Hesford, Stephen	Martlew, Eric
Hewitt, Ms Patricia	Maxton, John
Hill, Keith	Michie, Bill (Shefld Heeley)
Hinchliffe, David	Miller, Andrew
Hoey, Kate	Mitchell, Austin
Home Robertson, John	Moffatt, Laura
Hoon, Geoffrey	Moran, Ms Margaret
Hopkins, Kelvin	Morgan, Ms Julie (Cardiff N)
Howarth, George (Knowsley N)	Morgan, Rhodri (Cardiff W)
Howells, Dr Kim	Morley, Elliot
Hoyle, Lindsay	Morris, Ms Estelle (B'ham Yardley)
Hughes, Ms Beverley (Stretford)	Mullin, Chris
Humble, Mrs Joan	Murphy, Denis (Wansbeck)
Hurst, Alan	Naysmith, Dr Doug
Hutton, John	O'Brien, Bill (Normanton)
Iddon, Dr Brian	O'Brien, Mike (N Warks)
Illsley, Eric	O'Hara, Eddie
Jackson, Ms Glenda (Hampstead)	Olner, Bill
Jackson, Helen (Hillsborough)	Palmer, Dr Nick
Jamieson, David	Perham, Ms Linda
Jenkins, Brian	Pickthall, Colin
Johnson, Alan (Hull W & Hessle)	Pike, Peter L
Johnson, Miss Melanie	Plaskitt, James
(Welwyn Hatfield)	Pollard, Kerry
Jones, Barry (Alyn & Deeside)	Pond, Chris
Jones, Mrs Fiona (Newark)	Pope, Greg
Jones, Helen (Warrington N)	Pound, Stephen
Jones, Ms Jenny	Prentice, Gordon (Pendle)
(Wolverh'ton SW)	Primarolo, Dawn
Jones, Jon Owen (Cardiff C)	Prosser, Gwyn
Jones, Dr Lynne (Selly Oak)	Purchase, Ken
Jones, Martyn (Clwyd S)	Quin, Ms Joyce
Kaufman, Rt Hon Gerald	Quinn, Lawrie
Keeble, Ms Sally	Radice, Giles

Rammell, Bill	Stuart, Ms Gisela
Rapson, Syd	Stunell, Andrew
Reed, Andrew (Loughborough)	Sutcliffe, Gerry
Rendel, David	Taylor, Rt Hon Mrs Ann
Roche, Mrs Barbara	(Dewsbury)
Rooney, Terry	Taylor, Ms Dari (Stockton S)
Ross, Ernie (Dundee W)	Thomas, Gareth (Clwyd W)
Rowlands, Ted	Thomas, Gareth R (Harrow W)
Roy, Frank	Timms, Stephen
Ruane, Chris	Tipping, Paddy
Russell, Bob (Colchester)	Touhig, Don
Russell, Ms Christine (Chester)	Truswell, Paul
Ryan, Ms Joan	Turner, Dennis (Wolverh'ton SE)
Salter, Martin	Twigg, Stephen (Enfield)
Savidge, Malcolm	Vaz, Keith
Sawford, Phil	Ward, Ms Claire
Sedgemore, Brian	Wareing, Robert N
Sheerman, Barry	Watts, David
Shipley, Ms Debra	Webb, Steve
Simpson, Alan (Nottingham S)	White, Brian
Skinner, Dennis	Whitehead, Dr Alan
Smith, Rt Hon Andrew (Oxford E)	Williams, Alan W (E Carmarthen)
Smith, Jacqui (Redditch)	Willis, Phil
Smith, Llew (Blaenau Gwent)	Wilson, Brian
Snape, Peter	Winnick, David
Soley, Clive	Winterton, Ms Rosie (Doncaster C)
Southworth, Ms Helen	Wise, Audrey
Spellar, John	Wood, Mike
Starkey, Dr Phyllis	Woolas, Phil
Steinberg, Gerry	Worthington, Tony
Stevenson, George	Wray, James
Stewart, David (Inverness E)	Wright, Anthony D (Gt Yarmouth)
Stewart, Ian (Eccles)	Wright, Dr Tony (Cannock)
Stoate, Dr Howard	Tellers for the Noes:
Strang, Rt Hon Dr Gavin	Mr. Kevin Hughes and
Stringer, Graham	Mr. Robert Ainsworth.

Question accordingly negatived.