Savings (Government Contributions) Bill — House of Lords, 2017-01-12
Topic: Macroeconomics
Lucy Neville-Rolfe (Conservative, Centre-right): My Lords, I am delighted that the first Bill I am taking as Commercial Secretary is about supporting people to save. As we know, saving is a hugely important topic and a very personal one for people up and down this country The reality is that families in the UK are not saving enough. The saving ratio is near a record low and it is estimated that 21 million people in the UK do not have £500 in savings to cover an unexpected bill. In the current economic climate it is important that households keep setting aside what they can afford to build their financial resilience and save for the future. Saving benefits the economy, helping to create stable, long-term economic growth, and it benefits individuals, helping them meet their aspirations and prepare sensibly for the future. So we want to make sure that all people in this country, no matter their circumstances, have the tools at their disposal to save money in a way that works for them There have been a number of initiatives in this area over recent years. The personal savings allowance put an end to 17 million people having to pay tax on the interest they received on their savings. There have been substantial increases to the ISA allowance: from April people can save up to £20,000 in this tax-advantaged wrapper. The Autumn Statement announced further support for savers with the introduction of a new market-leading three-year savings bond from NS&I in spring 2017 To help even more people save for the future, this Bill brings in two new schemes: the lifetime ISA and Help to Save. I will introduce them in some more detail. First, the lifetime ISA provides a new option for younger people who are looking to save for the long term. Essentially, this is designed to offer people more flexibility in how they save. For some people, the existing support that is available will be sufficient. There is already, for example, a good level of support provided through the pensions system, particularly thanks to automatic enrolment, a policy that has attracted support, rightly, on all sides of this House. It makes it compulsory for employers to enrol people into a pension scheme and contribute towards it However, when we did a consultation on pensions tax relief back in 2015, we found that younger people in particular could find pensions inflexible. So we looked at what more we could do to provide more choice and flexibility for them. That is why we designed the lifetime ISA to offer that as a complement to the pensions system. Adults will be able to open an account from the age of 18 to the age of 40, and carry on saving up to the age of 50. They can save up to £4,000 a year. They will earn a 25% tax-free bonus on their contributions from the Government, paid straight into the account, which represents a clear and attractive incentive to save The flexibility comes in how the lifetime ISA can be used. Savings under this scheme can be used to supplement your income in later life because you can withdraw funds, including the bonus, any time from the age of 60. But you can also use your savings to get on to the property ladder for a first home costing no more than £450,000. We know how important that is for many young people today. We were clear in our manifesto that we believe the chance to own your own home should be more widely available. Through the Bill, from April next year, people will have a new and more flexible way to save, which may be more suitable for their individual needs The other policy introduced in the Bill is Help to Save. This is another way in which we are looking to help people build up their savings, and this is specifically targeted at people on low incomes, for whom it can be a particular struggle to do so. In fact, research from the Centre for Social Justice estimates that 3 million low-income households have no savings at all. This is a serious statistic and one that we cannot ignore. Instead, we need to support and encourage more people to build up their resilience and become more financially secure. That is why it is the Government’s view that we should support those on low incomes who are trying to do just that by putting money aside on a regular basis. This Bill would therefore introduce a new Help to Save scheme no later than April 2018 The scheme will be delivered by National Savings and Investments, building on its reputation as a trusted savings provider and ensuring that accounts are available nationwide. It would be open to any adult who is getting working tax credits, or who is getting universal credit and working enough to earn the equivalent of at least 16 hours pay at the national living wage. This means that there are around 3.5 million people who would be eligible for the scheme. Those eligible will be able to save up to £50 a month for two years—£1,200 in total—and then receive a 50% bonus on what they have saved. If, after those two years, they want to do that again for the next two years, they will be able to do so Help to Save offers a flexible way to save which we know that people value. First, there are no restrictions on what people are able to do with the bonus once they get it. Secondly, people will be able to take the money out at any time. There will not be any charge or penalty for doing so. That is why we see Help to Save as an attractive new scheme that would support and encourage people to save what they can. Having savings to fall back on can make all the difference to how well people can cope with unforeseen events that come their way Money Advice Service research in 2013 showed that 71% of UK adults faced an unexpected bill during the previous year. Research from the debt charity StepChange suggests that if a family has £1,000 in the bank, it is almost half as likely to fall into problem debt, by which is meant being in arrears with at least one bill or credit commitment. It is therefore really important that we take forward this scheme to help more people on low incomes build up a pot of money that can be spent however they want, but that might be particularly important in case of a rainy day The lifetime ISA and Help to Save are designed to do the same thing—namely, to reward those who are trying to save for the future and to encourage more people to follow their example. Whether it is young people saving flexibly for their futures or people on low incomes trying to set aside a bit of money each month, they deserve to have the tools to do that in a way that works for them. That is what these two new products offer. It therefore gives me pleasure to commend this Bill to the House.