Lifetime ISAs: further provision

Part of Savings (Government Contributions) Bill – in a Public Bill Committee am 12:30 pm ar 27 Hydref 2016.

Danfonwch hysbysiad imi am ddadleuon fel hyn

Photo of Jane Ellison Jane Ellison The Financial Secretary to the Treasury 12:30, 27 Hydref 2016

To that end, he has succeeded magnificently; everyone looks thoroughly engaged, which is not always the case in Bill Committees, it is fair to say.

Before I speak about schedule 1 and new clause 3, I have a couple of points to make. I do not intend to go into a wide discussion about house building. We all agree that we need to build more houses. Earlier this month, the Government unveiled a £5 billion package at the Conservative conference, which will make substantial progress and build on the progress already made.

The help to buy ISA is often unfairly criticised. In a way, those myths then transfer across to criticism of the lifetime ISA, so it is worth putting on the record that the take-up of the help to buy ISA has been high; there have been more than 650,000 of them to date. Where people have used help to buy to buy a home, that home has been worth on average £167,250, which is well below the scheme’s property price cap of £250,000, or £450,000 in London. That underlines the fact that we expect the majority of those who use the lifetime ISA to be basic rate taxpayers.

I will turn to schedule 1 and then make a point or two about new clause 3, because I hope to show the shadow Minister that I can respond to his substantive concern. The schedule sets out some of the detailed rules of the lifetime ISA. It is a long schedule, so I propose to provide only an overview.

Regulations made under paragraph 11 of the schedule will set out who is eligible for a lifetime ISA by specifying who “the investor” is. We intend to provide in regulation that a new account may be opened only by a person aged under 40, and that payments to a lifetime ISA may only be made until an account holder reaches 50. That is to reflect the fact that the scheme, as discussed, is designed to support younger people in getting into the habit of saving. Draft regulations have already been published for consultation, and they will be considered and debated by the House before the product is launched.

Paragraphs 7 and 8 of schedule 1 concern withdrawals. Account holders will be able to withdraw sums from their lifetime ISA at any time; that is consistent with normal ISA rules. Such withdrawals will not be subject to a withdrawal charge in the circumstances set out in paragraph 7, which include account holders purchasing their first home after saving in a lifetime ISA for 12 months or longer, or reaching a specified age, which regulations will set at 60.

Regulations will also set out detailed rules for the processes to be followed when a withdrawal is made to buy a first home. We intend to consult with industry experts to ensure that those regulations are simple to apply and that they meet our objectives for the scheme. Officials have been working hard and openly with industry experts for some months to ensure a product that works well. There will also not be a withdrawal charge when an account holder dies or becomes terminally ill, or when savings are transferred to another lifetime ISA.

Paragraph 8 concerns the charge that will apply for other withdrawals. That charge will be set by regulations at 25% of the withdrawn amount. That is designed to return the Government bonus and any growth or interest on it, and also apply a small additional charge. That reflects the fact that people should commit to saving into the lifetime ISA for the intended purposes rather than speculatively. In most cases charges will be deducted at the time of withdrawal by the account provider and paid monthly to HMRC.

Paragraphs 3 and 9 provide that regulations will set out the administrative detail of how account providers will claim lifetime ISA bonuses and how providers should pay to HMRC the withdrawal charges that they deduct, along with details of the associated information requirements. There will also be provision for account holders to ask for an HMRC consideration, and to appeal where their bonus claim is refused or they believe a withdrawal charge has wrongly been made, in line with other products of this sort.

Paragraphs 5, 12 and 16 set out penalties for material inaccuracies in information provided to HMRC or non-compliance with information requirements. We believe that those penalties are proportionate, as they are in line with those already in operation for similar failures in relation to tax matters. The general safeguards that operate for tax penalties will apply, including the right to appeal and the right for a penalty not to be applied where there is a reasonable excuse for a failure to provide information.

Paragraph 17 provides for a penalty when a person dishonestly seeks to obtain a bonus they are not entitled to or avoid a withdrawal charge. That penalty is intended to cover serious cases of dishonesty, not innocent errors. Again, individuals will have the right to appeal any such penalty. Finally, schedule 1 sets out withdrawal rules and compliance arrangements, which are necessary to ensure that the lifetime ISA operates effectively and is targeted appropriately.

New clause 3, tabled by the hon. Member for Bootle, requests that the Government assess the impact of the lifetime ISA on house prices in the UK within the first year of the Act coming into force. The Government are committed to supporting people to get on to the housing ladder. I have mentioned some of the products that have come out to support that, as well as the substantial investment in the housing market—particularly the house building market. The lifetime ISA will support younger savers. As we have already discussed, the Government will provide a generous 25% bonus on contributions up to £4,000 a year, which can be used to purchase a first-time home up to a value of £450,000. The lifetime ISA targets a small sector of first-time buyers.

Determining whether the lifetime ISA has had any impact on UK house prices in its first year will be complex. The independent Office for Budget Responsibility has said that savings products that support people to get on to the housing ladder, such as the lifetime ISA, could cause an increase in house prices, but it noted that that effect was highly uncertain, and its predicted impact of 0.3% by 2020-21 is much smaller than overall house price movements. The Committee may be interested to know that the average absolute monthly change in house prices over the past three years has been 0.6%, and that monthly increase is significantly larger than the impact forecast by the OBR for this product.

As we all know, many factors impact house prices, including changes in household incomes, interest rates, mortgage availability and the rate of house building—the supply side. Changes in those factors will have a much greater impact on house prices than the lifetime ISA. In truth, separating out the different causes of changes to house prices is challenging, which will make it difficult to assess the impact of the lifetime ISA in isolation, particularly after just a year of it coming into effect. However, like all policies, the Government will keep the lifetime ISA under review. The Government already publish a monthly UK house price index, which people can use to look at changes in average house prices.

We think that the new clause is unnecessary, and I have outlined the practical problems in coming to the definitive picture that the hon. Member for Bootle seeks. I therefore urge him not to press the new clause. In conclusion, schedule 1 sets out some of the important and detailed rules for how the lifetime ISA will operate, and I therefore ask Committee members to support it.