HC Deb 20 June 2002 vol 387 cc402-4
9. Mr. David Ruffley (Bury St. Edmunds)

What recent representations he has received regarding his policy on savings; and if he will make a statement. [60345]

The Financial Secretary to the Treasury (Ruth Kelly)

Treasury Ministers receive representations covering a wide range of issues including savings. The Government recognise the value of saving and asset ownership. Our policy is to create the right environment for savings and incentives for people to save, and ensure that all individuals have the information and skills to make the right savings choices.

Mr. Ruffley

Since Labour came to office, the savings ratio has crashed from just over 10 per cent. to just over 5 per cent. Will the Minister say sorry to British savers?

Ruth Kelly

I am sure that the hon. Gentleman is not claiming that a high savings ratio under the previous Government is anything to be proud of. It was driven by households retrenching and building up their savings as boom and bust destroyed confidence. We are determined not to return to that. Of course, we accept that individuals need to save more and we have a comprehensive strategy to raise the rate of savings. We have introduced individual savings accounts, stakeholder policies and across the board we are looking at ways of encouraging individuals to save more. I hope that the hon. Gentleman is not claiming any success for the previous Government in that area.

Geraint Davies (Croydon, Central)

My hon. Friend will know that for many people the primary source of savings is the value of their home, which is not included in the savings ratio. Does she accept that it is worth the Government looking at the value of people's homes in aggregate savings so that we can measure realistically the move from investment in pensions to investment in new homes?

Ruth Kelly

My hon. Friend makes an interesting point and is right to point out that net wealth has indeed risen under this Government. We must ensure that we have a platform of macro-economic stability, the right savings incentives and a comprehensive strategy to encourage savings, which is precisely what we are doing.

Mr. Peter Lilley (Hitchin and Harpenden)

Does the Minister agree that the policies that do most to boost long-term savings encourage people to opt out of the unfunded state pension system into genuine savings in occupational and personal pensions, for which they receive national insurance rebates, which now amount to £6 billion per year? Will she contrast the Conservative policy of putting £6 billion into genuine savings for pensions with the £5 billion of tax taken out of pensions by the Robert Maxwell memorial tax—the abolition of advance corporation tax on pension funds, which is Labour's response to our measures?

Ruth Kelly

The right hon. Gentleman must surely realise that when he was Secretary of State for Social Security in the previous Government, hundreds of thousands of pensioners were forced into poverty. To ensure that pensioners share in the country's rising prosperity, we are spending an extra £6 billion every year on them from this April, which is over £3.5 billion more than, for example, if we had merely restored the link between pensions and earnings which, of course, the Opposition broke when they were in power. We are determined to ensure that pensioners do not fall into poverty in their old age and have the right incentives to save in future.

Mr. Barry Gardiner (Brent, North)

I know that my hon. Friend will be as concerned as I was in reading the report from Oliver, Wyman and Co. commissioned by the Association of British Insurers which showed that a £27 billion savings gap is accruing. Does she agree that financial services companies need to provide three things in their products to ensure that that is tackled effectively? I call them the three Cs. The first is clarity of financial product and the second comparability across the financial products range. Will my hon. Friend commend the work—[HON. MEMBERS: "That is only two."] I shall come on to the third one. Will my hon. Friend commend the work of the Pensions Protection Investments Accreditation Board to ensure that the first two Cs are achieved. The third C is suitability—I was always better at numbers than English.

Mr. Speaker

Order. Perhaps the third point can wait until I call the hon. Gentleman again.

Ruth Kelly

My hon. Friend made several interesting points. He is right that clarity, simplicity, transparency and the ability to understand products are at the heart of encouraging and of making it easier for people to save. It is a fact that the selling process can be so complicated and over-burdensome that it effectively disfranchises certain groups from saving. We are committed to tackling that problem and to introducing greater simplicity and clarity to the sales process. We have commissioned Ron Sandler at the Treasury to examine how to empower the consumer and to create greater competition in the market, and the Inland Revenue to examine how the tax system behind pensions, for example, can be simplified, so that greater clarity and simplicity can be introduced.

Mr. Howard Flight (Arundel and South Downs)

At least in the past, the Government used to stress that an adequate level of savings was crucial to economic stability. The £5 billion pension tax grab has led not just to the pension crisis, but to a reduction in pension savings with the closure of final salary schemes. The savings rate has collapsed to a forecast 3.75 per cent this year. What level of savings do the Government think is consistent with avoiding boom and bust?

Ruth Kelly

It is a bit rich to take lessons from the hon. Gentleman about how to avoid boom and bust. Interest rates are at their lowest level for 40 years. Underlying inflation is at its lowest level for almost 40 years and employment has risen by 1.5 million since 1997.

The hon. Gentleman asks about our policies on tax credits. Tax credits on pension funds were part of a wide package of corporation tax reforms, which removed a distortion in the tax system and which will encourage long-term investment. He asks how we are going to encourage savings. Earlier, I laid out in a reasonable fashion our policies on raising savings. At the same time, we are the party determined to combat pensioner poverty. It is a bit rich for hon. Members to go on about how to avoid boom and bust.

Mr. Kelvin Hopkins (Luton, North)

I support entirely what my hon. Friend has said, but does she agree that the one thing that should not happen is a rise in interest rates, at least in the short term, because inflation is low, the needs of manufacturing are still acute and there are recessionary trends in the world? Does she agree that we should applaud the Monetary Policy Committee for keeping interest rates down?

Ruth Kelly

I agree with my hon. Friend that we should applaud the Monetary Policy Committee, which was a welcome innovation. It introduced a degree of stability in interest rates and inflation over the longer term. I take his specific points about interest rates as representations that he should probably make directly to Monetary Policy Committee members as they consider the next interest rate move.