Savings (Government Contributions) Bill — House of Lords, 2017-01-12
Topic: Housing
John Kevin Sharkey (Liberal Democrats, Centre to centre-left): My Lords, the provisions in the Bill appear at first glance to be quite straightforward. The Bill sets up the mechanisms to create lifetime ISAs and a Help to Save scheme. As the noble Baroness, Lady Drake, noted, the total cost to government in 2020-21 of the LISA is estimated at £830 million. The total cost to government of the Help to Save scheme in the same period would be £70 million. This is a very small amount. Can it really be correct? I would be grateful if the Minister could confirm that the impact assessment has this right. If it is right, does it not say something about the scale and ambition of the scheme? Does it not amount to tinkering According to the impact assessment, both schemes are driven by a desire to increase the level of household savings. In particular, the LISA will help young people to save flexibly for the long term and provide help with buying a first home. Help to Save will help working families on low incomes build up a rainy-day savings fund. All this sounds laudable, but there are some obvious questions and worries about both schemes The first worry is that neither scheme seems particularly likely to have much real impact. Both could be characterised as yet more confusing tinkering with the housing market and the tax system. Both are ways of avoiding directly addressing fundamental problems and both add to the complexity of an already very complex system. Neither scheme faces up to what is a major problem for households; namely, the level of debt that they already hold This debt is now again as high as it was in 2008. In the year to 30 November 2016, consumer debt rose by 10.8% and there are fears that, especially among less well-off households, some of this rise is being used to fund normal living costs when real wages are declining. The expected rise in inflation would make this problem worse. It may be true that increased debt-fuelled consumer spending is driving current economic expansion, but this is not a sustainable position. And it is true that for many households, particularly the low-income households targeted by Help to Save, paying down debt is a better option than saving The Government have correctly identified two real problems: the difficulty that most people now have in buying a first home and the lack of any financial cushion for those on low incomes. But the solutions to these problems need to be systemic and enduring; they need to be more than tinkering. To solve the housing problem, we emphatically do not need more demand-side schemes; we need more supply. Nothing else will have, or has had, any significant effect In July last year, your Lordships’ Economic Affairs Committee, of which I am a member, published a report which addressed the housing crisis. The report was called Building More Homes and, unsurprisingly, that is what it recommended. In particular, it noted that the private sector, as currently incentivised, would not build the number of homes needed, that the Government had no real prospect of reaching its target of 1 million new homes by the end of the Parliament, and that this target was itself much too low. The Committee recommended among other things that the cap on local authority borrowing to build homes be lifted. Only by doing this did we see any prospect of any real relief to our housing crisis. We did not feel that the many existing demand-side initiatives were likely to have much real effect. Most of these initiatives simply push those near the ownership threshold over the line. They probably contribute to price inflation and certainly do not provide large-scale or comprehensive help across tenure types I feel that this will be true of the LISA scheme in the Bill before us. It is not just that the measure is more demand-side tinkering, which it is; there is another serious problem and it is one of confusion. This issue was raised frequently as this Bill went through the Commons. The potential for confusion arises, as many noble Lords have said, from making a choice between a LISA, an employer’s pension scheme and auto-enrolment. How is this important choice to be made? Who will offer impartial guidance? On 9 October last year, the Government announced their intention to create a new, single public financial guidance body to provide debt advice, and money and pensions guidance. This new body will replace the Money Advice Service, the Pensions Advisory Service and Pension Wise. The consultation was launched on 19 December last year and closes on 13 February. This new replacement single body will not be in place before autumn 2018. The LISA will be introduced next April and Help to Save a year later, at the latest—both before the new financial guidance body is in place. This seems like bad timing The Government clearly do not believe that the current financial guidance system is working well, and they will replace it. But in the meantime, it creates further financial complexity for individuals by introducing these new products. This is surely dangerous, especially if it leads to individuals making wrong decisions about pension provision or if low-income households are encouraged to take up Help to Save when they would be better off paying down debt. This is not a small or trivial problem. For many low-income households, saving may be an unsatisfactory and expensive substitute for debt repayment. Who will these households turn to for impartial advice The Bill itself is silent as to who will manage the LISA and Help to Save schemes, although it says that LISA account holders will be able to transfer their holdings between plan managers. It also talks of "account providers"—plural—for the Help to Save scheme. This all sounds as though there will be more than one provider for each scheme. However, in the Commons, on 17 October, Jane Ellison explained that both schemes would in fact be administered by, "a single provider, National Savings & Investments".—[Official Report, Commons, 17/10/16; cols. 607-8.] Why is this? Why are the Government introducing a monopoly supplier across both these products and what is the point of the transfer provisions in this Bill if there is no one to transfer anything to? I would be grateful if the Minister could tell us why the Government have chosen to establish these monopolies. Can she say whether the Government considered commercial or mutual alternatives? If they did, why did they reject them or, if they did not consider them, why not It seems to me particularly important that we have answers to these questions in view of the provisions in paragraph 3(2) of Schedule 1, which seems to give the Treasury unlimited powers over claims for LISA bonuses and—more alarmingly—allows delegation of these powers to HMRC. This seems intrinsically unhealthy and probably not acceptable to potential commercial or mutual providers. Can the Minister say whether the Government have discussed these provisions with potential commercial and mutual plan managers and if so, what the response was? Schedule 2 gives the Treasury more or less the same powers to amend by regulation the details of the Help to Save product. It is extremely odd that Schedule 2 contains an entire section—part 3, paragraph 9—that defines an authorised account provider for Help to Save when there is to be only one monopoly provider. Is this a case of the Government changing their mind as the Bill progressed through the Commons, or of the Government preparing the ground for the introduction of multiple providers? I hope that it is the latter. The Minister was asked about this situation in the Commons, in particular why credit unions could not be providers of Help to Save schemes. There was no convincing or clear answer. When challenged, the Minister asserted that multiple providers would not offer value for money. As Gareth Thomas observed, no costings were produced to justify this claim; in fact, no evidence was given for it at all Rather confusingly, however, in the closing stages of the Bill in the Commons the Minister displayed an evident sympathy for using credit unions and a willingness to reflect on the idea. Can the Minister, therefore, update the House on the Government’s thinking on alternative providers for both schemes, and in particular on credit unions as providers for the Help to Save scheme? Can the Minister commit to allowing credit unions to be providers, and to allowing and encouraging alternative providers for both schemes?