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Lord Livsey of Talgarth: My Lords, many of the points that I intended to raise have already been covered. However, I wish to make one or two additional remarks. As the noble Baroness has pointed out, it is clear that the House of Commons Regulatory Reform Committee was concerned about the position of small producers who are not members of the NFU. That is quite an important point and I wonder whether the Minister is himself satisfied on that aspect of the order. However, as has been pointed out both by the noble Baroness and the noble Lord, it appears that the committee is satisfied that a regulatory burden would be lifted as a result of the order. I, too, pay tribute to the committee, which appears to have undertaken a good deal of searching work in its approach to the examination of the order.
I should like to make one or two additional points. Apparently, the current levy stands at 12p per adjusted tonne of sugar beet and is subject to review. I think that I am right to assume that those arrangements will stand and that the industry will contribute in this way. However, if that is not the case, then I should like to be told.
The British Beet Research Organisation is preparing a research programme which in future will not burden the growers, although they will be involved in certain discussions about it. I have visited the Broom's Barn research station and I was impressed by the research being undertaken. I assume that the station will tender for future research and will continue to carry it out, if the powers-that-be are satisfied.
It was interesting to note that, from the educational point of view, beet growers receive a research magazine four times a year. They are given advance warning of issues such as aphids and spraying dates in relation to aphids causing damage. The magazine also ensures that growers are kept up to date on technological developments. All that is worthwhile to ensure an efficient and effective sugar beet industry. Certainly, if the industry is satisfied that the regulatory burdens have been lifted, as are the relevant committees of both Houses, then we, too, are well satisfied that this a right and proper order to be brought before the House.
Lord Whitty: My Lords, I am grateful for the support for the order expressed by the two opposition Front Benches. In regard to the present arrangements for research, perhaps I may say in response to the question put to me by the noble Lord, Lord Livsey, that the statutory levy ended in April 2000 as a result of the phasing-out process. Since then the industry has funded its own research programmes and a levy is attached to that. In a sense that is not a matter for me or for the House, but I can confirm that the industry
All this order seeks to remove is the outstanding residual requirement for the Minister to produce a programme of research, along with the requirement for the industry to participate in the drawing-up of that programme. The financial side has already been passed to an industry-based body.
Both the noble Baroness and the noble Lord raised the issue of representation of growers by the NFU. The sugar beet industry has certain slightly centralised arrangements because business between the growers and British Sugarwhich is, in effect, the only customeris negotiated via the NFU. In that context, the NFU represents all sugar beet growers. So it is slightly different from other circumstances where the union or trade association may have many growers outside; in sugar beet the NFU represents everyone, whether or not they are members. Although the committee expressed concerns about the point, it concluded that the consultation was adequate.
The committee questioned the two elements of Section 68, one of which imposes a burden on the industry, while the other imposes primarily a burden on the Minister. It felt that our analysis that we were dealing with them separatelyand therefore claiming, in effect, that we were initiating two measures of deregulatory reformwas pushing our luck a little far. Nevertheless the committee agreed with the conclusions and the overall message that this is a deregulatory measure which removes a time and administrative burden from the industry and supported it.
As I said, because of the time position, the committee accepted the form of consultation, albeit that it was not entirely in line with what is now laid down for the regulatory reform order process. Although the wording is queried, the committee felt that our conclusions and methods were right, even though it would have preferred us to reach those conclusions through a different approach. There is not a huge argument between ourselves and the committee and the industry supports the order.
Your Lordships may wonder why I have sought a debate after the Budget. I have done so because it seems to me to be a good time to reflect on the Budget and to look forwardI hope without it being seen as
Who are we? Currently there are 64 friendly societies within the membership of the Association of Friendly Societies, which makes up the vast bulk of friendly societies. They manage the investments of about 6 million people, with funds under management of about £17 billion. They are all mutual organisations with no shareholders, therefore saving at least 10 per cent of funds which would normally go to shareholders. As I have said, a good many of them were set up 120 years ago, or maybe even as long as 150 years ago.
They were originally set up to encourage self-help and personal responsibility and to enable people with limited resources to improve their economic status. I emphasise "limited resources" because, as I shall highlight later, it represents the key difference of a friendly society.
We see ourselves today as filling the gap between the micro-credit solutions offered by the community-based credit unions and the many commercial providers who have abandoned the less-well off sectorthe most recent being, perhaps, the sorry case of AMP and, in particular, the Pearl, which many of us will have known from a previous incarnation as working very closely with the less affluent in society.
Let me paint a brief picture of four typical societies. There is a group of societies that we call "affinity societies", an example of which is the Police Mutual Assurance Society. It operates exclusively within the police forces, for both uniformed officers and the civilians who work in the Police Service. It has 160,000-plus members, principally police constables and police sergeantspeople at that kind of levelearning between £23,000 and £25,000, who typically take out policies of between £8 per month and an average policy of about £12.50 per month. That is one section of the friendly society movement.
Then we have the big boys. The Liverpool Victoria Friendly Societythe biggest of the lothas been in existence for more than 150 years. It offers a wide range of products directly, owns a number of subsidiary companies and cross-sells between the two. It, too, has many members with premium plans of between £9.50 and £12.50 a month.
There are a number of small groups, a typical example of which would be the Druids Sheffield Friendly Society. It is a small society, established in 1858, which helps its members in times of adversity and provides savings for their future. It offers a wide range of products and operates through a voluntary lodge secretary system working in a local community. These societies allow policies with premiums of £4.50 a monthin effect, £50 per year.
So those are three examples of the different kinds of societies. In my own society, the Children's Mutual, we would term ourselves as a specialist niche player. We have some 300,000 members. As the Government know, we have ownership of the trademark the "Baby
Even more importantly, we were voted service provider of the year, beating all the large plcs such as Standard Life, Aviva and Legal and Generalso much for those who allege that friendly societies are small, inefficient organisations. We were very proud to earn that award.
What are we about? We are about savingsa fairly key issue with a savings ratio as low as 4.9 per cent at the moment. The movement takes savings very seriously. That is why the movement welcomed the Government's proposals on the Child Trust Fund. We gave the Government public support in that respect and I was very happy to be associated with that public support.
We have welcomed in principle the Sandler concept. Indeed, we have sent the Treasury a long and considered response. It highlighted the question of who exactly are the targets for Sandler products, because the currently stated target of 29 million people is too broad, too diverse and too many. It is our belief that the Government should concentrate on the less well-off, because they are the people who need help and who need to be persuaded to save.
Who are they? As a movement, we believe that they are people in the income bracket of somewhere between £13,500 and £25,000. If we are correct, what right do we as a movement have to claim that we can reach or serve these families? We make the claim because there are no other organisations which play such an important role in delivering financial inclusion as friendly societies. We are the only financial organisations which will take an average premium of £11 per month and make it work through the tax exempt savings regime.
For example, with ISAs, more than 75 per cent of products have a minimum monthly payment of £50. Even insurance ISAs with a £1,000 cap have an average of £34.50. The average tax exempt premium is 80 per cent less than that for an investment ISA and 70 per cent less than an insurance ISA.
As an aside, it is interesting to note that while public life insurance companies are able to offer tax exempt policies for their own customers by forming a friendly society, not one of them, to my knowledge, has ever done so.
Some would argue that we are not efficient; that we do not give good value and that we are lacking in enterprise. I have already said that my own society won the service provider of the year award, but we are not alone. As polarisation rules have been easedI thank the FSA for easing themso societies have expanded distribution. The Family Assurance Friendly Society has built up a link with the Abbey National; Homeowners has built up a link with Bounty; and we at the Children's Mutual have built up a link with Boots.
Just as an aside, as a typical example, a £25 per month with-profits endowment policy over the past 18 years is producing, in our society, £12,431, compared with a building society investment of £8,396 and an average managed unit trust of £9,361. So much for those journalists who allege high charges and poor performance.
Some will ask whether we really get to the less well-off. Some very interesting recent work has been done for the biggest friendly society, Liverpool Victoria, by Financial Acorn. Your Lordships will know that the Acorn work is a segmentation that is recognised across all sections of society as sophisticated and thorough. If anything, friendly societies might have thought that Liverpool Victoria might be a little more middle-class. But when it comes to moderate and inactive savers, who make up 48.8 per cent of the population, ISAs account for only 38 per cent and Liverpool Victoria's policyholders make up 52.5 per cent, so they are skewed to the less well-off. There is plenty more evidence from Professor Yarrow and others.
So much for the past. What of the future? The movement was delighted when the friendly societies were mentioned in the Chancellor's statement on the Child Trust Fund and that a decision had been made to have an open market. We continue to welcome that and the work that has been done. Yes, we are relatively small players. We give good returns, we are pretty efficient and we know what makes the less affluent tick. Whatever Sandler says, we know tax exempt works, as it has built into it an incentive. This group, of all groups, looks for value for money and response to incentives. One has only to ask any supermarket about this group to know whether it responds to incentives.
There were rumours that because of Sandler recommending that qualifying policies should go, tax exempt would have to go too, albeit as an unintentional side effect. Thankfully, the Government listened to the friendly societies' predicament and tax exempt is still with us, for it is vital to the movement. We have also taken the precaution of checking with the European Commission whether it sees any problems with the current tax-exempt status, and it confirms that it does not.
I suggest that if the Government are truly concerned with the less affluent, defined as those with an income of less than £25,000, and if they want the Child Trust Fund to be a success, they should listen to successful playersnot just the big boys, who say they will operate within a 1 per cent regime, and then later withdraw. Indeed, we have an example with CAT
Savings is such an important area. People tell us that they need disciplined savings. They need some advice, and advice costs money. The Government have said the Sandler recommendations will be considered further within a framework of ongoing regulatory change. Would the Minister be able to throw any light on the timetable for this consideration? When does he expect proposals to be drawn up? I do not necessarily expect an answer tonight, and would be grateful if he could write to me in due course.
Finally, we, the friendly society movement, take our job seriously. I submit that our responses to consultation papers are some of the very best the Government will receive and so, too, for the FSAthe latest being DP 19. The Government should listen to us and consult with us, for we have much to offer. Together we can achieve success. If they leave us sidelined or, at worst, undermined or so constrained that we cannot make a profit, I submit that they do a grave disservice to the less affluent, our 6 million members and our successful heritage.
Lord Graham of Edmonton: My Lords, it is my pleasure and privilege to follow the noble Lord, Lord Naseby. I have never heard such a well prepared case, delivered so modestlyand, at times, slightly defensively. There is nothing to be defensive about. I come to this debate with my experience on a horse from the same stable. The stable is called mutuality and the horse that I ride very proudly is the Co-operative movement and many others too, as I shall mention. I hope that tonight we will provide the Minister with an opportunity of giving the House the benefit of his thinking.
To my knowledge, the Government have done not only as much as they could but a great deal more than some might have believed they were capable of in supporting the concept of mutuality. My good friend in another place, Gareth Thomas, produced a Bill which had the universal approval of all parties, changing legislation going back a long time. The noble Lord constantly referred to a timescale of about 150 years. The Rochdale pioneers were credited with the first successful co-operative venture in 1844again, about 150 years ago. At the beginning and middle of the 19th century, the needs of the people produced a number of aids and comforts such as friendly societies, the Co-operative movement, trade unions, the Church and many others. Tonight we have heard the case for self-help and financial prudence on a modest scale.
The noble Lord pointed out that in the totality of the global reaches of the Chancellor, the mutual sector might be regarded as small beer. I speak as a consultant to the Co-operative Group which people know as the CWS and which is the national central federal body. Until last year, I was the chairman of the United Kingdom Co-operative Council. Within the co-operative movement there has been a renaissance
The credit union movement, which deserves a mention, is not a poor man's bank; it is not there to keep the poor person out of debt. It is a thriving financial organisation. Many of the manifestations of how it operates go back to the friendly society movement, the Co-operative moment, and others.
We are celebrating a success, because we are still here. We are still alive. Many organisations have gone underthey have been absorbed, taken over, the funds have been diddled. We know the history. But when we talk about friendly societies and mutuality, we are celebrating something which has been a great credit not just to governments or one particular partyyour Lordships will know that I do not make party or political points.
My background is the Co-op movement. I had lunch today with a person I had never seen before who comes from Newcastle upon Tyne, my home town. As we were reminiscing, I said, "Do you remember Newgate Street?" which was the headquarters of the Newcastle Co-op. She said, "Yes, I got all my shoes there". I said, "I know how you got your shoes". She asked, "How?" I said, "Your mam went down four times a year and drew the dividend, then she went straight down to the shoe department and the family was shod. She bought shirts and other things as well".
The savings of the working-class movement of Newcastle, which was no different from anywhere else, were the accrued dividends earned on their purchases. They did not have any spare money to put in £1 or £2 a month or even a year, but they knew that every quarter they would have £4 or £5 in dividends, which was their life savings. That was their nest egg. The Co-op movement has a great deal to be grateful for, as do the people of this country, for the way in which it bred in ordinary people the need to make provision. Friendly societies have given a respectable face to a movement of which we should all be greatly proud.
Another of my interests is as a patron to the benevolent section of the Ancient Order of Foresters. That is a friendly society that is undergoing great change, as most such bodies are, under the Financial Services Authority's manipulations. It is struggling and surviving. When I think what ordinary people are doing for themselves, I think of my good friends, Bert and Rita Overington, who run the Ancient Order of Forester's court, which is called Edmonton Pride. Every year, they distribute thousands of pounds to charities, which rely on gifts from peoplefrom anyone. The country is well endowed with the Bert and Rita Overingtons of this world, who give an enormous amount of time and do it professionally.
At one time, friendly societies, Co-op societies and others were in danger of being managed by people who were not well trained and not up to date. Those days have gone. I respect very much the record of the friendly society with which the noble Lord, Lord Naseby, is associated. It must give him a great deal of pleasure to give us the story that he told us
On Friday this week, my noble friend Lord Carter will introduce the Second Reading of a Bill that deals with the application of the Co-operative idea following the Industrial and Provident Societies (Amendment) Act. The Minister has a good story to tell about the way in which the mass movement with which I am associated has been treated by this Government previously.
When I became associated with the movement, I picked up the phrase, "The Co-op movement never made a millionaire but it never made a pauper". People did not join those movements to get richand certainly not to get rich quick. They trusted the good sense of the people in charge, many of whom were not professional at the start but were honest and had integrity. They gradually built up a reputation and kept good men and women around them. One thing that the friendly societies and Co-ops and others do is provide a training ground in democracy for ordinary men and women who otherwise may not have had the opportunity to demonstrate that they are articulate and able to manage affairs in one way or another.
The movement that was formed by the conditions of the early part of the 19th century, and which continues to survive, has made a valiant contribution. I was fascinated to hear the noble Lord proudly tell us of the achievements of the movement and of some of its problems and possible easements that might come. The Minister will satisfy this audience and the audience outside by reassuring us, in the context of trying to keep all the balls in the air, that friendly societies are well supported and constantly thought of. He will serve the movement well if he tells us that there is a place, in the enormous changes that have taken place, for the kind of people whom we represent. We represent organisations, but we represent people as well. I am grateful to the noble Lord for asking for this debate tonight.
Lord Stewartby: My Lords, I begin by thanking my noble friend for giving us the opportunity to debate this subject. I, along with the noble Lord, Lord Graham, congratulate him on the comprehensive and effective way in which he opened the proceedings. He covered most or all of the important points, and I would not want merely to repeat what he said, but I have a long-standing interest in friendly societies.
During the 1980s, when I was a Treasury Minister, I was responsible for legislation relating to financial mutuals, which predominantly meant the building societies but also included credit unions and friendly societies. On a number of occasions, I had to consider the implications of other legislation or changes for those bodies. That is something that successive governments have done, and I welcome the reaction of
I came to appreciate the friendly societies from a number of aspects. My noble friend Lord Naseby quoted all the statistics, which are quite remarkable. Many of those bodies are not large, but if one aggregates their resourcestheir income each year approaches £2 billionthe sums are not insignificant. They are even more significant given that they are largely the product of a great range of policies spread among persons of very limited financial resources, in small packets. That is the aspect that is so important.
Friendly societies provide an opening to those on lower incomes, who have sometimes been described as "marginal savers". There is a distinct market here. It is not simply a question of the financial quantum. Some people are wary of the larger financial businessesnot only of banks but even of building societies. The whole ethos of the friendly society movement, like other mutuals, which as we have heard were established 100 or 200 years ago, is that they have a more direct connection with those whom they serve, to the extent of door-to-door collecting and calling. Such things would make no sense to a modern bank or a large building society, but they are the essence of mutuals. There is no doubt that friendly societies reach a lot of people through those means who otherwise would not be reached at all. It is a distinctive market.
Several of the societies accept subscriptions of less than £10 a month, which would not be on the radar for bigger financial institutions, as they are not geared to cope with a very large number of very small amounts. It is extremely important that people who want to contribute at that level can do so with organisations in which they feel confidence and which they trust.
I do not mean the phrase to be in any sense pejorative when I say that there is a financial underclass. We do not wish them to become disconnected from the rest of the community. It is terribly important that such opportunities should be available to them, and they may graduate to something larger as time goes on. That can be illustrated by the fact that monthly subscriptions to tax-exempt savings plans, which are limited to £25 a month to obtain the tax relief, are far lower than contributions to financial ISAs, to which the average contribution is three or four times higher. I think that that demonstrates that there is a body of people who want to save, and who will save if they can, but who cannot readily make the initial jump straight into the larger financial institutions. That is where friendly societies not only have a very important part to play but are likely to continue to have that part for a long time to come.
Despite some of the criticisms occasionally made of friendly societies, they are a very valuable part of the financial scene. People have criticised them for their performance, but in today's climate the performance of plenty of financial institutions can be criticised. When investment markets have generally been so weak, it is partly a question of forces beyond their control. Sometimes they are criticised for their level of charges. However, when one has very small policies, the percentage charge tends to be a bit higher. There is a minimum cost of running these things. I do not think that it is a fair criticism to say that that is a disadvantage of friendly societies. It is inherent in the structure.
In what we have to accept is now an age of high-tech business and sophisticated financial services, the friendly societies may seem a bit of an anomaly. However, I think that in many aspects of British lifein our constitution, our business and our societythere is room for a few anomalies as long as there is a good case for them. I think that the case for friendly societies, and the case for the continuance of friendly societies, is very strong. Many of those who use them would without them not save at all. I think that that itself is an overwhelming argument.
Baroness Maddock: My Lords, like other noble Lords who have spoken I am very grateful to the noble Lord, Lord Naseby, for introducing this debate. Indeed, he and I are both officers of the All-Party Parliamentary Group for Building Societies and Mutuals. In opening, he said that he did not want us to be particularly partisan. I do not know whether it is my political training or what, but I always like to try to explain where I am coming from philosophically. I hope that I will not be too partisan in doing that.
In researching, I realised that our party has a constitution, to which we have not only a preamble but a shortened preamble that we all carry round on our cards. The longer preamble contains a sentence which I think describes where we come from. It states:
I then read some of the history of developing thought in the Liberal Party and came across an interesting point which predates even my time in the party. In the 1950s, there was a group in which Jo Grimond was very prominent called the Unservile State Group. It was not officially affiliated with the Liberal Party, but it had some interesting members, some of whom have been or are still Members of this House. In 1953, it included Jo Grimond; Elliott Dodds; Richard Wainwrightwhom some noble Lords may have known, although he did not become
One way in which they sought to develop party policy was to emphasise the value of co-operation and mutuality. Although I think that that probably was not developed very thoroughly in following years, in recent years we have looked at how provision can be made other than totally by the state or totally by business. Our recent party conferences have examined the role of public services and developed that theme. I am therefore totally supportive of many of the comments made tonight. We have had a very good exposition of the success of friendly societies in the modern world.
Friendly societies have a very proud history. I read a claim somewhere that that history goes back to Roman times. I do not know whether that is true, but the first relevant Act of Parliament, on the relief of friendly societies, was passed in 1793. As has been said, friendly societies have stood the test of time and have even survived the introduction of the welfare state. Many of the ideas for the welfare state came from Beveridge, but I do not think that he envisaged that it would be developed in quite the collectivist way that it has.
One of the important features of the movementwhich the noble Lords, Lord Naseby and Lord Graham, have pointed outis its diversity. Organisations such as Liverpool Victoria have more than 1 million members and thousands of employees. Some of the other organisations, however, have no full-time staff and a membership of well under 100. The noble Lord, Lord Naseby, also pointed out the variety of financial products provided by those organisations. It is particularly interesting how many of them have been able to keep up in terms of performance with very big modern organisations. The noble Lord gave us a very clear indication of that.
In this day and age we often discuss how we can involve people in society in terms of voting and so on. Democracy forms an important part of friendly societies. They have a richness of democratic involvement that goes beyond their accountability to their members. For example, societies permit members to take part in decision-making on the basis of one member one vote. That has become a non-partisan phenomenon now although it was partisan at one time. Some societies have a body of delegates who are mandated to vote on behalf of the full membership. Even in small societies all members have an equal vote. I particularly commend that. It is in marked contrast to the concentration of power in other organisations, particularly plcs. I believe that the delegate form of governance permits greater hands-on involvement on the part of members in the operational management of friendly societies. That is very different from the role of shareholders in plcs. I understand that some societies also hold delegate meetings on a regular basis. That is another way of enhancing democratic involvement.
As has already been pointed out, friendly societies are mutual organisations with no shareholders. Thus, the members are the principal stakeholders. Therefore, there is not the potential for a conflict of interest between the respective needs of shareholders for profit and members for value and service. In the event of a demutualisation the assets of a society would be distributed among the membership.
As has already been said, the core heritage of a great many friendly societies is rooted among the less affluent sectors of society. However, I understand that some members of professional groups go down the friendly society route. I understand that a certain society limits its membership to dentists. However, in the main, friendly societies have a particular strength in respect of their competencies in serving the less well off, as the noble Lord, Lord Stewartby, said. But unfortunatelyI believe that the noble Lord, Lord Stewartby, touched on thisregulation has acted as a force to lessen the role played by a number of societies with poorer people. The noble Lord, Lord Stewartby, pointed out that some people go and collect premiums, but that is not always economic in this day and age. I hope that the Minister will comment on that point when he replies to the debate.
Traditionally the membership of friendly societies has encompassed a wide range of social classes. Many regard them as providing a valuable social service in encouraging saving and self-reliance on the part of people who might not otherwise save. They have thereby resulted in an increase in the amount of money that is put into savings.
I do not know whether noble Lords listened to a programme on Radio 4 this morning about debt. Debt is a huge problem among those young people who do not have the habit of saving. According to that programme men in their twenties are more indebted than women of that age. These days we often discuss the level of national debt. The habit of saving was much more prominent when I was younger. We should do all we can to safeguard friendly societies as they encourage people to save.
Savings in a friendly society have the benefit of tax exemption. I shall be a little partisan now as I understand that in the 1984 Budget Nigel Lawson reduced the maximum of tax exempt savings. Then the relevant sum was £9 a month. However, as the noble Lord, Lord Stewartby, pointed out, the relevant sum now is £25 a month. In retrospect that presented societies in large part as providers of savings and insurance to the poor. However, the wide membership spread still exists, especially in respect of savings for children. The Government recognise that. The noble Lord, Lord Naseby, spoke eloquently of the role his society has played in that area. The Government have tried to persuade people that saving is a good thing and have tried to help people to encourage children to save. Recent changesPEPs, TESSAs and so onhave not actually encouraged people in the same way in which friendly societies encourage them to save.
As I said, I am particularly attracted to friendly societies because of their democratic and communal nature. I hope that we will hear more from the Minister on the Government's view on the future of friendly societies. I think that the noble Lord, Lord Naseby, referred to the fact that a submission was made on the Budget about the role of friendly societies, particularly in terms of making child trust funds work. I hope that we will hear from the Minister that the Government have even better plans for their role. Once again, I thank the noble Lord, Lord Naseby, for the opportunity to take part in this interesting debate.
Lord Higgins: My Lords, I join all those who have congratulated my noble friend Lord Naseby on introducing the debate on friendly societies this evening. He did so in fairly wide terms, which gives us an opportunity to discuss the various issues that arise. Everyone who has spoken has referred to the historical foundations of the friendly society movement, not least the noble Lord, Lord Graham of Edmonton, who referred to other mutual help institutions such as the Co-op. I agree with him, certainly as regards that institution. It is a more forward-looking institution than is sometimes supposed. There has certainly been widespread support for the friendly society movement, as there was in another place, where an Early-Day Motion was tabled a short time ago.
The debate is essentially about savings, which are of course crucial so far as macro-economic demand management is concerned. All else being equal, as economists are inclined to say, it is true that if we have more savings, we can have less taxation for any given economic situation. We need to put the debate into the general context of savings and the state of the economy, even though the friendly societies make a unique and rather unusual contribution to the problems.
At present, the Chancellor would be rather upset if there were suddenly a vast increase in savings overnight and a vast reduction in spending. The economy has been kept going in recent times very largely by the extent to which there has been an increase in consumption. None the less, the long-term balance between savings and borrowing is very important. As the noble Baroness, Lady Maddock, pointed out a moment or two ago, the increase in personal indebtedness as against personal savings is a cause for concern at present.
Also a cause of concern is the decline in the savings ratio. I raised the matter with the Minister a short time ago, pointing out that since 1997 the savings ratio had virtually halved. Since then it has almost reached record low levels. He was inclined to talk in terms of averages, but the reality is that there has been a massive decline in the savings ratio. That is a matter in which the contribution made by friendly societies in increasing savingsI will come to the issue of whether they do so in a momentis important.
The reason behind the savings ratio is well known. Much of it is related to savings so far as pensions are concerned. There really is a big problem, particularly, as my noble friend said, for those at the lower end of the income scale, because of the way in which the minimum income guarantee introduced by the Government is uprated with earnings. One really needs to save a very large amount now towards a pension if one is to get enough from those savings to float above the means-tested level. A short time ago, my honourable friend in another place, David Willetts, estimated that people would have to save something like £142,000 as a couple to float themselves above the minimum income guarantee level.
Such problems have had a severe effect on savings. It makes it all the more important to concentrate on savings other than for pensions, which is effectively what friendly societies do. When people's savings mature, they could invest the money and use it for a pension; but generally speaking, it is not what those who save with friendly societies do. They generally use it as an emergency reserve, to finance school fees, for disability and so on. So it is important to extend the scope of non-pension savings. My noble friends have all stressed strongly the way in which this relates to those on lower incomes.
Almost all speakers have mentioned the relationship to the Chancellor's new proposals for child trust fundsso-called baby bondsand to the so-called savings gateway. It would be helpful if the Minister could give us some idea of how important he thinks the role of friendly societies is likely to be in the operation of those funds, given that overall the Chancellor has agreed that there should be an open market option as regards both funds.
I must say in passing that I have some doubts about the means-testing aspect of the proposals. A number of groups, including the Institute for Fiscal Studies, have expressed concern. It is argued that when a product continues from birth right through to age 18, a means-tested answer by the family in the first three years of a child's life may be vastly different from what it will be when the child is 18.
Both products are very complicated. It has been suggested that some typical families might have to go through 18 different means tests before it can be calculated whether or not they meet the requirements. Means-testing and complexity are hallmarks of anything that the present Chancellor introduces.
The question of personal contact is important, as is the extent to which friendly societies provide an opportunity for those who are, as it were, financially excludedthe Early Day Motion even goes into detail about which category of financial persons they areto take up a product that is not provided by any other organisation.
It is arguable that withdrawing an existing tax concession may have a different effect from introducing one, or even keeping it the same. It may be that if the abolition of the tax benefits to that very low income group were to reduce significantly the number of friendly societiessome figures have suggested that they might be cut by 50 per centit would mean that people at that low level did not have any alternative provider to which they could turn. It has been pointed out, for example, that the minimum contribution to an ISA in an ordinary company provision is likely to be much higher than that provided by friendly societies.
I take the point made by my noble friend Lord Stewartby, who suggested that friendly societies are inefficient. I think that he was arguing that in the nature of things if one is carrying out an operation involving very small amounts of money then there are real diseconomies of scale. Consequently one can be very efficient but the problem of higher costs is in the nature of the product. That is part of the reason why the other providers do not come into this market.
It can at least be argued that if there were a substantial reduction in the number of friendly societies as a result of the proposals made by Sandler being extended to them, one could find that the opportunity for saving by those on lower incomes was no longer available. To that extent the total amount of savings may be reduced. Sandler argues that the tax incentive has a redistributive effect rather than a savings-creating effect, but it is not at all clear whether there is anywhere else to go for those who are saving through this measure. Would the Minister kindly indicate whether he shares that view?
This has been a fascinating debate. The basic theme that has run through it is that friendly societies are historic but not anachronistic. They make a substantial contribution to the level of savings. They provide a service to those who otherwise might not find any such service available. To that extent it is important that they should be given due consideration, as it appears has been done by government Ministers in taking their views into account, and as has been forcefully expressed both by my noble friend Lord Naseby and everyone else who has spoken in this debate. Of course there are both sides to the argument. However, on balance it is important that the Government should take these arguments into account, particularly against the background of the new products that they are proposing.
Lord McIntosh of Haringey: My Lords, the noble Lord, Lord Naseby, asked in his excellent opening speech for a constructive debate. His contribution was certainly constructive and I hope that he will agree that all other contributions have been constructive. I hope that I will not break that mould, because we share two fundamental principles with the friendly societies movement, if I may call it that: first, the principle of mutuality, which has been the subject of virtually every speech, and secondly the principle of encouraging savings, in particular for less well-off people. The Government's view is that mutual organisations can foster greater trust among their members acting in their collective interest. As the noble Baroness, Lady Maddock, said, they provide a structure of democratic accountability. So we are committed to the principle of mutual organisations. Indeed, I must declare an interest, which I have previously declared. I have most of my financial business with Sun Life of Canada and Scottish Widows, both of which went in for demutualisation. On both occasions I voted against that and benefited from it.
The Government have changed the legislation for certain mutual organisations to ensure that any decision to convert them to company form is taken only with the active participation of membership. We want a competitive marketplace offering choice for consumers. As I hope to show, friendly societies and mutual societies more generally have a role to play.
I turn to the issue of encouraging savings, particularly for the less well-off. The noble Lord, Lord Higgins, rightly said that the savings ratio has been in decline and that we would wish generally to encourage an increase in the savings ratio but not, as he implied, at all stages of the economic cycle and certainly not on the basis that an increase in the savings ratio is an unalloyed good. There are advantages and disadvantages in changes in the balance between savings and consumption. I put that as neutrally as I can.
On the mutual sector more widely, we are supporting other mutual organisations. On Friday, we will support a Bill that the noble Lord, Lord Carter, is introducing to modernise the legislation on industrial and provident societies. We have introduced
We welcome the contribution that friendly societies in particular make, as has been said throughout this debate, to increase choice and competition. In the Financial Services and Markets Act, we introduced an independent ombudsman and a single financial services compensation scheme, which should increase confidence in potential members of friendly societies. The noble Baroness, Lady Maddock, seemed to suggest that there was some inhibition in the regulation of friendly societies. I cannot think of any way in which there has been. The transfer from the registrar of friendly societies to the Financial Services Authority has been pretty seamless. I am glad to notice that the noble Lord, Lord Naseby, indicates agreement with that. The FSA is required to consult and to undertake cost/benefit analysis, and it has indeed been consulting with the friendly society movement.
On tax exempt savings as a wholeI recognise their importance to the friendly society movementtax exemption on premium life insurance policies means that income and gains that are referable to those policies are not taxed in the hands of the society. That exemption is unique to friendly societies. The amount of tax levied on non-friendly societies that provide insurance ISAs, for example, will be pretty minimal. It is common that where tax exempt policies are sold as qualifying policies, neither the society nor the policyholder pays tax. That has been an important element for friendly societies.
That brings me to Sandler. The Sandler report asked us to look again at the abolition of qualifying life insurance policies on the basis that they are a distortion and an unjustified additional complexity in the savings tax system; that they benefit mainly higher rate tax payers; and that there appears no justification for savings with a life-insurance element to be tax-advantaged over other forms of saving. We are certainly in favour of minimising distortions. We have talked with the mutual industry as a whole about the Sandler proposals and they put it to us that we should look at those tax proposals in the wider context of other tax issues including the market for insurance and other pooled investment products, such as unit trusts. We agree with that. We have decided to consider those recommendations within a wider framework. That will take account of regulatory change and other developments such as corporation tax reform. So this is not a short-term matter.
The noble Lord, Lord Naseby, asked for the timetable. We are considering the scope of that consideration, but I can assure him that we shall include the effect on friendly societies, on their tax exempt savings plans and on the savings of the less well off in general. We shall also, of course, listen to the friendly societies movement on that.
The noble Lord, Lord Higgins, asked about the Sandler recommendation, abolishing qualifying life insurance policies. Many friendly societies sell qualifying life insurance policies. If the Sandler recommendation were to be implemented, that would automatically affect friendly societies. That is why we have not implemented it, but we are looking at it in this wider context. We do not want to pre-empt that review.
We are also committed to helping the less well off. We have specific policies that have been referred to in debate, including ISAs, the Saving Gateway and the Child Trust Fund. I am encouraged to learn, not least from the noble Lord, Lord Naseby, himself, of the close involvement of friendly societies in the Child Trust Fund and in Saving Gateways. Their experience in that area is invaluable. We believe that friendly societies have a huge opportunity to benefit from those new developments.
I turn to the government initiatives to develop the saving habit, starting with ISAs. It has been claimed by some politically motivated peoplenot tonight, of coursethat ISAs have been disappointing. Since 1999 £105 billion pounds have been subscribed to ISAs. That is 14 million people, which is one in four adults; and that is 6 million more than held a TESSA or a PEP by 1998 to 1999. They are starting to change habits. One in five ISA holders are from lower income groups, compared with one in seven TESSA or PEP holders. The number of young people with ISAs is larger. About 10 friendly societies offer insurance ISAs and that is about 5 per cent of the ISA market. There is scope for the movement to develop and to market the ISA product.
Referring to the society of the noble Lord, Lord Naseby, I recognise that ISAs are available to adults only, which is why I now turn to the Child Trust Fund.
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