ROLLOVER OF CASH FROM ISAs AND TESSAs INTO SECURITIES (Hansard, 4 July 2002)

§ Mr. Howard Flight (Arundel and South Downs)
I beg to move, That the clause be read a Second time.
New clause 23 is a straightforward and down-to-earth probing suggestion. PEPs, followed by ISAs, have been very successful in attracting large numbers of people, extending down into society, to the savings habit. The structure of ISAs has been perhaps more complicated than many people might like, although that structure was chosen for good reasons.
414 As hon. Members will know, mini and maxi ISAs are available. People can invest £3,000 in mini ISAs, all of which can be in cash, and a maximum of £3,000 cash can be invested in maxi ISAs. Historically, people also have cash savings under TESSAs. When those cash savings mature after five years, the interest can no longer be part of the contract, but the principal element can be carried forward into a cash ISA. Perhaps I should have started by declaring an interest in accordance with my entry in the register, although the matter that I am raising is purely practical.
The issue is that once people lock into the cash element of a savings plan, they cannot move out of cash into securities. In the current economic climate people will understandably be cautious and will want to stay in cash. As times move on, however, and as markets go up and down, people may want to move into securities. Indeed, the original purpose of PEPs and ISAs was to encourage investment in securities and not just in cash. The cost to the Revenue can be more in relation to cash, as the amount of tax-free interest is usually greater than the level of dividends paid on equities.
The new clause simply proposes that people who have their cash element in mini and maxi ISAs, and in maturing TESSAs, should, if they wish, be able to invest that cash in securities, but not revert to cash in the future. Although, in principle, it might appeal to people to be able to move all the time between cash and securities, that poses both tax and administrative problems.
The House will be aware of the need to boost savings in this country; perhaps the savings rate should not be boosted by too much in the next few years, as that may cause a recession, but it has fallen to too low a level. I accept, however, that we face difficult and out of the ordinary circumstances in the financial markets.
I repeat that the new clause is a simple, probing amendment. I understand that there may be some degree of support for the idea in the Treasury and in the Revenue, and it would not amount to an additional cost to the Exchequer—if anything, it might be to the Revenue's advantage. I hope that the Minister will respond supportively. I candidly do not know whether the new clause is perfect or imperfect; I expect that it is imperfect, as it is on a difficult, technical matter. What it proposes, however, is eminently clear.

§ Rob Marris (Wolverhampton, South-West)
I welcome the fact that the hon. Member for Arundel and South Downs (Mr. Flight) has at last put forward an amendment that might—I stress the word "might"—have a beneficial effect on many of my constituents, because the issue affects many of them. I shall be interested to hear what the Financial Secretary to the Treasury says about it.

§ Mr. Flight
I thank the hon. Gentleman for his kind comments. May I make the point that a healthy and strong British economy is of enormous benefit not just to all of his constituents but to every other individual? There are many issues that may appear to be macro rather than micro ones, but they are all about the efficient working and prosperity of our economy.

§ Rob Marris
Those are interesting words from the hon. Gentleman, as I am not sure that they will be a sequitur to what I am about to say. I sat through most of the debate 415 on the Finance Bill yesterday, the last four new clauses put forward by the hon. Gentleman—new clause 10 on attribution of gains to members of non-resident companies; new clause 11 on capital allowances for expensive cars; new clause 12 on investment companies and trading companies; and new clause 13 on stamp duty exemption on disposal of substantial shareholding—appeared to deal with taxation issues for the very rich, which do not affect many of my constituents. When I put that to the hon. Gentleman last night, he said: These clauses have been proposed by the non-political and unbiased Chartered Institute of Taxation".—[Official Report, 3 July 2002; Vol. 388, c. 357.] I have no doubt that they were. Interestingly, two debates later, the hon. Member for Kingston and Surbiton (Mr. Davey) moved new clause 19. He said, at column 361—

§ Madam Deputy Speaker (Sylvia Heal)
Order. Perhaps the hon. Gentleman could now move on to discuss new clause 23.

§ Rob Marris
May I briefly finish my point, Madam Deputy Speaker? The new clause moved by the hon. Member for Kingston and Surbiton was entitled "Simpler Tax Assessment for Low-income Pensioners", and it was also suggested by the Chartered Institute of Taxation. Was this new clause suggested by the institute or does the hon. Member for Arundel and South Downs take up the institute's proposals only when they deal with the very rich?

§ Mr. Flight
That is a pretty poor line of attack. I do not think that my track record illustrates what the hon. Gentleman is seeking to imply. This new clause covers a matter that has been discussed widely within the Revenue and other bodies. It has nothing to do with the Chartered Institute of Taxation.

§ Rob Marris
I am grateful for that clarification. Perhaps we can now move on to debate this important subject.

§ The Financial Secretary to the Treasury (Ruth Kelly)
I am pleased that the hon. Member for Arundel and South Downs (Mr. Flight) recognises the important contribution that ISAs make to our savings strategy. I recognise his long-standing interest in these issues, and I know that he takes a keen interest in the workings of the ISA market. He has outlined the reasons for the new clauses, which would affect ISAs and TESSA-only ISAs. From what he said, I gather that its essence would be to allow tax-privileged cash savings to be converted into stocks and shares ISAs through what would essentially be a one-way valve. It would not then be possible to convert the equity investments back into cash.
The hon. Gentleman mentioned current market conditions and the encouragement to cash investors to diversify their savings into equities. As he recognised, there are difficulties with the drafting of the new clause. It is a little unclear what it is precisely intended to achieve. However, I have listened with interest to his proposals. As ISAs are such an important part of our savings strategy and have already extended the opportunity to save to new 416 groups of people—particularly those on lower incomes, women and previous non-savers—we consider the rules governing ISAs extremely carefully and keep them constantly under review.
We would have to consider the issues and implications relating to the new clause. However, I assure the hon. Gentleman that we are prepared to consider, in principle, his proposals along with other changes to the ISA regime, which may become possible when the review of the polarisation regime concludes following the Financial Services Authority's recent consultation paper. We take these issues seriously and we want to encourage savings. ISAs form a major plank of our savings policy, so we will keep the issues under review.

§ Mr. Flight
I thank the Financial Secretary for her comments. Do not take too long, however, because many citizens in the constituency of the hon. Member for Wolverhampton, South-West (Rob Marris) might think, as and when markets recover, that it was a pity that they were totally locked into cash savings. I am glad that the Government are interested in pursuing the idea in principle. I made it clear that it was a probing new clause, so I beg to ask leave to withdraw the motion.