We have become a nation that spends too much and saves too little. Reversing this trend will be one of the most important tasks facing the next Government. That is why we have put restoring Britain’s savings culture at the heart of our manifesto – it will be one of the eight benchmarks against which an incoming Conservative Government should be judged, as part of our move to create a new economic model.
Conservatives have been criticised for talking about saving now, during an economic downturn. However, we believe this is exactly the time to talk about it – memories in politics are short. If we don’t talk about it now, the debate will move on and we will soon be on our way to inflating the next consumer debt bubble. So what can we do to get people to save more?
We need to begin by setting out a strategic approach to savings policy. We need to send a message from the top that if you put money aside for your retirement or for a rainy day, Government will support you. People need certainty that if they make the effort to save, they will be properly rewarded.
If we look at the climate of taxation and regulation that exists today, really it is little wonder that people aren’t saving enough? We have had Gordon Brown’s raid on dividend tax credits for pension funds, a direct attack on investment in our economy.
We have had the A-Day pension reforms agreed with industry, regulators and consumers which were then casually ripped up just a year later.
From the regulatory standpoint, we have seen a drastic fall in trust in users of financial services.
We cannot expect people to enter a market where misselling is rife and where neither the Government nor the regulator protects them, as we have seen with Equitable Life.
Finally, we have seen boom turn to bust in our economy so that interest rates had to be slashed to support lending, punishing those who had been responsible and saved. Who would save in a climate like this?
First and foremost, we need to restore growth that is sustainable. We cannot end the economic cycle but we must try and smooth it out so that people save during the good years giving them a buffer in the bad. That is why we will give the Bank of England clear responsibility for prudential regulation to monitor the levels of debt in the economy.
Trust is one of the principal barriers to saving. Scandals like Equitable Life and PPI misselling don’t help. We would address this first by taking clear, fast and decisive action on Equitable Life – this is an injustice that has lingered for long enough.
Secondly, we will create a new regulator, the Consumer Protection Agency with the sole aim of championing the interests of consumers in financial services. This will help to restore people’s confidence in the industry and encourage them to save more.
Over time, we will seek to restore the dividend tax credit and increase the value of pension saving. We will also put an end to what is effectively compulsory annuitisation to give people flexibility in their retirement. We will also offer a free financial healthcheck for all, giving families the advice they need to look after their finances, save for the future and get independent expert help on pensions, debt and other financial products.
This will address both mistrust and complexity which prevent people taking actions on savings.
These are the steps that a Conservative Government would take to promote savings and restore demand. It is then up to the advice community to match the supply. As we move back towards a savings culture, more people will need access to financial advice they can trust. As more take advantage of our plans to create flexibility in saving and investing for their retirement, they will need advice on the right products to deliver the income they want. The financial healthcheck will encourage a whole new cohort of savers to enter the market but they will need advice on choosing the right product.
Having a new regulator solely focused on the needs of consumers will increase confidence in financial services but these consumers will still need sound advice to help them get the best products to suit their needs.
Restoring the savings culture is a benchmark against which to judge the success of Conservative economic policy. In a market where consumers are naturally wary, Government cannot afford to send out the wrong message as it has been doing. We would change this by backing savings through our overall message, through our system of regulation and through the tax system. We envisage a new generation of people entering the market who have never saved before. I have every confidence that the advice community will be ready for them.