Saving Gateway Accounts Bill

These amendments relate to eligibility for the savings gateway account, and as with Amendment 7, aim to extend it to people who will not be eligible under the system of passporting. To that end I am greatly encouraged by the support of my noble friend Lady Hollis for the concept of passporting. As he so often does, the noble Lord, Lord Newby, has hit the nail squarely on the head in terms of seeing the spectre of greater complexity as a result of the good intention that lies behind this amendment, and that comes into conflict with the basic approach of keeping this scheme as simple as possible—an approach that is also consistent with the observation of the noble Baroness, Lady Noakes, that HMRC might be better at administering something simple than something terribly complicated. As Members of the Committee will know, the focus of the saving gateway is on working age people on lower incomes. In an ideal world we would like to include everyone in that group and no one outside it. However, there is no easy way of doing that. One option would be to introduce a means test, but that would require people to apply for eligibility for the saving gateway. The alternative, for which we have opted, is a system of passporting eligibility from certain benefits and tax credits. We believe that this is the most simple and effective method available for determining saving gateway eligibility, and in contrast with a means test, people will not be required to approach the Government or fill out detailed forms about their income. This approach will be much more effective in encouraging people to open saving gateway accounts. It would seem rather disingenuous to have a power to introduce a means test, but with no intention of using it. We also believe that the majority of our target group—working-age people on lower incomes—will be eligible for the saving gateway through the system of passporting as set out in the Bill. As we have said, we expect around 8 million people to be eligible for the scheme, which is a sizable proportion of the 40 million or so adults in the United Kingdom. However, we have always been clear that while we think passporting is the best system for determining eligibility, we also recognise that it is not perfect. Some working people on lower incomes will not be eligible for the scheme, and there will be some rough edges. The Economic Secretary to the Treasury gave an indication of the numbers in his contribution in another place. As he said, we believe that around 4.5 million working age people on lower incomes will not be eligible through passporting, taking a definition of lower income as £10,000 to £11,000 for an individual and £16,000 for a household. However, it is important to remember that this is a snapshot and that people’s circumstances do change. Many in this group will therefore be eligible for the saving gateway at some point, and in any case we intend to allow people to have only one account per lifetime, so this is an important point. Amendments 8 and 12 would introduce a second way of becoming eligible for the saving gateway in addition to passporting—by means of having an income below a certain level which would, of course, require a means test. As the noble Baroness has said, this would give some additional people a way of accessing the saving gateway, which in itself would sound a laudable and commendable outcome. It would also introduce a significant increase in complexity and cost. We do not believe that this would be proportionate. First, it would involve extra costs for HMRC, which are estimated at around £2.5 million per year, reducing to a steady state of £1 million after introduction. Secondly, there would also be an increased compliance risk of operating a means test, as individuals would be able to open saving gateway accounts without having previously been through DWP and HMRC checks to establish their eligibility to other benefits or tax credits. Inevitably, some accounts would be opened but subsequently have to be closed; for example, accounts opened by people who had misstated or misunderstood their income. That would be very burdensome for providers. We know that opening and closing accounts will create costs for them and we are keen to minimise the costs of operating saving gateway accounts. It must be very clear to Members of the Committee that the operation of saving gateway accounts will not be a terribly profitable activity for banks to engage in, but it is one which we think banks will welcome in terms of their commitment to promoting financial inclusion. However, we must be careful that we do not deter the provision of product by making the scheme too complicated. Thirdly, having two methods of determining eligibility for the saving gateway could be confusing and would add complexity to an otherwise simple system. It is also important to be realistic about the impact that a means test would have. As we discussed in relation to Amendment 7, of the 4.5 million working-age people on lower incomes who we believe would be missed out by passporting, we estimate that around 60 per cent—or 2.7 million—could claim the qualifying benefits and tax credits, but have not done so. While that is not a reason to exclude them from the scheme, it does seem unlikely that large numbers of them would choose to complete a means test for a saving gateway account when they have not done so for a benefit or for tax credits. Clause 3(6) allows flexibility to add more qualifying benefits through regulation, which would potentially include those benefits mentioned by my noble friend Lady Hollis. We would need to consider this carefully, but that flexibility has been built into the Bill. While I understand the noble Baroness’s aims with these amendments—on several occasions, I expressed a good and supportive understanding—I do not believe that it would be sensible to introduce a system of means testing, which would add complexity and cost. Instead, I believe that we should continue with a simple, efficient system of passporting, which will allow a large majority of our target audience to be eligible at some point in their lives. I hope that the noble Baroness will therefore withdraw her amendments.