HL Deb 26 February 2001 vol 622 cc938-40

3.27 p.m.

Lord Blackwell asked Her Majesty's Government:

What new policies they have in place or are considering to encourage and reward those seeking to save, whether or not for their retirement.

Lord McIntosh of Haringey

My Lords, the Government are encouraging more people to provide for their financial security throughout their lives. The Government's savings strategy is set out in Helping People to Save, published alongside the November 2000 pre-Budget report.

Already, the Government have introduced individual savings accounts, which have been a resounding success: 8.5 million people invested over £28.4 billion in the first year alone; and in the first six months of ISAs' second year, a further £15 billion was invested. In April, the Government will launch stakeholder pensions, which will widen people's savings opportunities for retirement. These will provide a low-cost and flexible means of saving for those previously denied it.

Lord Blackwell

My Lords, I thank the Minister for that reply. However, will he accept that few of these plans, including the stakeholder pension as now developed, are likely to provide significant encouragement or help for those on low average incomes to save for their retirement and avoid dependence on the state? Will he confirm that over half the population have less than £750 in savings, and that that is a major concern? Against that background, how many people on below average incomes have lost out to the Government's tax on pension funds? Does the Minister agree that the combination of the tax on pension funds and the extension of means testing, in particular through the minimum income guarantee, means that the Government have significantly reduced the incentive for people on modest incomes to save for their retirement and remove their dependence on state help?

Lord McIntosh of Haringey

Yes, my Lords, on the noble Lord's second point I can confirm that far too many people in this country have little, few or no savings. I am not sure whether the noble Lord's figure of £750 is correct, but it sounds about right. However, I do not accept that the Government have not been encouraging those with lower incomes to save for their retirement. In particular, individual savings accounts, to which I alluded in my original Answer, have been conspicuously successful in reaching savers who had never been savers previously. I refer especially to the cash and insurance options that are available.

As to the abolition of double relief for pension funds in 1997, the effect has not been that which was predicted by the Opposition at the time. On the contrary, it has removed a quite unjustifiable and anomalous temptation for companies to pay out money in dividends rather than encouraging investment in our industry, which is so important for our success.

Lord Northbrook

My Lords, if the Government wish to encourage tax-free saving, can the noble Lord say why the annual tax-free saving amount that existed under the previous government—represented by general PEPs, single-company PEPs and one-fifth of the annual TESSA contribution of £10,000—has been reduced by 30 per cent under the ISA regime to £7,000 per year, and might well have been reduced further had it not been for general protest?

Lord McIntosh of Haringey

My Lords, the noble Lord, Lord Northbrook, is right. We have said that the maximum level in any one year for ISAs should be £7,000 and that it will remain so until the year 2006. As to the total permissible value of TESSAs and PEPs, the noble Lord is aware, like everyone else, that it would not have been sustainable for this Government, or any other, to continue indefinitely with that degree of tax-free investment allowance. At some stage one has to say that that must come to an end. We did so by successfully introducing a new system of ISAs, which, as I said, has reached a far wider range of savers.

Lord Saatchi

My Lords, if the savings ratio has fallen from 10 per cent to 3 per cent over the past three years and the Government are, therefore, having difficulty encouraging savings, does the noble Lord think that it is a good idea to abolish the tax on savings income?

Lord McIntosh of Haringey

My Lords, I do not believe that the noble Lord's comment follows in any way. Yes, it is certainly true that the savings ratios are low, but the ratio is forecast to rise to 4.75 per cent in 2001 and to 6 per cent by 2003. As to the suggestion that we should be exempting from tax all savings income up to the higher rate band, which is what I understand the Conservative Party is advocating, there would indeed be a gain for some taxpayers. However, the richest 10 per cent of the population would receive over 30 per cent of the gain; the richest 20 per cent would receive about 60 per cent of the gain; and about 85 per cent would go to the richest 30 per cent. That is not only inequitable, but also it would not necessarily encourage new savings.

Baroness Gardner of Parkes

My Lords, will the Minister ask his right honourable friend the Chancellor of the Exchequer to do something about the annuity position so that people aged 75 are not forced to put all their money into an annuity which, at present, is subject to very bad rates, only to find that if they die within a day, a week or at any time thereafter they can lose the lot?

Lord McIntosh of Haringey

My Lords, I have today tabled a Written Answer on the subject, the careful wording of which I recommend the noble Baroness to read. It does not rule out any of a number of options that are available to the Chancellor of the Exchequer in the run up to the election. However, it is a complete fallacy to think that it is unfair on people who take out an annuity and then die soon afterwards. The value of annuities is calculated on a basis that is pooled. Some annuity holders will live a shorter time, while others will live longer. It is the average that counts.

Lord Northbrook

My Lords, can the Minister confirm the article in the Observer section of the Financial Times today that the Government are split on this removal of the annuity limit as regards 75 year-olds, and that some members of the Government want this to be removed while others do not?

Lord McIntosh of Haringey

My Lords, I have not read the article. Indeed, if I had, I would not confirm or deny any such speculation.

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