§ Mr. Lilley
I beg to move amendment No. 5, in page 60, line 30, leave out 'subsection' and insert 'subsections'.
The Second Deputy Chairman
With this, it will be convenient to discuss the following amendments: No. 7, in page 60, line 36, at end insert—
'(IB) The regulations to be made under this section shall provide that investors over the age of 55 shall not be restricted, within the overall annual contribution limits, in the amount that they may choose to invest in the form of—
No. 8, in page 60, line 36, at end insert—
- (a) cash, or
- (b) life insurance.'.
'(IC) The regulations to be made under this section shall provide that the charges made for administering an account such as is described in subsection (1A) above shall be no greater than the average charge made for administering a PEP in financial year 1998–99, such average to be calculated by the Treasury.'.
§ Mr. Lilley
The original plans for individual savings accounts were not only badly thought out but wrong in principle. The original proposals revealed Labour's true intentions on private savings. Labour wanted to tax prudent savers, in effect retrospectively: those who had saved most prudently would face higher tax.
We forced a U-turn on the issue. In a debate some weeks before the Budget, we won the argument, even though we could not win the vote, and the dismay on the faces of Labour Back Benchers was clear when Ministers were unable to put up any coherent defence of the proposals. We welcome the U-turn, humiliating though it may be for the Government.
Unfortunately, the damage has in part been done, because, by publishing their intention to introduce retrospective changes in the taxation of savings vehicles already in existence and savings already accumulated, the Government have made people concerned that, at some future date, a Labour Government might behave in a similar fashion, when they think that they can get away with it. That has increased reluctance to save in the relevant forms. That is doubtless part of the reason for the decline in the savings ratio that is forecast in the Red Book. 76 Labour originally wanted to reduce the annual amount that people could save in tax-advantaged forms. Alas, that aspect remains in the revised proposals announced in the Budget and in the Bill. The maximum of £10,800 a year of tax-exempt savings will be reduced to only £5,000 a year.
That is especially onerous on those approaching retirement. If they have not made sufficient provision earlier in their life, they will not get the benefits of compound interest that enable people to save lesser sums. Having fewer years to go, they may need to put more money aside. We should prefer a higher amount to be permitted to savers in, say, the last 10 years of their working life.
Thinking that the Government were unlikely to respond to such a sensible measure, which breaks the very principle to which they are wedded, we have made, in amendment No. 7, a suggestion that came originally from Saga, which caters specifically for the over-50s and over-55s, to allow people in that age group greater flexibility on how they deploy their investments, within the —5,000 limit, so that they can do so in less risky ways if they feel that to be appropriate as they approach retirement and have less chance to ride out the ups and downs of the stock market over a longer period.
The Government also wanted to cut the incentives. The cut in the July Budget remains, alas, in the current proposals. Under our Conservative tax system for people saving in personal equity plans, for every £80 net dividend, people got a £20 tax credit, whether they were non-taxpayers or basic rate taxpayers. Under the Government's scheme, the non-taxpayers£those with the lowest incomes£will get no tax credit at all. That will penalise the least well-off relative to the tax regime that we used to have. I will be interested to see whether any Government Members stand up and defend that.
Instead of getting £20 tax credit for every £80 of net dividend, basic rate taxpayers will get only £8.90, and that credit will disappear entirely after five years. The main beneficiaries from investing in equities in individual savings accounts will be top rate taxpayers. Is that what the Labour party envisaged when it was elected? Did it expect Ministers to introduce a scheme in which the primary benefits fall to top rate taxpayers and which limits any tax benefit to those on the lowest incomes and more than halves the benefit to basic rate taxpayers? Unfortunately, the costs of the scheme will absorb most of the tax benefit for basic rate taxpayers. The fourth characteristic of the Government's proposals was that they were reckless about the costs of schemes. The £50,000 lifetime limit would have had the most adverse consequence on providers of savings vehicles, and we are delighted that, at least on the face of it, that has disappeared.
Other complex rules persist and the sheer change in the rules from the previous system will require all suppliers to modify their systems£and incur costs in so doing. That will enhance costs and mean that a basic rate taxpayer with a modest tax credit will find much of the credit is absorbed by the extra costs imposed by that unnecessary change, unless the provider absorbs the costs; unit and investment trust providers sometimes do so.
Our amendments would deal with some of those problems, but, alas, many of the problems inherent in the changes that the Government announced in November or 77 early December persist in the proposals in the Bill. We can only hope that the Government will be willing to make further changes in addition to the massive changes that they have already been forced to make in response to our arguments and widespread criticisms from the financial and savings community.
§ Mr. Gibb
Despite all the changes that the Government have made in ending the absurdity of a lifetime limit, perhaps the Paymaster General could tell us the advantages for a basic rate taxpayer of holding equities through an individual savings account, given that any capital gains are likely to absorb his capital gains annual allowance anyway and it is unlikely that such a taxpayer would be able to generate in a normal, average year gains exceeding the annual limit. The 10 per cent. tax credit over five years is unlikely to exceed any charges made by a managed fund scheme, so what are the advantages of a basic rate taxpayer holding equities through an ISA?
If there are no advantages, how can the Government claim that introducing the ISA is any great advance on the TESSA and PEPs regime that already existed? Many outside commentators, including Gavyn Davies, I think£I will stand corrected if I am wrong£have said that all the Government's objectives could have been achieved by simple changes to TESSAs, for example, by removing the ending of the five-year, locked-in period.
The Institute of Directors said of the regime:
We remain concerned about the low level of the annual limit (£5,000 compared with the £7,800 a year which can now be put into a general PEP plus a TESSA). We are also concerned about the £1,000 sub-limits for cash and insurance products which will increase administrative costs and may also tempt people saving, say, £2,000 a year into inappropriate equity investments.Will the £5,000 limit be increased to reflect inflation as years go by, or will it stay at £5,000 and thus diminish over time as inflation eats away the value of that figure? Will the Minister confirm which of those two options the Government will pursue?
The main criticism by the Institute of Directors again concerns how the legislation has been put before the House. It said:
None of this detail is in the Finance Bill itself. We are concerned that matters which should be dealt with in primary legislation, allowing Parliament to make detailed amendments, are being relegated to secondary legislation. If, for example, Parliament were to decide that the limits mentioned above should be changed, it could only achieve this by the very crude method of indicating to Ministers that the regulations for ISAs would be rejected if they did not contain different limits.Perhaps the Paymaster General will respond to those points.
§ Ms Sally Keeble (Northampton, North)
I am grateful to have a chance to speak in this debate because the amendments are mean minded and petty, and their aim is to undermine the purpose of introducing the ISA in the first place. In view of the time, I will be brief.
On amendment No. 7, the main aim of the ISA is—and always was£to encourage people who do not already have savings to save. The scheme and the way in which it was to be made available were constructed particularly with that group in mind. At present, young people, especially people with children, have the fewest savings. The family resources survey showed that a third of 78 pensioner couples had £20,000 or more in savings, and one in five of all couples without children had savings at that level. Those are the people who have the most money in savings and who might not look to the ISA to encourage them to start saving. In comparison, a third of all couples of working age with children and 70 per cent. of single parents with children had no savings at all.
An amendment that would change the regulations to encourage people of over 55 to save and to provide a savings regime that is more suitable for them runs against the entire purpose of the ISA.
§ Mr. Tim Loughton (East Worthing and Shoreham)
The hon. Lady is referring to those 6 million elusive investors who are to be attracted into ISAs. Which feature of the ISA will attract those virgin investors with no savings into becoming savers?
§ Ms Keeble
I am grateful to the hon. Gentleman for making that point. People may not save with the mainstream financial institutions, but that does not mean that they have no savings at all. They might well have savings in credit unions or the myriad other informal savings schemes. It is extremely important that those people are attracted into the mainstream so that they can get access to a wider range of financial services. If they have savings accounts, they might also be able to get access to loan accounts.
I take the hon. Gentleman's point about which elements of the ISA are the most attractive. I suspect that they will be the points of access, which is why the supermarkets are so important, and the fact that complex services will be offered, but with ease of access so that people can take their money out as well, which will encourage them to start putting money into savings.
§ Mr. Loughton
I think that the hon. Lady is actually saying something different. If she is alluding to current savings in non-mainstream schemes, such as credit unions or small bank accounts, and saying that those savings could be transferred into the new ISA regime, that will not add a single penny in additional savings. The existing bank arrangements with supermarkets are perfectly accessible and are available to any shopper. Why will ISAs be more attractive and induce people to save more?
§ Ms Keeble
I am not merely thinking of small banks. Credit unions are one such scheme, certainly, but there are many other informal schemes such as Christmas clubs and so forth, in which people save small amounts of money over a short period. Those provide savings schemes for the people who have the least money of all. I do not know the extent of such schemes, but I am certainly thinking of those people. The hon. Gentleman is right in that we do not merely want people to shift their savings from one scheme to another. I have dealt with the aspects of the scheme that will probably be most attractive to people who do not save in mainstream savings accounts.
The Government need to stimulate savings most among people of working age who have children still living at home. Amendment No. 7 would not primarily help such people. In addition, it would give tax incentives to people who are already relatively wealthy for their cash savings, which would not be a prudent use of tax incentives. 79 It would, in some ways be silly to produce a new PEP with cash by the back door. The over-55s are already the most likely to own a PEP; the British Household Panel survey found that 31 per cent. of the richest over-55s and 43 per cent. of the richest over-60s have at least one PEP. A PEP with cash by the back door would not achieve the purpose for which the Government produced the scheme.
On Tory amendment No. 8, it is of course desirable that administration costs are as low as possible. The Labour party has—quite rightly—criticised the high administration costs of, for example, private pensions. The Government plan to introduce benchmarking of costs for the individual savings accounts. That, combined with careful monitoring, is the right way to control administration costs and ensure that people with relatively low incomes get good value for money in their savings.
The Second Deputy Chairman
Order. The hon. Lady must be aware that I have not put anything in any amendment.
§ Ms Keeble
I apologise, Mr. Lord. I mean that I will deal later with the amendments tabled by the hon. Gentleman's party, which I do not believe are the right way to control costs.
The Government's proposals rightly provide flexibility and the means to ensure that mainstream financial institutions will control administrative costs and pass on as much as possible of the benefits to people on low incomes.
§ Mr. Loughton
I am grateful to the hon. Lady for taking a multi-volley of interventions.
The hon. Lady has raised benchmarking. Is she saying that cost of a product is the only aspect of benchmarking essential to ISAs? Can she distinguish between benchmarking and kite marking? Labour Members have used both terms—but have inter-used and wholly confused them.
§ Ms Keeble
At the risk of further confusion, I shall give my understanding, which is that kite marking involves approval for particular ways of doing things whereas benchmarking is about criteria for an aspect of a scheme. Certain percentages might be set for 80 administration costs, for example. That differs from kite marking, which says that this, that or the other is an approved scheme.
Administration costs must be examined and are likely to be a difficult area of the scheme. Accounts in which people make frequent, small deposits and can withdraw money fairly easily have high servicing costs. That is why the Government must set a benchmark in this area and provide a real incentive to financial institutions to provide such schemes. The institutions will not think up such schemes on their own. Some institutions are not providing particularly good services at present.
Artificially capping administration costs would probably make it extremely difficult to deliver such accounts, at least in a way that makes them attractive to people who have not previously saved in mainstream savings accounts. Some of the factors likely to make ISAs attractive to people on low incomes—such as frequent withdrawal and ability to make small deposits—will make them difficult to service.
The amendment would undermine the success of the scheme. I believe that that is what the Opposition want. Having failed to win the argument in open debate, they are trying to scupper the individual savings accounts by their mean-minded measures, which would do nothing to provide tax breaks to people with less money and would do everything to protect the incomes of the top 10 per cent. of income earners aged over 50. That is another way of saying that the Tory party is simply trying to look after its own, not the wider interests of the country and the public. I urge the Committee to reject the amendments.
§ Mr. Loughton
First, I must declare an interest, which is in the Register of Members' Interests. I worked for a company that administered PEPs and have run PEPs for 10 years, since their inception.
The amendments tackle problems in the Bill for older people. Like my right hon. Friend the Member for Hitchin and Harpenden (Mr. Lilley), I welcome the climbdown on PEPs. We wish ISAs well and we need them to work, but they must be the right product in the right formulation. We also welcome the tacit admission—at last—that the Government will have to forgo tax relief in order to encourage savings. The net effect of the new proposals will mean forgoing much more tax relief to the Treasury than ever happened under PEPs, as the Paymaster General has had to admit in various answers to written questions.
It is a shame that the ISA proposals contain a major missed opportunity to encourage the elusive 6 million people to save for the long term by not linking a savings scheme with the benefit system and stakeholder pensions. Time and again, we are faced with these 6 million people. We do not know who they are or where they come from. If they are shyly revealing themselves, where are they hiding?
It is a complete fantasy to say that 6 million people are queuing to throw money at the doors of the Treasury. Six million lower-earning people are not remotely attracted by a capital gains tax concession, as they would get nowhere near the current —6,800 limit. They are not attracted by a tax credit that, on an average yield on a —5,000 equity investment, would amount to just —14, which would be more than gobbled up in charges.
As the hon. Member for Northampton, North (Ms Keeble) admitted, the only real attraction of the scheme will be to the Christmas club-type cash element. 81 What will really happen is that people who have existing small amounts of money in various pots may shift it to more convenient pots within an ISA. That will not add a single penny to savings, which surely is not the Government's underlying intention. Far from the scheme being a temptation for 6 million new investors, it would be easier for the Paymaster General to feed the 5,000.
The Bill completely misses the need to look after people with existing PEPs. Although PEPs will be allowed to continue, flaws remain that would have had to be changed even if PEPs had remained without an alternative. For example, why should PEP holders be unable to have the full range of overseas investment that new ISA investors may have?
Holders of single-company PEPs from their inception should not have to have six completely ring-circled deposit accounts for different years. If they have had one particularly good PEP—perhaps worth £20,000 or £30,000 now—they must reinvest it in only one stock, which puts a disproportionate exposure on a single equity or fund.
§ Ms Keeble
Does the hon. Gentleman accept that even reasonably wealthy people who save tend to invest money for a shorter time than they can afford—for five years rather than 10? The real challenge is not to get non-savers to save for one, two or three years but to save at all. Having got them used to that, with the confidence that they can get access to their money in a crisis, the aim is then to get them to save for longer periods. Does he accept that people with money do not always put it into great long-term investments, because they want access to it?
§ Mr. Loughton
I agree with the hon. Lady's aims, but, with the greater flexibility of ISAs and enabling people to take out cash and, in a confused way, refund it later—whether it is capital or accumulated income that is taken out and replaced is not clear—the Government are not encouraging longer-term investment. That is a fallacy. There was an inflexibility with PEPs, but one advantage of that was that people were committed to longer-term saving.
The real problem is that time is ticking away, especially for older investors, as my right hon. Friend the Member for Hitchin and Harpenden said. The ISA regulations are not even out yet and are not due before 10 May, but ISAs will start in 11 months. City firms and independent financial advisers will have to set up systems ready to work by the end of this year, but we do not have full details of how the scheme will work. It will cost a vast fortune in personnel, time and new computer equipment at a time when financial institutions are juggling with self-assessment, corporate tax self-assessment, the euro, the millennium bug and everything else.
§ Mr. Hammond
Does my hon. Friend agree that financial institutions face a major task in persuading existing regular savers in PEPs to sign the necessary paperwork to convert their contracts to continue saving regularly in ISAs, and that it is vital that we do not allow those people to slip through the net?
§ Mr. Loughton
That is right. Will we need to have completely new client agreements for PEP holders who 82 will hold ISAs? There is much paperwork still to be done. Six months on from the original disastrous consultation document, many questions remain, and we have no idea of the answers.
Will the money that can be transferred from TESSAs after their maturity be the capital or the capital and the interest? No answer has been given. Will TESSA holders be able to transfer the cash from the cash component of an ISA to the equity component? We do not know. There is a raft of questions on regulation and monitoring, which is of particular concern to older people who do not want the hassle and confusion of changes and much more paperwork. How will the reporting of what people have got in ISAs happen? Whom will they report to? How will we cope with the different components of ISAs being run by different plan managers in the same year? Who will monitor the multi-provider component parts to avoid the risk of over-subscription in one year or five years or whenever it will be?
When will we get details about the proposed maxi or mini ISAs that have been dangled in front of us by Treasury representatives? What happens when ISA holders reach the cash, insurance or equity ceiling when they have different plans with different managers over several years? What will happen with withdrawals? Will capital or accumulated income be taken out? Who will monitor it when it is put back a few years later? Who will oversee best advice on a continuing basis, particularly with the insurance element, which demands a higher degree of best advice?
When a 55-year-old goes to Tesco, which has a link with a large Scottish pension and investment product company, and decides among his frozen peas and bargain yoghurts to put money into his ISA, it is likely that he will be offered an ISA linked to that company's plan. That is fine; he may go back a few months later and add more money. He may have a regular savings plan. When that investment is no longer the most appropriate—it may have fallen from the first to the third or even fourth quartile—whose is the responsibility to advise that investor to move to a different product? What onus is there on a supermarket, whose major responsibility and profit centre is flogging groceries, to ensure that that investor continues to have the best and most appropriate investment? That brings me to benchmarking, which was mentioned by the hon. Member for Northampton, North. When will we get the consultation document on benchmarking or kite marking? Whenever the Revenue opens its mouth, it leaves open more questions than it answers. The Paymaster General knows that the head of regulation at the Treasury, Paula Diggle, gave one of her many presentations on the subject at a recent meeting of the Personal Equity Plan Managers Association. She likened benchmarking to the pure new wool mark on jumpers or the real dairy cream mark on dairy products. It sounds simple, but wool shrinks and cream is full of clots and can go sour if it is not looked after properly. Investments can go wrong and markets can go down, but the Government want to attract 6 million virgin investors without making them properly aware of the risks of equity or insurance investment and no idea yet of how investors will get on-going best advice to ensure that they get the best deals. It is unclear how ISAs will work, how they will be regulated and how on-going best advice will be guaranteed.
83 Benchmarking is important because of its ability to make the market in ISAs grow fast, if it is to be successful. People will look for benchmarks, if that is how the Government are going to mark things, but what is benchmarking? I asked the hon. Member for Northampton, North about that earlier. It represents the replacement of advice and suitability tests with the judgment of the Government. It inherently means that the Government, through the Treasury, endorse the product as having a wide-ranging suitability for almost everyone. Before long, everyone will be shuffled into tracker funds. No doubt it will be called the people's tracker fund. All our 55-year-olds and younger investors will be encouraged to save in it by a nice little Government-approved benchmark, but if it goes wrong who is to blame? Where does the investor go for compensation?
§ Mr. Loughton
That would depend on what the fund was tracking. An artificial amount of money could go into one index that was being tracked. Inherently, tracker funds are fully invested. All the proposals have been formulated in a period in which markets have gone up by at least 20 per cent. over the past few years. At some stage, that bubble will burst. Growth may be more modest or markets may go down and tracker funds will track the relevant index down. Someone sucked into the Tesco hype by the ISA marketing glitz promulgated by the Paymaster General, who—
The Second Deputy Chairman
Order. The hon. Gentleman is straying wide of the amendments. I would be grateful if he returned to them.
§ Mr. Loughton
I apologise. I have almost finished. Benchmarking is a key issue and was raised by Labour Members.
I fear that if investments go the wrong way, as is highly possible, we will have a misbuying scandal that will make the Albanian pyramid selling scheme and the pensions business so often mentioned by Labour Members look like a tea party.
§ Mr. Loughton
May I just make this point, as I am sure that the hon. Lady will take me up on it?
What is benchmarking actually benchmarking? Is it against charges—that someone is or is not offering a good-value product? Is it against the soundness and financial credibility of the investment manager handling the ISA products? Is it against the past investment performance of the products offered by that investment manager?
§ Ms Keeble
The hon. Gentleman has made much of the fact that people on low incomes who invest in ISAs 84 might suffer because tracker funds, into which some of the money may go, track the market downward as well as upward. Does he agree that one of the attractions of PEPs is that they allow entrance into an extremely lucrative market and that, by and large, stock market investments have gone up faster than the interest rates obtainable on conventional savings accounts? Part of the ISA's attraction is that it gives people on low incomes who cannot afford to go trundling off to a stockbroker access to the stock exchange and to the greater returns that that can give, accepting that there is of course a risk. Does he accept that—
The Second Deputy Chairman
Order. That is an extremely long intervention of a very general nature. I should be grateful if the hon. Member for East Worthing and Shoreham (Mr. Loughton), who is about to respond, is not drawn in that general direction, but returns to addressing the amendment.
§ Mr. Loughton
I shall indeed, Mr. Lord—I have almost finished my remarks. The hon. Lady makes an interesting point; the Paymaster General himself in Committee last year said:
There is no logic that I am aware of in share price movements."—[Official Report, Standing Committee A, 17 July 1997; c. 19.]There is no guarantee that the stock market is a one-way bet, as the Lady suggests.
The Second Deputy Chairman
Order. The hon. Gentleman is an hon. Gentleman and the hon. Lady is an hon. Lady.
§ Mr. Loughton
I meant no disrespect—I do apologise to the hon. Lady and to you, Mr. Lord.
Earlier, I was asking what benchmarking is all about. We have no clear definition at all, which could lead to a false sense of security among the 6 million-strong army of virgin investors on whom the scheme is targeted. In a letter to the Independent Financial Advisers Association, the Treasury stated that ISAs were about encouraging ethnic minorities, families on low income and women to save. On that basis, is the benchmark to be based on the "Woman's Own" seal of approval, or on the endorsement of the Commission for Racial Equality? We simply do not know.
ISAs must succeed—we must get them right. We should by now have cleared up all those important questions, of which the largest and most worrying is that of benchmarking. If that is not resolved, it could result in the biggest ever misbuying scandal. Time is ticking away, yet, even at the Committee stage of the Bill, we do not have the consultation documents or some of the proposals on the mechanics of ISAs and how they are to work, and the ISAs themselves are still too complicated.
§ Mr. Nick St. Aubyn (Guildford)
I am grateful to my hon. Friend the Member for East Worthing and Shoreham (Mr. Loughton) for carrying out such an effective demolition job on ISAs, because that will save me from having to repeat a number of points. However, I have several points I wish to make.
85 Drawing on my hon. Friend's point, the capital gains benefit for small savers simply does not exist within ISAs, nor does the income tax benefit. The Government have already knocked that away with their changes to the system of corporation tax. There is not only a new pensions tax, but a new ISAs tax, in that distributions by companies will already have suffered corporation tax and there will be no offsetting credit. It is contradictory for the Government to claim that what is primarily an equity investment vehicle will be attractive to lower rate taxpayers and, at the same time, to say that they have made the changes to corporation tax in order to encourage companies not to make distributions and to invest the money in the company for capital gain instead.
The Second Deputy Chairman
Order. I have to remind the hon. Gentleman quite firmly that the amendments before the Committee are tightly drawn and he must direct his remarks to them.
§ Mr. St. Aubyn
What I am coming to is that the amendments propose to relax the rules relating to ISAs, so that small-scale savers, for example, are not obliged to invest in equities, but can invest most of their ISA in interest-bearing accounts, where they can at least gain the full income tax benefit without the offset of corporation tax.
§ Ms Keeble
The hon. Gentleman says that the amendment would relax the rules so that people could put more money into interest-bearing savings accounts, yet the amendment applies only to savers over the age of 55. What he is saying is not borne out by the amendment, because that would impose a restriction on ISAs and not relax the rules.
§ Mr. St. Aubyn
The whole system of ISAs is flawed, because the Government are yet again changing the rules and making saving more complicated. That alone will deter investment by the very people whom the Government claim they want to encourage to save—the 6 million so-called potential savers.
The Financial Secretary is mistaken to think that the fact that PEPs and TESSAs give most advantage to relatively well-off people somehow goes against the interests of the less well-off. When people in this country save, it is to the benefit of the entire economy; when people save, it is to the benefit of the overall level of investment in our economy. The reason why the Opposition oppose the Government's measures is that they discourage saving in many ways—we see that in the Red Book projections—and discourage investment.
The Government claim that they want small savers to save money, but, by their policies, they cannot even save such people's jobs because we are on the threshold of a recession in manufacturing. It is unrealistic of the Government to think that those who have no spare cash will start to save discretionary sums, not only in deposit accounts, but in higher risk equities. That is simply to misunderstand the needs and aspirations of the very group of people whom they claim to represent. They do not do so. At least the amendments will increase the flexibility of the ISA scheme, so that those who aspire to participate 86 in it will know that it is slightly more open ended than the Government intend. That is why I support the amendments.
§ Mr. Gibb
I rise again to correct something I said earlier when speaking to amendment No. 8. I referred to Gavyn Davies, whereas I meant to refer to Andrew Dilnot, which puts a completely different complexion on my remarks—indeed, some might argue that it adds credibility to my remarks, given that Andrew Dilnot is director of the Institute for Fiscal Studies. In his evidence to the Treasury Select Committee in March, he made some powerful points and was quite damning of the Government's proposals. He said:
Almost all of the objectives that will now be achieved by the ISAs could equally have been achieved by abolishing the five year lock-in period on TESSAs and leaving things as they were. If we really thought we wanted to have some life insurance in a tax free regime, we should have allowed £1,000 life assurance into PEPs. While the consultation period has allowed some of the undoubtedly extremely problematic suggestions made last December to be removed and we are left with something which is broadly sensible, we could have got there with a great deal less sound and fury. Now we are in a rather peculiar position where by the year 2000 we can have people with at least six different sorts of savings schemes: a PEP, a TESSA, a maxi ISA, a mini cash ISA, a mini life assurance ISA, and a mini stocks and shares ISA. This does seem to be an unnecessary proliferation of schemes.While I am on my feet, I should mention that the Institute of Chartered Accountants is of the same opinion, believing that the new regime of ISAs and the costs that will be borne by those taking out an ISA are completely unnecessary. The Institute of Chartered Accountants says:
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 proposed ISA does not appear to offer improved savings incentives, and in fact may well discourage many individuals from saving.
§ Mr. Geoffrey Robinson
As you said, Mr. Lord, the amendments are tightly drawn. However, our debate has been slightly wider. In effect, amendment No. 5 is a paving amendment, leading into amendment No. 7, which would allow those aged over 55 to invest more than £1,000, during the lifetime of the scheme, in cash. One might equally argue that younger people should be encouraged in that direction, but to argue in favour of the amendment, as the right hon. Member for Hitchin and Harpenden (Mr. Lilley) did, is to misunderstand what the revised savings scheme is about.
Surprisingly, the hon. Member for East Worthing and Shoreham (Mr. Loughton) says that he has parliamentary written answers in which we say that the new scheme will cost more than the previous PEPs and TESSAs regime. I should like to see them. I shall hasten to be corrected if I am wrong, but I believe that we said in the Budget and in the Red Book—the Red Book figures show this to be the case—that, in the first year, the new scheme would cost the same as the previous scheme, then it would cost plus £30 million, then minus £30 million, giving broadly the same cost in terms of tax relief for the new system as for the old system. [Interruption.] I shall give the hon. Member for Sevenoaks (Mr. Fallon) the page reference if he needs it. I do not recollect—although I stand to be corrected—that we have ever said that the cost would be any more than that.
87 The entire effort of the new scheme is directed at re-balancing the tax relief to encourage the half of the population who have, and make, no savings at all to save. Although the hon. Member for Guildford (Mr. St. Aubyn) may think it derisory, it is a worthy aim, and it has found widespread support. We should not be as pessimistic as he is about its eventual success. I believe that the Conservatives cannot bear the tremendous welcome that the revised proposals are receiving. They cannot bear the fact that we have consulted and that we have such a wide measure of support for our present proposals.
My hon. Friend the Financial Secretary received from Lloyds bank a rather good document, entitled "The new Individual Savings Account (ISA)", because she happens to hold a present PEP—I am proud that she does. It says:
Lloyds Bank is dedicated to providing customers with good savings products and we believe that ISAs will offer customers many benefits.I would try your patience, Mr. Lord, if I were to quote the many welcomes that our revised proposals have received. None of those people has come to us with the bizarre proposals that we have received from the official Opposition.
§ Mr. Loughton
I do not want to be flippant; I just wonder what advice the Paymaster General has received from his own bank, whether he has a PEP and whether he will take out an ISA.
§ Mr. Robinson
I cannot give advice to anyone on these matters, but I can tell the hon. Gentleman that we have had a warm welcome from his organisation. I shall not embarrass him by reading the letter that I have in my pocket from his chairman, a most distinguished City figure, congratulating us on our consultation process. Indeed, the chairman of Autif said that it was a model of consultation. It did not always feel like that from my side of the—
§ Mr. St. Aubyn
Is the Minister telling us that the process is a model of consultation because he listened to Conservative representations to lift the cap on the size of ISAs?
§ Mr. Robinson
It was a model of consultation because we listened and acted on what we heard, and because the Government are not afraid to consult, to change their mind and to improve things in the light of consultation. That is what it is all about. Two or three things came out of the consultative phase—nothing that relates to the amendments, or to much that Conservative Members have said about them today.
The sole purpose of the proposals was to re-balance the system within the existing tax costs and, in doing so, to encourage those who do not save, to save. There is, therefore, no point in focusing on 55-year-olds and over any more than on anyone else. We are focusing on the half of the population who make no savings. That is why 88 it is so encouraging that Schroder, Safeway, Halifax, Pepma, M & G, Fidelity, Virgin and Barclays, to name but a few, say that they will offer the ISA programme—the cash ISA in particular. If we are to make a breakthrough in savings, it must be through the cash ISA, and at £1,000 a year, with £2,000 extra in the first year if it is taken up in that way, it is already at a more than adequate level at which to target those who do not save.
§ Mr. Loughton
On a technical point, will the Paymaster General admit that the policy that a 55-year-old could buy with his insurance money within an ISA would be substantially less attractive than the amount that a 25 or 35-year-old could buy because of his age, health and so on, so there is good reason for giving him extra favourable treatment later in life?
§ Mr. Robinson
Conservative Members do not seem to want to take the point that we want to encourage the half of the population who do not save at all to save. That is the sole criterion; that is what we are trying to encourage. The hon. Gentleman, unlike the hon. Member for Guildford, welcomed the ISA—they might decide where they stand on this matter—and raised a raft of valid technical points. I assure him that the draft regulations will be published next month, and that we shall get down to the hard work that is needed in that regard. I can reassure him on one point now, however, and that is that the TESSAs to be transferred will be capital only, as was the case, as he will readily concede, when the Conservatives were in government. That is what they did in rolling over TESSAs.
Amendment No. 8 deals with charges. We can see no point in the official Opposition's proposal that costs should be limited to the average of those currently charged for administering PEPs. We are trying to drive down costs, and we are driving them down; that is the point of benchmarking. However, it is a free market, so if people want to offer a complicated product, it is up to them, and it is up to sophisticated investors who would be tempted by it to decide whether to take it. To be prescriptive in that way runs so counter to the Opposition's usual thinking that I am surprised by the amendment.
For all those reasons—
§ Mr. St. Aubyn
The Paymaster General has told us that he believes in a free market in charges. Will he explain why, under the Bill, those who have PEPs—which, as he says, will now be frozen—will be unable to switch their frozen PEP to another fund manager, to allow competition to continue on charges for those on-going PEPs?
§ Mr. Robinson
We have arranged that a very good system of competition will apply to the ISA product, and 89 that is the important benefit on which we must concentrate, which seems to be lost on Conservative Members.
I have done my best to explain our reasoned opposition to these interlinking amendments, which have rightly been taken together, and I must advise the Committee to resist them.
§ Mr. Michael Fallon (Sevenoaks)
First, I should declare that I, too, have a PEP, but I have not received the glossy leaflet that the Financial Secretary has had. Perhaps we should christen her bank the crawling bank—the bank that likes to say, "Yes, yes". I look forward to hearing from my PEP provider in similar vein.
We tabled amendment No. 8 simply because it is important to get some control of the administrative costs of what the Paymaster General, I notice, now calls the RSS—his revised savings scheme. I do not know whether he is officially christening it in that way. As he is aware, the PEP rules run to more than 100 pages. They were composed under an efficient, benevolent Government. What is the point of having a new set—another 100 pages—of administrative rules for the ISA?
Would it not be better if the Paymaster General accepted that the Government have got all this wrong? Why should not the ISA simply be a PEP 2, or why did he not allow an instant-access TESSA? If he is going ahead with this bureaucratic new savings account, it is important that we reduce costs.
We have other concerns about costs, which is why we want a statutory cap on them. First, will the ISA lie inside or outside the provisions of the Financial Services Act 1986? Perhaps the Paymaster General will help us on that point. If the ISA lies outside the 1986 Act, there will, presumably, have to be a compensation scheme if ISAs are mis-sold, and those who are inside the provisions of the 1986 Act will presumably have to fund such a scheme. Will advisers who come under the provisions of the 1986 Act be allowed to retail ISAs under the same rules as non-regulated retailers, or will the Paymaster General regulate covertly those who retail ISAs generally? We have heard in speech after speech on financial services and from the Paymaster General that the Government want to drive down costs. The best way in which to do that is to put a statutory cap in the Bill, which is the purpose of amendment No. 8.
We had a brief but revealing debate on amendments Nos. 5 and 7. Almost nothing in the Bill does anything for pensioners. The Red Book devotes only six lines to them, three of which repeat part of the pre-Budget report. We knew that the Bill ignored the interests of pensioners, but this is the first time since the Budget that pensioners have been attacked.
In an extraordinary speech, the hon. Member for Northampton, North (Ms Keeble) described the pensioners' amendment as mean minded. Was she describing Saga as mean minded? Was she describing those who want to protect the interests of older pensioners who have never saved before as mean minded? If she examines her speech in the cold light of tomorrow, she will see its illogicality. She rightly went on to argue that she wanted ISAs to be most attractive to those who have no other savings. To achieve that, the ISA must be right for older new savers as well as for younger new savers.
90 Our amendment would not reduce the attractiveness of the ISA for younger savers; it would deal with the position of those who are getting on and are over 55—the hon. Lady is one of the younger members of the Committee—who will not be able to take the same advantage of an ISA as she might. The life assurance limit of £1,000 offers far less protection for a 55-year-old than for a 35-year-old. The account would be held for a briefer period, so people of that age would have less time to ride out market fluctuations and build up an account that would serve them well in retirement.
The amendment would ensure that, within the annual limit that is being imposed, the proportion that goes into life assurance could be greater for older people than is prescribed by the Bill.
§ Mr. Fallon
Some over-55s will be in the top decile of income earners, but we are both discussing helping those with no savings. We must encourage some of the people in that group to take out an ISA, which is why the life assurance limit must not discriminate against people who happen to be 55 or over. I hope that the hon. Lady will support us on the amendment.
The Paymaster General should reconsider his view on the amendment, for three reasons. First, he will be 60 next month, so he has an interest in it. He may not have had time to concentrate on his life assurance policy, among his other investments and financial affairs. We want to ensure that he is not disadvantaged against other hon. Members, so I hope that, for his own sake, he will reconsider and speak up for pensioners.
Secondly, the Paymaster General has repeatedly said that he will listen. The £1,000 limit is not in the Bill; like almost every other matter that we are debating, it will be dealt with in regulations. I hope that he is prepared to reconsider, because those who are getting on in life will not be able to take the same advantage of the £1,000 limit as those who are younger.
Thirdly, the Paymaster General has listened before, which is why we hope for a change of view. The previous time that he faced us over the Dispatch Box, he was still defending the £50,000 limit. On the surface, that limit has disappeared. Other aspects of the ISA have gone as well—we have not heard much of the proposed annual raffle—but the internal limits remain, and they deeply discriminate against the over-55s. For those reasons, I invite the Committee to support the amendment.
§ Question put, That the amendment be made:—
§ The Committee divided: Ayes 118, Noes 275.93
|Division No. 256]||[8.6 pm|
|Ainsworth, Peter (E Surrey)||Bruce, Ian (S Dorset)|
|Arbuthnot, James||Chapman, Sir Sydney|
|Atkinson, David (Bour'mth E)||(Chipping Barnet)|
|Atkinson, Peter (Hexham)||Chope, Christopher|
|Baldry, Tony||Clappison, James|
|Bercow, John||Clarke, Rt Hon Kenneth|
|Beresford, Sir Paul||(Rushcliffe)|
|Boswell, Tim||Clifton—Brown, Geoffrey|
|Brazier, Julian||Collins, Tim|
|Browning, Mrs Angela||Colvin, Michael|
|Cormack, Sir Patrick||MacKay, Andrew|
|Cran, James||Maclean, Rt Hon David|
|Dafis, Cynog||McLoughlin, Patrick|
|Davies, Quentin (Grantham)||Malins, Humfrey|
|Davis, Rt Hon David (Haltemprice)||Maude, Rt Hon Francis|
|Dorrell, Rt Hon Stephen||Mawhinney, Rt Hon Sir Brian|
|Duncan, Alan||May, Mrs Theresa|
|Emery, Rt Hon Sir Peter||Moss, Malcolm|
|Evans, Nigel||Nicholls, Patrick|
|Ewing, Mrs Margaret||Ottaway, Richard|
|Faber, David||Page, Richard|
|Fabricant, Michael||Paice, James|
|Fallon, Michael||Paterson, Owen|
|Forth, Rt Hon Eric||Pickles, Eric|
|Fowler, Rt Hon Sir Norman||Prior, David|
|Fraser, Christopher||Randall, John|
|Gale, Roger||Redwood, Rt Hon John|
|Garnier, Edward||Robertson, Laurence (Tewk'bry)|
|Gibb, Nick||St Aubyn, Nick|
|Gill, Christopher||Sayeed, Jonathan|
|Gorman, Mrs Teresa||Shephard, Rt Hon Mrs Gillian|
|Gray, James||Shepherd, Richard|
|Green, Damian||Simpson, Keith (Mid—Norfolk)|
|Greenway, John||Soames, Nicholas|
|Grieve, Dominic||Spelman, Mrs Caroline|
|Hamilton, Rt Hon Sir Archie||Spicer, Sir Michael|
|Hammond, Philip||Spring, Richard|
|Heald, Oliver||Steen, Anthony|
|Heathcoat—Amory, Rt Hon David||Swayne, Desmond|
|Hogg, Rt Hon Douglas||Swinney, John|
|Horam, John||Syms, Robert|
|Hunter, Andrew||Taylor, lan (Esher & Walton)|
|Jack, Rt Hon Michael||Taylor, John M (Solihull)|
|Jackson, Robert (Wantage)||Taylor, Sir Teddy|
|Johnson Smith,||Townend, John|
|Rt Hon Sir Geoffrey||Tredinnick, David|
|Jones, leuan Wyn (Ynys Môn)||Viggers, Peter|
|Key, Robert||Wardle, Charles|
|King, Rt Hon Tom (Bridgwater)||Waterson, Nigel|
|Kirkbride, Miss Julie||Welsh, Andrew|
|Laing, Mrs Eleanor||Whittingdale, John|
|Lait, Mrs Jacqui||Widdecombe, Rt Hon Miss Ann|
|Lansley, Andrew||Wigley, Rt Hon Dafydd|
|Leigh, Edward||Wilshire, David|
|Letwin, Oliver||Winterton, Mrs Ann (Congleton)|
|Lidington, David||Winterton, Nicholas (Macclesfield)|
|Lilley, Rt Hon Peter||Woodward, Shaun|
|Lloyd, Rt Hon Sir Peter (Fareham)||Yeo, Tim|
|Young, Rt Hon Sir George|
|Loughton, Tim||Tellers for the Ayes:|
|MacGregor, Rt Hon John||Sir David Madel and|
|McIntosh, Miss Anne||Mr. Stephen Day.|
|Abbott, Ms Diane||Blizzard, Bob|
|Adams, Mrs Irene (Paisley N)||Borrow, David|
|Ainsworth, Robert (Cov'try NE)||Bradley, Peter (The Wrekin)|
|Alexander, Douglas||Bradshaw, Ben|
|Allan, Richard||Breed, Colin|
|Allen, Graham||Brinton, Mrs Helen|
|Anderson, Janet (Rossendale)||Brown, Rt Hon Nick (Newcastle)|
|Ashton, Joe||Brown, Russell (Dunfries)|
|Atkins, Charlotte||Bruce, Malcolm (Gordon)|
|Ballard, Mrs Jackie||Burden, Richard|
|Banks, Tony||Burden, Colin|
|Bayley, Hugh||Butler, Mrs Christine|
|Beard, Nigel||Byers, Stephen|
|Beckett, Rt Hon Mrs Margaret||Coborn, Richard|
|Begg, Miss Anne||Campbell, Alan (Tynemouth)|
|Bell, Martin (Tatton)||Campbell, Mrs Anne (C'bridge)|
|Benn, Rt Hon Tony||Campbell, Menzies (NE Fife)|
|Bennett, Andrew F||Campbell, Ronnie (Blyth V)|
|Benton, Joe||Campbell —Savours, Dale|
|Best, Harold||Canavan, Dennis|
|Caplin, Ivor||Howarth, Alan (Newport E)|
|Casale, Roger||Howarth, George (Knowsley N)|
|Caton, Martin||Howells, Dr Kim|
|Chapman, Ben (Wirral S)||Hoyle, Lindsay|
|Chidgey, David||Humble, Mrs Joan|
|Chisholm, Malcolm||Hurst, Alan|
|Clark, Dr Lynda||Hutton, John|
|(Edinburgh Pentlands||Iddon, Dr Brian|
|Clark, Paul (Gillingham)||Jackson, Ms Glenda (Hampstead)|
|Clarke, Eric (Midlothian)||Jenkins, Brian|
|Clelland, David||Johnson, Alan (Hull W & Hessle)|
|Clwyd, Ann||Johnson, Miss Melanie (Welwyn Hatfield)|
|Coleman, lain||Jones, Barry (Alyn & Deeside)|
|Connarty, Michael||Jones, Ms Jenny (Wolverh'ton SW)|
|Cook, Frank (Stockton N)|
|Corbyn, Jeremy||Jones, Jon Owen (Cardiff C)|
|Cousins, Jim||Kaufman, Rt Hon Gerald|
|Crausby, David||Keeble, Ms Sally|
|Cryer, Mrs Ann (Keighley)||Keen, Ann (Brentford & Isleworth)|
|Cummings, John||Kennedy, Jane (Wavertree)|
|Cunliffe, Lawrence||Kidney, David|
|Cunningham, Jim (Cov'try S)||Kilfoyle, Peter|
|Dalyell, Tam||King, Andy (Rugby & Kenilworth)|
|Darling, Rt Hon Alistair||Kingham, Ms Tess|
|Davidson, Ian||Kirkwood, Archy|
|Davies, Rt Hon Denzil (Llanelli)||Kumar, Dr Ashok|
|Davies, Geraint (Croydon C)||Ladyman, Dr Stephen|
|Davis, Terry (B'ham Hodge H)||Lawrence, Ms Jackie|
|Dean, Mrs Janet||Laxton, Bob|
|Denham, John||Lepper, David|
|Dewar, Rt Hon Donald||Leslie, Christopher|
|Dobbin, Jim||Levitt, Tom|
|Dowd, Jim||Livingstone, Ken|
|Drew, David||Lock, David|
|Drown, Ms Julia||Love, Andrew|
|Eagle, Angela (Wallasey)||McAllion, John|
|Eagle, Maria (L'pool Garston)||McAvoy, Thomas|
|Edwards, Huw||McCabe, Steve|
|Ellman, Mrs Louise||McCafferty, Ms Chris|
|Ennis, Jeff||McCartney, Ian (Makerfield)|
|Etherington, Bill||McDonnell, John|
|Fatchett, Derek||McFall, John|
|Feam, Ronnie||McGuire, Mrs Anne|
|Fisher, Mark||Mclsaac, Shona|
|Flynn, Paul||McKenna, Mrs Rosemary|
|Foster, Michael Jabez (Hastings)||Mackinlay, Andrew|
|Foster, Michael J (Worcester)||McNamara, Kevin|
|Foulkes, George||McWilliam, John|
|Fyfe, Maria||Mallaber, Judy|
|Galloway, George||Marsden, Gordon (Blackpool S)|
|Gardiner, Barry||Marshall, David (Shettleston)|
|George, Bruce (Walsall S)||Marshall-Andrews, Robert|
|Gerrard, Neil||Maxton, John|
|Gibson, Dr lan||Meacher, Rt Hon Michael|
|Gibson, Dr Norman A||Merron, Gillian|
|Godsiff, Roger||Michie, Bill (Shefld Heeley)|
|Golding, Mrs Llin||Michie, Mrs Ray (Argyll & Bute)|
|Gorrie, Donald||Milbum, Alan|
|Griffiths, Jane (Reading E)||Mitchell, Austin|
|Griffiths, Nigel (Edinburgh S)||Moffatt, Laura|
|Hall, Mike (Weaver Vale)||Moonie, Dr Lewis|
|Hall, Patrick (Bedford)||Moran, Ms Margaret|
|Hanson, David||Morgan, Ms Julie (Cardiff N)|
|Heal, Mrs Sylvia||Morgan, Rhodri (Cardiff W)|
|Heath, David (Somerton & Frome)||Morris, Ms Estelle (B'ham Yardley)|
|Henderson, lvan (Harwich)||Morris, Rt Hon John (Aberavon)|
|Hepburn, Stephen||Mudie, George|
|Heppell, John||Murphy, Denis (Wansbeck)|
|Home Robertson, John||Murphy, Jim (Eastwood)|
|Hood, Jimmy||Murphy, Paul (Torfaen)|
|Hoon, Geoffrey||O'Brien, Mike (Warks)|
|Hope, Phil||Olner, Bill|
|Hopkins, Kelvin||Organ, Mrs Diana|
|Osborne, Ms Sandra||Smith, Miss Geraldine|
|Palmer, Dr Nick||(Morecambe & Lunesdale)|
|Pearson, Ian||Smith, John (Glamorgan)|
|Perham, Ms Linda||Smith, Sir Robert (W Ab'd'ns)|
|Pickthall, Colin||Speller, John|
|Pike, Peter L||Squire, Ms Rachel|
|Plaskitt, James||Starkey, Dr Phyllis|
|Pope, Greg||Steinberg, Gerry|
|Pound, Stephen||Stevenson, George|
|Powell, Sir Raymond||Stewart, David (Inverness E)|
|Prentice, Ms Bridget (Lewisham E) Stewart, Ian (Eccles)|
|Prentice, Gordon (Pendle)||Stinchcombe, Paul|
|Primarolo, Dawn||Stott, Roger|
|Prosser, Gwyn||Strang, Rt Hon Dr Gavin|
|Purchase, Ken||Stringer, Graham|
|Quin, Ms Joyce||Stuart, Ms Gisela|
|Quinn, Lawrie||Stunell, Andrew|
|Radice, Giles||Taylor, Rt Hon Mrs Ann (Dewsbury)|
|Rapson, Syd||Taylor, Ms Dari (Stockton S)|
|Raynsford, Nick||Taylor, Matthew (Truro)|
|Reed, Andrew (Loughborough)||Thomas, Gareth (Clwyd W)|
|Reid, Dr John (Hamilton N)||Thomas, Gareth R (Harrow W)|
|Rendel, David||Timms, Stephen|
|Robertson, Rt Hon George||Tipping, Paddy|
|(Hamilton S)||Trickett, Jon|
|Robinson, Geoffrey (Cov'try NW) Truswell, Paul|
|Roche, Mrs Barbara||Turner, Dennis (Wolverh'ton SE)|
|Rogers, Allan||Turner, Dr Desmond (Kemptown)|
|Rooker, Jeff||Turner, Dr George (NW Norfolk)|
|Ross, Ernie (Dundee W)||Twigg, Derek (Halton)|
|Roy, Frank||Tyler, Paul|
|Ruane, Chris||Walley, Ms Joan|
|Ruddock, Ms Joan||White, Brian|
|Russell, Bob (Colchester)||Williams, Rt Hon Alan|
|Sanders, Adrian||(Swansea W)|
|Savidge, Malcolm||Williams, Alan W (E Carmarthen)|
|Sawford, Phil||Williams, Mrs Betty (Conwy)|
|Sedgemore, Brian||Willis, Phil|
|Sheerman, Barry||Wise, Audrey|
|Sheldon, Rt Hon Robert||Wood, Mike|
|Simpson, Alan (Nottingham S)||Wright, Anthony D (Gt Yarmouth)|
|Smith, Rt Hon Andrew (Oxford E)||Tellers for the Noes:|
|Smith, Angela (Basildon)||Mr. Clive Betts and|
|Smith, Rt Hon Chris (Islington S)||Mr. David Jamieson.|
§ Question accordingly negatived.
§ Mr. Lilley
I beg to move amendment No. 6, in page 60, line 32, after 'account', insert
'which may (if the investor so wishes) be retained for the remainder of his life'.One of the most significant proposals in the original plans that the Government announced for individual savings accounts was the one to introduce a lifetime limit of £50,000 as the maximum amount of tax-exempt savings that people could put into their replacements for PEPs and TESSAs. That was punitively low by comparison with the amount necessary to buy a modest pension. Indeed, I have already pointed out how small the amount is compared with what a long-serving Member of Parliament, such as the hon. Member for Bolsover (Mr. Skinner), who raised the issue, would be entitled to by way of a pension. To buy a pension equivalent to the hon. Gentleman's would cost about £350,000, so setting a limit of £50,000 for people's savings was a damaging threat.
It was especially offensive that the proposals came from the Paymaster General, who has such large amounts in tax-favoured forms in the Channel Islands. That is why 94 there was such outrage in the country at the suggestion that this limit should be imposed. It was also wrong because it was unworkable in practice, in that following through people's ownership of ISAs over a lifetime would be very difficult; monitoring and maintaining the requisite records would have imposed a great cost on the providers. We are therefore glad that the £50,000 limit has gone.
The suspicion remains, however, that the Labour party would like to bring back the limit through the back door. The Government have promised to guarantee ISAs only for 10 years. In a possibly Freudian slip, the Paymaster General earlier today referred to people being allowed to invest £1,000 a year during the lifetime of the scheme. He clearly continues to think that there is to be a lifetime limit on investments in the scheme. The 10-year guaranteed life effectively means that people can put £5,000 a year aside for 10 years: we are back at the £50,000 lifetime limit, by the back door.
Our suspicions are fuelled by the fact that the Government refused to put their so-called guarantee in legislation. Nowhere in the Bill is there to be found any assurance to those who take out ISAs that they will be able to keep them for any period, let alone 10 years. We believe that a period of 10 years is grossly inadequate. People want to be sure that, when they put money in such schemes, they can keep them for the rest of their lives. They are saving, by and large, for retirement. They do not want their tax exemptions to disappear after 10 years.
We have therefore specified in this important amendment that, not just for 10 years but for the rest of their lives, people will be able to keep the ISAs that they have taken out. We should be interested to hear from the Paymaster General any reasons he has for opposing the amendment. We will look closely at his words, as we look suspiciously at his Freudian slip earlier today, to see whether the Government are suggesting that there should be some limit on the duration of the rather minimal tax reliefs available under the legislation that they propose.
§ Mr. St. Aubyn
I support amendment No. 6. No one who saw the success of PEPs and TESSAs would honestly claim that there was a good case for changing a successful system. I am not a keen supporter of ISAs, because they are second best. We had a thoroughly good scheme before. If we are to have ISAs, however, let the Opposition's success in arguing for the lifting of the cap on ISAs be written into the Bill, as my right hon. Friend the Member for Hitchin and Harpenden (Mr. Lilley) urged.
It is extraordinary how much power the Bill leaves to the discretion of the Treasury. In so many of the areas touched by the Bill, the Government want to keep all their cards up their sleeve. That is characteristic of this Government in so many aspects of their policy. Now we see it in their Treasury policy.
There are only two reasons for rejecting the amendment. The first is that the Government wish to preserve the cap of £50,000 by the back door. The second is that they want to keep to themselves as much discretion and power as possible, and leave as little as they must for debate and scrutiny in the House of Commons.
Amendment No. 6 would encourage people's wider aspirations. We have heard the Government argue that the point of ISAs is to redirect savings incentives to those on lower incomes. We must all encourage those on lower 95 incomes to save, but, if they have very little discretionary money available for saving, the amount that we can encourage them to save through a discretionary scheme will be limited.
If the Government want those on lower incomes to save more—for example, to provide more for their own needs in the future, particularly for their retirement needs—the Government should be honest and set out their proposals for a more rigorous and disciplined system for people to save for the long term. They would thereby make it clear that they want people to save for their future needs, not just for their future aspirations—additional spending opportunities over and above their needs.
That is why most people would put money into ISAs, as they put money into PEPs and TESSAs. They put the money in because they did not need it immediately. In many cases, they did not need to save all the money, but they saw that, by saving it through that mechanism rather than spending it immediately, they might have wider spending opportunities. They might be saving towards a daughter's wedding, a world cruise on their retirement or a second honeymoon. Such were the objectives of many people who put large sums into PEPs and TESSAs.
Now the Government are changing the nature of the scheme and encouraging those on much lower incomes to get involved, but they cavil at the suggestion that people should put in more than £50,000. They do not want to give even that encouragement. They do not want people to venture even that far in their hopes and aspirations. It says a great deal about the Government that they are not prepared to make such a commitment.
§ Mr. Gardiner
I had no intention of speaking on the amendment, but I feel compelled to do so because of the cavalier way in which the Opposition insist on confusing a guarantee with a manacle. It is clear that the Chancellor has offered a guarantee that the scheme will continue for at least 10 years, because the Government appreciate the need to give long-term security to investors. It is to be welcomed, especially as it far exceeds any guarantee on PEPs made by the Conservatives when in government.
§ Mr. St. Aubyn
Is not the difference between the present Government and the previous one that the previous Government did not break the promises and undertakings they made before an election, in the context of PEPs and TESSAs? Because the Government sought to break their word, they must now give more cast-iron guarantees.
§ Mr. Gardiner
I am delighted to respond to that question. It is breathtaking to be lectured by the Opposition on a Government breaking their word. The Conservatives were indicted year on year for breaking their word in government, particularly their tax pledges. The categorical pledges on VAT made before the general election in 1992 were consigned to the waste paper bin within weeks afterwards. We will take no lectures on that.
On clause 75, it is clear that the Chancellor sought to give some long-term security to investors who might be induced to come into ISAs. That was not previously done. 96 No Government would seek to manacle themselves in terms of tax for an indefinite period. That period might be as long as 70 years.
§ Mr. Gibb
The Government have caused enormous damage to the confidence of savers. The first colossal damage was done in the July Budget, when the Government decided to abolish the repayment of dividend tax credits. That took £5 billion a year out of the nation's pension funds and dented people's confidence in pension funds as a vehicle for savings. It dented the concept of savings.
The Government then decided to announce the abolition of PEPs and TESSAs during the Finance Bill discussions in July and the months that followed. That, too, damaged people's confidence in savings. The nonsense of the initial proposals for the £50,000 limit added to the lack of confidence in the savings tax regime. It is odd that the Chancellor feels the need to guarantee the survival of the ISA scheme for 10 years. When the Conservative Government introduced PEPs and TESSAs, they announced no such guarantee. Nobody believed that it was necessary to specify the length of the reliefs provided, because everyone assumed that they would last indefinitely. The purpose of those schemes was to encourage people to save for the long term, and those schemes were enormously successful.
§ Mr. Hammond
Does my hon. Friend agree that the difference is that people believed that the last Government were genuinely committed to the principle of encouraging long-term savings, whereas they believe that this Government have merely embarked on a cosmetic exercise?
§ Mr. Gibb
My hon. Friend makes a very valid point. I have asked myself why the Government have decided to abolish TESSAs and PEPs and replace them with ISAs, which are a pale facsimile. Why did the Government not simply tinker with TESSAs and PEPs? The only possible reason is that the Government want to be rid of a successful, Conservative-inspired policy for purely vindictive, political reasons.
§ Mr. Loughton
Does my hon. Friend agree that the Government's proposal is in complete contrast to the message that we usually hear from Ministers? They claim repeatedly that they cannot commit a future Government to current measures. Therefore, there is no guarantee that this proposal will survive. What will happen in five years—
§ The First Deputy Chairman of Ways and Means (Mr. Michael J. Martin)
Order. The hon. Gentleman must be brief.
§ Mr. Loughton
What will happen in five years if the Government decide that too much tax relief is lost? That is what they did in this case, and they tried to penalise PEP holders retrospectively until we objected.
§ Mr. Gibb
My hon. Friend makes a valid point. Labour right hon. and hon. Members have given commitments that have subsequently been breached. The Labour party 97 gave a commitment during the election campaign that there would be no increases in taxation, yet, within two months of coming to power, Labour introduced measures that would raise £5 billion a year from the nation's pension funds. It is clear that the Government have decided to abolish the successful TESSAs and PEPs and replace them with the less successful ISAs for purely dogmatic reasons. That decision will return to haunt them in the future.
The Treasury Select Committee examined the 10-year guarantee, and its conclusions are quite damning. It makes the same point that my right hon. Friend the Member for Hitchen and Harpenden (Mr. Lilley) raises in the amendment. The report states:
The abolition of the life-time limit was mentioned in the FSBR but not announced by the Chancellor in his speech; he did announce that the ISA system would continue in place for an initial ten years, with a review after seven years. As the annual investment limit is £5,000 (£7,000 in the first year), the effective total investment (apart from TESSA capital) would amount to only £52,000 after ten years.It is there in black and white in the report of the Treasury Select Committee, which comprises a majority of Government Members. The report states that the total investment would be only £52,000 after 10 years. It sounds as though the members of the Treasury Select Committee agree with my right hon. Friend that this is a lifetime limit by the back door because the amount one can invest is limited to
only £52,000 after ten years".Will the Paymaster General confirm that the Government do not intend to end the scheme after 10 years or to review it after seven years with the possibility of not continuing it after 10 years? If he provides that confirmation today, it will begin to redress the damage to savings that the Government have caused, and which they acknowledge in the declining savings ratio that is set out in a table in the Red Book.
The Treasury Select Committee raised another issue regarding the prize draw, to which my hon. Friend the Member for Sevenoaks (Mr. Fallon) referred. Footnote 75 on page xi of the Treasury Select Committee report states:
Another proposal which was dropped without mention in either the Chancellor's speech or the FSBR was the monthly prize draw".The Government have made another U-turn, sneaked out via a Budget press release and hidden in footnote 75 of the Treasury Select Committee's report.
§ Mr. Geoffrey Robinson
I find the Opposition's argument on this amendment bizarre. The Conservatives were in office for 18 years, and PEPs and TESSAs ran for much of that time. Every document relating to those schemes always stated clearly—although not always in bold or in headlines on the front cover—that tax rates and reliefs could change and that the investor should be aware of that fact. That degree of uncertainty existed. Indeed, the view was put around the City towards the fag end of their tired Administration that the Tories were looking seriously at ways of curtailing the cost of tax reliefs.
In this proposal, we are trying—I confirm to the Committee and to the right hon. Gentleman that the regulations will make it absolutely clear—to guarantee a minimum 10-year period in which tax reliefs will remain as they are now and cannot be reduced. That is an unprecedented guarantee for any Government to make. The Tories did not give similar assurances when they 98 were in government. We give that guarantee in order to ensure certainty in the market, long-term stability and a genuine incentive to save. Our proposal has met with an extremely strong response during the consultation period.
§ Mr. Lilley
The Paymaster General says that the regulations—which are not before the Committee and which are not available to inspect—will guarantee no reduction in tax relief during a 10-year period. Is he then saying that, after five years, the tax relief available to basic rate taxpayers will be extended and will continue for a full 10 years? In that case, the previous announcement that relief would end after five years is no longer valid.
§ Mr. Robinson
We mean exactly what we have said: tax reliefs will remain at at least their present levels for a 10-year period and we shall review the scheme.
§ Mr. Robinson
I shall give way in a moment: I know the point that the right hon. Gentleman wants to make. What we have said is quite clear, and that is all we are saying: reliefs will last for 10 years and they will be reviewed after seven. The Government's commitment carries considerable weight because everyone knows that this Government will review the scheme in seven years. It is totally irrelevant whether the Opposition decide to join us in that commitment or threaten to change or withdraw the scheme and reduce the tax relief, because everyone knows that the Tories will not be in office to do that. Our position is quite clear. There is sourness on the part of the Opposition that the measure has been so well received by the financial savings institutions in the City of London.
§ Mr. Lilley
I am sorry that I did not make myself clear to the Paymaster General, but this is an important point. The Chancellor of the Exchequer said that the 10 per cent. tax credit for basic rate taxpayers taking out ISAs and investing in equities would disappear after five years; the Paymaster General has said that tax reliefs would remain unchanged for 10 years—which statement is true?
§ Mr. Robinson
We have made it clear that tax reliefs will be phased out after five years, and that remains the case.
I turn to some points raised by the hon. Member for Guildford (Mr. St. Aubyn), who was trying to be his usual helpful self but got into a terrible muddle. The proposals have been received extremely well. We are working for long-term stability. The clear commitment by existing institutions and by the new ones that want to join the scheme, such as Safeway and the other supermarkets, will ensure that we shall get new net savings.
There will not be the simple displacement factor to which the noble Lord Lawson referred when he introduced the scheme. He said, "This is not really about net increases in savings—we do not believe that—but it will increase the habit of investing in equities." That was the policy of the previous Government. Our policy is different: we want to generate genuine new savings. That is why we have no lock-in period and why we have guaranteed tax reliefs for 10 years, with a review after seven.
99 It is unnecessary to go further than that at this stage. No Government have gone as far as that: the previous Government never gave a similar undertaking. All the documents relating to PEPs made it absolutely clear that tax reliefs could change and that people would have to guard against that. If the Opposition are minded to push their ridiculous proposition to a vote in this amendment, we shall have to resist it. In dividing the Committee, the Opposition would be going clearly against the wide acceptance of the stability of the long-term commitment that the Government's proposal represents, which has been so well received by the industry.
§ Mr. Hammond
How would the Minister square the projected decline in the savings ratio with the net increase in savings that he is talking about?
§ Mr. Robinson
We do not need any lectures from the Opposition about savings ratios or the mis-selling of pensions or savings products. The past masters in both were the Opposition. That is the point they must take on board. For four years in the 1980s, they managed to achieve a negative savings ratio. Billions of pounds—
§ Mr. Robinson
Absolutely. Check the figures. The hon. Gentleman will find that he is wrong. Indeed, he has been wrong already on one point, but he has not had the grace to admit it. The Opposition managed to achieve a negative savings ratio in the 1980s, and I shall send him the figures to prove it. We need no lectures on any of that from Opposition Members.
Everything that we have been doing—the Government have been committed to this approach and all our economic policies have been about this since we formed our Administration, including the operational independence of the Bank, the code of fiscal stability and the evening of the playing field on forms of investment—is designed to achieve long-term stability and long-term growth. That is best for savings, best for incomes and best for the country.
§ Amendment negatived.
§ Clause 75 ordered to stand part of the Bill.