Child Trust Funds Bill
Public Bill Committee, 6 January 2004.
Standing Committee A
Child Trust Funds Bill
Ruth Kelly (Labour, Bolton West)
I beg to move,
That—
(1) during proceedings on the Child Trust Funds Bill the Standing Committee (in addition to its first meeting on Tuesday 6th January at 9.30 a.m.) shall meet—
(a) at 2.30 p.m. on Tuesday 6th January, and
(b) at 9.30 a.m. and 2.30 p.m. on Tuesday 13th January, Thursday 15th January and Tuesday 20th January;
(2) proceedings on the Bill shall (so far as not previously concluded) be brought to a conclusion at 5.00 p.m. on Tuesday 20th January.
Let me start by saying what a pleasure it will be to work with you in the Chair, Mr. Benton. Last night, the Programming Sub-Committee had a constructive meeting at which the schedule was set out for our sittings.
Question put and agreed to.
Joe Benton (Labour, Bootle)
I take the opportunity to remind the Committee that there is a money resolution and a Ways and Means resolution in connection with the Bill, and copies of those are available in the Room. Adequate notice should be given of amendments and, as a general rule, my co-Chairman and I do not intend to call starred amendments, including any that may be reached during an afternoon sitting of the Committee.Clause 1 Child trust funds
Clause 1 - Child trust funds
George Osborne (Conservative, Tatton)
I beg to move amendment No. 1, in
clause 1, page 1, line 3, leave out 'child trust funds' and insert 'baby bonds'.
Joe Benton (Labour, Bootle)
With this it will be convenient to discuss the following:
Amendment No. 2, in
clause 1, page 1, line 4, leave out 'child trust fund' and insert 'baby bond'.
Amendment No. 8, in
clause 3, page 2, line 29, leave out 'child trust fund' and insert 'baby bond'.
Amendment No. 10, in
clause 3, page 2, line 32, leave out 'child trust fund' and insert 'baby bond'.
Amendment No. 11, in
clause 3, page 2, line 39, leave out 'child trust fund' and insert 'baby bond'.
Amendment No. 12, in
clause 3, page 3, line 2, leave out 'child trust fund' and insert 'baby bond'.
Amendment No. 13, in
clause 4, page 3, line 16, leave out 'child trust fund' and insert 'baby bond'.
Amendment No. 14, in
clause 4, page 3, line 18, leave out 'child trust fund' and insert 'baby bond'.
Amendment No. 16, in
clause 5, page 3, line 38, leave out 'child trust fund' and insert 'baby bond'.
Amendment No. 19, in
clause 5, page 3, line 41, leave out 'child trust fund' and insert 'baby bond'.
Amendment No. 22, in
clause 6, page 4, line 4, leave out 'child trust fund' and insert 'baby bond'.
Amendment No. 23, in
clause 6, page 4, line 7, leave out 'child trust fund' and insert 'baby bond'.
Amendment No. 26, in
clause 6, page 4, line 15, leave out 'child trust fund' and insert 'baby bond'.
Amendment No. 28, in
clause 6, page 4, line 20, leave out 'child trust fund' and insert 'baby bond'.
Amendment No. 31, in
clause 7, page 4, line 23, leave out 'child trust fund' and insert 'baby bond'.
Amendment No. 32, in
clause 7, page 4, line 26, leave out 'child trust fund' and insert 'baby bond'.
Amendment No. 33, in
clause 8, page 4, line 32, leave out 'child trust fund' and insert 'baby bond'.
Amendment No. 35, in
clause 8, page 4, line 35, leave out 'child trust fund' and insert 'baby bond'.
Amendment No. 36, in
clause 9, page 4, line 39, leave out 'child trust fund' and insert 'baby bond'.
Amendment No. 38, in
clause 9, page 5, line 4, leave out 'child trust fund' and insert 'baby bond'.
Amendment No. 39, in
clause 9, page 5, line 7, leave out 'child trust fund' and insert 'baby bond'.
Amendment No. 40, in
clause 10, page 6, line 10, leave out 'child trust funds' and insert 'baby bonds'.
Amendment No. 41, in
clause 10, page 6, line 22, leave out 'child trust funds' and insert 'baby bonds'.
Amendment No. 42, in
clause 11, page 6, line 27, leave out 'child trust fund' and insert 'baby bond'.
Amendment No. 44, in
clause 12, page 6, line 34, leave out 'child trust fund' and insert 'baby bond'.
Amendment No. 46, in
clause 12, page 6, line 37, leave out 'child trust fund' and insert 'baby bond'.
Amendment No. 47, in
clause 12, page 6, line 38, leave out 'child trust fund' and insert 'baby bond'.
Amendment No. 49, in
clause 12, page 6, line 40, leave out 'child trust fund' and insert 'baby bond'.
Amendment No. 50, in
clause 12, page 6, line 41, leave out 'child trust fund' and insert 'baby bond'.
Amendment No. 51, in
clause 13, page 7, line 7, leave out 'child trust funds' and insert 'baby bonds'.
Amendment No. 52, in
clause 13, page 7, line 11, leave out 'child trust funds' and insert 'baby bonds'.
Amendment No. 53, in
clause 14, page 7, line 31, leave out 'child trust fund' and insert 'baby bond'.
Amendment No. 54, in
clause 14, page 7, line 33, leave out 'child trust fund' and insert 'baby bond'.
Amendment No. 55, in
clause 14, page 7, line 35, leave out 'child trust funds' and insert 'baby bonds'.
Amendment No. 56, in
clause 15, page 8, line 1, leave out 'child trust fund' and insert 'baby bond'.
Amendment No. 57, in
clause 15, page 8, line 4, leave out 'child trust fund' and insert 'baby bond'.
Amendment No. 58, in
clause 15, page 8, line 6, leave out 'child trust fund' and insert 'baby bond'.
Amendment No. 59, in
clause 15, page 8, line 8, leave out 'child trust fund' and insert 'baby bond'.
Amendment No. 60, in
clause 15, page 8, line 9, leave out 'child trust fund' and insert 'baby bond'.
Amendment No. 61, in
clause 15, page 8, line 12, leave out 'child trust fund' and insert 'baby bond'.
Amendment No. 63, in
clause 16, page 8, line 26, leave out 'child trust funds' and insert 'baby bonds'.
Amendment No. 64, in
clause 17, page 8, line 42, leave out 'child trust funds' and insert 'baby bonds'.
Amendment No. 65, in
clause 17, page 9, line 6, leave out 'child trust funds' and insert 'baby bonds'.
Amendment No. 66, in
clause 17, page 9, leave out line 15 and insert 'baby bonds'.
Amendment No. 67, in
clause 17, page 9, line 21, leave out 'child trust funds' and insert 'baby bonds'.
Amendment No. 68, in
clause 17, page 9, line 29, leave out 'child trust funds' and add 'baby bonds'.
Amendment No. 69, in
clause 18, page 9, line 35, leave out 'child trust funds' and insert 'baby bonds'.
Amendment No. 70, in
clause 18, page 9, line 37, leave out 'child trust fund' and insert 'baby bond'.
Amendment No. 71, in
clause 18, page 9, line 39, leave out 'child trust fund' and insert 'baby bond'.
Amendment No. 72, in
clause 18, page 9, line 40, leave out 'child trust funds' and insert 'baby bonds'.
Amendment No. 73, in
clause 18, page 10, line 2, leave out 'child trust fund' and insert 'baby bond'.
Amendment No. 74, in
clause 18, page 10, line 5, leave out 'child trust fund' and insert 'baby bond'.
Amendment No. 75, in
clause 18, page 10, line 8, leave out 'child trust fund' and insert 'baby bond'.
Amendment No. 76, in
clause 18, page 10, line 10, leave out 'child trust fund' and insert 'baby bond'.
Amendment No. 77, in
clause 18, page 10, line 10, leave out 'Child Trust Funds' and insert 'Baby Bonds'.
Amendment No. 78, in
clause 19, page 10, line 22, leave out 'child trust fund' and insert 'baby bond'.
Amendment No. 79, in
clause 19, page 10, line 27, leave out 'child trust fund' and insert 'baby bond'.
Amendment No. 81, in
clause 19, page 10, line 31, leave out 'child trust fund' and insert 'baby bond'.
Amendment No. 83, in
clause 20, page 10, line 37, leave out 'child trust fund' and insert 'baby bond'.
Amendment No. 84, in
clause 20, page 10, line 38, leave out 'child trust fund' and insert 'baby bond'.
Amendment No. 85, in
clause 20, page 10, line 40, leave out 'child trust fund' and insert 'baby bond'.
Amendment No. 89, in
clause 20, page 11, line 38, leave out 'child trust fund' and insert 'baby bond'.
Amendment No. 90, in
clause 20, page 11, line 42, leave out 'child trust fund' and insert 'baby bond'.
Amendment No. 91, in
clause 22, page 13, line 1, leave out 'child trust fund' and insert 'baby bond'.
Amendment No. 93, in
clause 22, page 13, line 7, leave out 'child trust fund' and insert 'baby bond'.
Amendment No. 95, in
clause 22, page 13, line 9, leave out 'child trust fund' and insert 'baby bond'.
Amendment No. 96, in
clause 25, page 15, line 5, leave out 'Child Trust Funds' and insert 'Baby Bonds'.
Amendment No. 98, in
clause 29, page 16, line 8, at end insert—
'''baby bond'' has the meaning given by section 1(2),'.
Amendment No. 99, in
clause 29, page 16, leave out line 10.
Amendment No. 100, in
clause 31, page 16, line 18, leave out 'Child Trust Funds' and insert 'Baby Bonds'.
Amendment No. 101, in
title, line 1, leave out 'child trust funds' and insert 'baby bonds'.
George Osborne (Conservative, Tatton)
Thank you, Mr. Benton. I promise that you will not need to work as hard in Committee as you have just have done by calling out all the amendments. It will be a pleasure to work under your guidance. I welcome you to the Chair and the Minister to the Committee. As I have said to the hon. Lady before, the Conservative association in my constituency is twinned with the Conservative association in her constituency. Her seat is our target seat, although such ideas proved singly unsuccessful in the previous election and in 1997 when the Conservative party lost my constituency in the process of targeting hers. However, it will be a great pleasure to shadow the hon. Lady in Committee.
My big group of amendments seeks to achieve a simple objective: to change the name of the policy that we shall be discussing from ''child trust funds'' to ''baby bonds'' to put the Committee in touch with the real world. No one in the real world calls such measures child trust funds; they are called baby bonds. I searched the internet and found out that, during the past month, 254 references were made in the national press to baby bonds. Each headline in respect of the policy refers to baby bonds.
The public describe the measure as ''baby bonds''. I received a Christmas card from Mrs. Warden in Hampshire, which is hundreds of miles from my constituency, in which she wrote:
''Gordon Brown's 'BABY BOND' another gimmick! I look in on the House daily, does Ruth Kelly know what she is doing''.
On 29 December, a letter from Mr. Andy Clark from Crawley, West Sussex was printed in The Sun. He wrote:
''It would be better for Chancellor Gordon Brown to channel the money from the proposed baby bonds into the NHS''.
Indeed, if anyone was interested in what they were doing today, I suspect that many members of the Committee would say that they were members of the baby bond Committee.
Linda Perham (Labour, Ilford North)
I am attracted by the alliterative properties of the term ''baby bonds''. However, does the hon. Gentleman agree that the purpose of such funds is to reach up to the age of 18, the end of a person's childhood? It could be misleading to change the description of such funds, popular though such action may seem.
George Osborne (Conservative, Tatton)
I am not sure that a change to ''baby bonds'' would be misleading, if that is what everyone thinks that they are anyway; it might be misleading to proceed with a name that no one is aware of, and people may not be aware of what child trust funds are.
The blame for the name ''baby bonds''—if we are looking for blame—rests entirely with the Government's information sheet and Government spin doctors. After the policy was announced in the run-up to the 2001 general election and Budget, No. 10 Downing street briefed on it extensively, and we were told, ''Brown to announce baby bonds in Budget'', and so on. I am merely saying that ''baby bonds'' is what everyone calls them, and that is how everyone knows
them. We in Westminster are often accused of speaking in a parallel language that no one understands.
Hilton Dawson (Labour, Lancaster and Wyre)
There is a serious point to the subject. We will be trying to encourage young people to invest in their trust fund throughout their childhood, and particularly, perhaps, their adolescence. What adolescent would own up to their peers that they were putting their hard-earned money from their paper round, or whatever, into their baby bond? That is just not realistic.
George Osborne (Conservative, Tatton)
The hon. Gentleman is being too sensitive to the feelings of our nation's teenagers. One of the companies most likely to be an active participant in the child trust fund market is Children's Mutual. It uses the name ''baby bonds'' for one of its products, which is one of the most popular savings products for children. The name is already out there in the marketplace.
I suspect that the Minister will say that the trust funds are not bonds, because many of them will be in equity, but I have anticipated that line of attack. During the consideration of the Finance Bill in Committee and on the Floor of the House, I kept making the point that the stamp duty land tax—the Government's new land tax—neither involved a stamp nor was a duty. When I made that point to the Minister, she said that the Government were sticking to that name because it was the term commonly understood by practitioners, so she has already accepted that principle. Although ''baby bonds'' would not be a strictly accurate term, in the sense that these investments are not necessarily bonds, that is the name by which the policy is universally known, and it would be a good start for the Committee if it were put in touch with the real world.
Ruth Kelly (Labour, Bolton West)
I welcome the hon. Gentleman to the Committee. I am sure that he will make an extremely valuable contribution to proceedings. I am always glad to hear of his continuing connection with my constituency, and to hear about his Christmas card list. I expect to hear more about that later.
I am grateful to the hon. Gentleman for explaining his fondness for the term ''baby bond''. However, as my hon. Friend the Member for Lancaster and Wyre (Mr. Dawson) pointed out, it is important to recognise that the trust fund with which we are proposing to endow all children at birth is designed to build up a financial asset to which young people will have access at the age of 18. It is designed to promote and encourage traditional saving by parents, family, friends and children.
It is not easy to think of a name that will appeal to children of all ages, from babies to young adults. We think that ''child'' comes as close as any name to achieving that. However, we did not take that decision lightly; in fact, we commissioned research, with prospective parents and grandparents, on which name was most attractive, and they said that ''child trust fund'' was understandable, recognisable and meaningful. Indeed, contrary to what the hon.
Member for Tatton (Mr. Osborne) says, there was a high level of awareness about what the expression meant.
George Osborne (Conservative, Tatton)
Is the Minister really trying to tell us that more people are familiar with ''child trust funds'' than ''baby bonds''?
Ruth Kelly (Labour, Bolton West)
If the hon. Gentleman will allow me to continue, I was about to say that there is an intrinsic problem with the name ''baby bond'', and a reason why it cannot be used. As he intimated earlier, the name is already used by Children's Mutual for one of its products, and it is a registered trademark. That makes it impossible to use the name as the hon. Gentleman suggests, as registration of a trademark gives the owner the exclusive right to use the mark, and the right to sue third parties who infringe that right.
Because of the popularity of the term ''child trust fund'', the fact that the financial asset is to be drawn down at the age of 18, and the fact that the name ''baby bond'' is off limits, I recommend that the Committee reject the amendment.
George Osborne (Conservative, Tatton)
It is so disappointing that my first ever amendment has been rejected—I suppose that I had better get used to that. I was simply attempting to put the Committee in touch with the real world. The Minister's point that Children's Mutual has the copyright on baby bonds did not prevent Government spin doctors from calling the measure a baby bond, and continuing to call it that in behind-the-scenes briefings. Perhaps the Minister and I can come to an arrangement. The Minister could assure me that Government spin doctors will not call the funds baby bonds, and I will promise to call them child trust funds from now on.
Andrew Robathan (Conservative, Blaby)
Is there not another angle to this? As was pointed out on Second Reading, £250 is not a vast amount of money. I have two small children, and the Minister has four children, so she knows, as I do, that £250 does not go very far towards bringing up a baby. One could call that amount a baby bond because it is enough only for a very small baby for a very short time.
George Osborne (Conservative, Tatton)
I thank my hon. Friend for that intervention. We are straying into the detail of the sums that will be involved—
Andrew Robathan (Conservative, Blaby)
That is covered in clause 8.
George Osborne (Conservative, Tatton)
I am sure that my hon. Friend has a long speech prepared for clause 8. We need an arrangement whereby the people in the Government who speak on the Minister's behalf cease to call these funds baby bonds. From now on, I shall call them child trust funds. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
George Osborne (Conservative, Tatton)
I beg to move amendment No. 4, in
clause 1, page 1, line 9, leave out from 'the' to end of line 10 and add
'general supervision and direction of the Secretary of State.
(4) In performing its functions under this Act, the Inland Revenue shall have due regard to any directions from the Secretary of State.'.
Joe Benton (Labour, Bootle)
With this it will be convenient to discuss the following:
Amendment No. 139, in
clause 1, page 1, line 10, at end add
'and the Department for Work and Pensions'.
Amendment No. 97, in
clause 28, page 15, leave out line 20 and insert 'Secretary of State'.
George Osborne (Conservative, Tatton)
The amendments are designed to prevent yet another chunk of the welfare system being gobbled up by the Chancellor of the Exchequer's empire at the Treasury, and to keep the administration of child trust funds at the Department for Work and Pensions.
As members of the Committee will be aware, I recently conducted some research. I found that, in the past four years, the Government have abolished family credit, introduced the working families tax credit, the disabled person's tax credit and the child care tax credit, introduced the employment credit, abolished the married couples allowance, introduced the children's tax credit and the baby tax credit, abolished the working families tax credit, the disabled person's tax credit and the children's tax credit, abolished the baby tax credit, introduced the child tax credit, abolished the employment credit and introduced a working tax credit. They have also transferred the administration of child benefit from the renamed Department for Work and Pensions to the Treasury.
In the process of introducing five tax credits, abolishing four of them and introducing a further two, the Government have, as every constituency MP knows, caused huge administrative chaos and confusion, and genuine hardship for people caught up in the mess. It all amounts to a wholesale taking over of much of the working age benefit system by the Treasury. Child trust funds are the latest example of that. No doubt the Minister will tell me that they are linked to the eligibility for child benefit and should properly be administered by the Inland Revenue, but it prompts questions about why the Inland Revenue now administers child benefit. We could have a long, theoretical discussion about whether the Department that collects revenue is the best Department to be paying out benefits—I have serious concerns about that—but I suspect that I would be stretching the Committee's patience if I began that discussion.
We are entitled to ask whether the Inland Revenue is up to administering child trust funds, which, by the Government's own admission, it is a significant task. The explanatory notes say:
''There will be significant new one-off setting up costs of implementing the CTF, mainly because of the need for new IT support, including both a new CTF IT system and the modernisation of the child benefit IT system''.
Can the Inland Revenue cope? To put it politely, it has had a patchy record of administering tax credits during the past 12 months. The Comptroller and Auditor General has qualified its accounts; we have a problem when the taxman's own accounts are qualified. The Inland Revenue has also sacked its IT provider, EDS.
The Inland Revenue and the Treasury are proposing to set up a new form of benefit system during the next 12 months and to get the Inland Revenue to administer that. Surely the DWP is more likely to carry out that task effectively? If an increasing number of benefits are administered by the Treasury, then what is the point of the DWP? Will we reach a point at which almost all functions of that Department are carried out by the Chancellor? The amendments are merely an attempt to put the DWP back in charge of the benefits system.
David Laws (Liberal Democrat, Yeovil)
I, too, welcome you to the Chair, Mr. Benton. I managed to resist the temptation to intervene on the first major set of amendments, but I would like to speak to amendment No. 139 and, to some extent, to those tabled by the hon. Member for Tatton.
I also welcome the Financial Secretary to her position. During the proceedings of the Treasury Committee, one of the Labour Members said that she would make a charming and persuasive member of a sales force. I hope that during these proceedings she will be not only in selling mode, but in listening mode, and that she is willing to listen to some of the amendments and representations.
Amendment No. 139 seeks to amend subsection (3), which says:
''The matters dealt with by and under this Act are to be under the care and management of the Inland Revenue.''
Why should the child trust fund be under the care and management only of the Inland Revenue, rather than under the management either of the Department for Work and Pensions or of a partnership agreement between the two Departments?
Desmond Turner (Labour, Brighton, Kemptown)
There has been glancing reference to administrative problems involving one Department. Will involving two Departments lessen the prospect of such problems?
David Laws (Liberal Democrat, Yeovil)
I assumed that the hon. Gentleman would have more confidence in Ministers of his own Government. I thought that ''partnership'' was a new Labour buzzword. I am suggesting that there should be more partnership between these two important Departments. If the hon. Gentleman prefers, I will concede that the DWP rather than the Treasury could take the initiative.
The hon. Member for Tatton has described how since 1997 it has increasingly become the habit of the Chancellor and the Treasury to annex large parts of the economic and social agenda, particularly in relation to many of the former responsibilities of the DWP. That must be a concern; it raises questions as to why some issues are managed from the Treasury rather than from the DWP. As the hon. Gentleman hinted, some of the management of tax credits recently has shown that the Inland Revenue and the Treasury are not always best placed to perform that task.
I am concerned not just with the management of child trust funds, however, but with the coherence of the Government's thinking on savings. The child trust fund is about saving during the early years of somebody's life; it has to be linked with a series of other Government initiatives. Government initiatives are well meaning, but they do not always interlink well. I refer not only to initiatives that affect people early in life, such as the savings gateway and the individual savings account, but to the Government's proposals on pensions. There has been criticism of the confusion surrounding many of those proposals and of the fact that existing pension arrangements are poorly understood. One might therefore have hoped that, with child trust funds, the Government would be thinking not only of people saving over the first 18 years of their life and of relatives paying into the fund but about what people will do with the fund when they reach 18. I am talking not only about the proceeds but about the concept of the fund itself.
Has the Minister had any discussions with the DWP, or even within the Treasury, about how the child trust fund could emerge as an ordinary tax advantage savings account or how it could, potentially, be a forerunner of a second-tier pension account owned by every person in society? It would be a great pity to put in all this work, investment and financial education from birth to age 18 and then fail to exploit the benefits, which the Government believe exist, of persuading people to save more not only for their working lives but for retirement. The DWP has an interest in child trust funds that stems not only from pensions and savings for retirement but from the interaction between the funds and people's ability to go into employment.
During her evidence to the Treasury Committee the Minister said that she hoped that many people would use their child trust fund to finance their entry into employment; for example, to purchase any capital equipment that they might need. That relates not only to the aspirations of the Treasury but, in particular, to those of the DWP, which has responsibility not just for saving for retirement but for assisting people to enter employment.
I hope that the Minister will view the amendments tabled by the hon. Member for Tatton and myself as constructive, and that she will say how she intends to ensure that the important links between the child trust funds and the responsibilities of the DWP are not overlooked.
Ruth Kelly (Labour, Bolton West)
I am glad that the hon. Members for Tatton and for Yeovil (Mr. Laws) have pointed out the enormous steps that the Government have made in integrating the tax and benefits system and in abolishing child poverty. [Interruption.] We are moving towards abolishing child poverty. That is at the core of what it is to be a progressive Labour Government.
I am also grateful to the hon. Member for Yeovil for explaining why he thinks that the DWP should oversee the funds. However, there are extremely good reasons why the Inland Revenue should be responsible for preparing and managing the accounts. We have closely
modelled the child trust fund account on the current savings vehicles, individual savings accounts, which are under the care and management of the Inland Revenue—a fact that has proved very useful.
Regulations cannot cover every conceivable situation so it is generally accepted that the Inland Revenue should have wide managerial discretion that can be exercised in the interests of good management; for example, in difficult or unexpected situations. It is inevitable that occasionally the providers or the responsible person who opens the account, usually the parent, will make errors. The Inland Revenue's care and management power will allow it to set matters right without the child's account being disadvantaged because of those errors.
There will be other instances in which the Inland Revenue's powers will allow a pragmatic and flexible approach to be taken to a situation, as has been the case in many instances with ISAs. If the Inland Revenue could not apply care and management there would be no administrative flexibility and the system would become unworkable.
However, I take the hon. Gentleman to be referring more specifically to whether the Inland Revenue has the resources and capacity to undertake and oversee the child trust funds project. I wish to put on the record the fact that the Inland Revenue delivers reports to Ministers every month: I receive a monthly report on its programme on child trust funds and its ability to deliver that.
George Osborne (Conservative, Tatton)
I am pleased to hear what the Minister said about her regular meetings. As she will be aware, it transpired that her colleague, the Paymaster General, did not discuss the administration of tax credits for a period of six months before they were introduced early last year, which caused problems. So it is good to hear that she has learned from her colleague's mistakes.
Ruth Kelly (Labour, Bolton West)
The Inland Revenue has had a huge amount to deal with in the last year or so. However, it has now taken a full review of the risks to its delivery schedule between now and April 2005, and it has taken action to reduce those risks. Measures have been put in place to reduce the risks within individual programmes. For example, the child trust fund IT delivery has already been planned, with functionality coming in eight instalments. It will be phased in to make sure that the system is not over-burdened, significantly reducing the risk by spreading the delivery time scale and the amount that has to be delivered in each instalment. We are confident that the Inland Revenue has the capacity to deliver.
George Osborne (Conservative, Tatton)
The Minister has not spelled out the risks, even if she is confident that they will not be encountered. Perhaps she could tell us some of those risks.
Ruth Kelly (Labour, Bolton West)
There is always an element of risk in introducing a new system, as I am sure the hon. Gentleman is aware. This will be minimised for child trust funds by, for example, linking their administration directly to the administration of child
benefit. That linkage is as simple and straightforward as possible. The Inland Revenue is clearly capable of delivering child trust funds, and I am taking an active interest in its operational ability to make sure that the project continues on time.
David Laws (Liberal Democrat, Yeovil)
Before she finishes her comments, will the Minister respond to the specific point that I raised earlier? Has she had a discussion with the DWP about what will happen to the accounts on maturity and whether the Government will seek to use their existence to encourage further tax advantage savings, or perhaps to encourage people to think about saving for retirement?
Ruth Kelly (Labour, Bolton West)
I am sure that the hon. Gentleman is aware that I am the Minister responsible for long-term savings policy, so I talk to myself regularly about the future of the child trust fund. Representations have indeed been made about what should happen to the assets when children reach 18. During the consultation it was suggested that there should be an incentive for the savings to be rolled over into another savings vehicle. We will keep that suggestion under review as the policy progresses; it will be some time before that situation arises.
David Laws (Liberal Democrat, Yeovil)
I am pleased to hear that the Minister frequently talks to herself about these issues. I encourage her, though, to speak a little with some of her colleagues in the DWP, particularly those who are responsible for pensions. Since there is such a problem in getting many people to save for their retirement, I should like to plant the thought in the Minister's mind that, once child trust funds mature, they could be used as a forerunner for an account to be used for retirement savings. It would be a great pity if the Government lost the ability to use those accounts, which they established, rightly or wrongly, because they did not think about out what would happen when people reached the age of 18 and the account matured.
Ruth Kelly (Labour, Bolton West)
I certainly understand the point that the hon. Gentleman makes in good faith. We intend to keep these issues under review as the account progresses. We are in constant discussion with the DWP on this matter, as on other long-term savings and retirement issues. It would be difficult for us to specify how the account might develop over the next 15 or 18 years. I point the hon. Gentleman towards research by the Children's Mutual on children who have savings accounts in the baby bonds scheme, about which the hon. Member for Tatton is so informed.
When many of those children reach 18 they choose to roll it over and use the money to make further provision. It is clear that a child may choose to put that money towards saving for the future. We must bear that in mind as the policy develops.
George Osborne (Conservative, Tatton)
It is not only pensions in which the Department for Work and Pensions will have an interest. Some of the benefits that the Department administers, such as jobseeker's allowance and income
support, will interact with a child trust fund at 18, when people have this pot of money. The Minister is aware that there is a debate about whether the child trust fund should be counted against a means-tested benefit. Has she discussed that with the Department? Would not it be better to institutionalise the involvement of the Department in the Bill?
Ruth Kelly (Labour, Bolton West)
I do not think that that is appropriate, for the reasons I have set out. The Treasury has responsibility for long-term savings provisions. Nevertheless, we have a regular dialogue with the Department on retirement provisions and other issues, including the child trust fund and how it counts against benefit entitlements.
I am sure that once this policy is up and running there will be many contributions to the debate on how it could develop in future. We are only beginning to hear arguments being put forward. This is a huge step forward with huge possibilities for the future. I urge the Committee to reject the amendment on the basis that the Inland Revenue is the appropriate institution to deal with the care and management of the accounts.
George Osborne (Conservative, Tatton)
I still do not think that that the Minister is fully owning up to what is really behind all this, which is the Chancellor's ever-expanding empire ruling over our benefits system. One of the ironies is that a traditional Chancellor of the Exchequer—that is, any Chancellor before the present one—would have spent a great deal of time on things that the current Chancellor does not spend much time on, such as interest rates, the decision on which has been given to the Bank of England, financial regulation, which is now dealt with by the Financial Services Authority, and gilt issues, which are also handled by another agency.
The Chancellor spends a lot of time on social policy and benefits. This measure is an extension of that concern and is yet another example of the Chancellor administering something that any past Government, whether Conservative or Labour, would have put with the old Department for Social Security. The Minister makes technical arguments, saying, ''Now that we administer child benefit and the systems are up and running we should get on and administer this. We have done all the work.'' However, saying that does not tackle the fundamental issue, which is why the Treasury, or the Inland Revenue, is growing as an organisation that hands out money, rather than one that takes it in. Is there a conflict of interests? Is the way that tax is collected and income is assessed for tax different from how income is assessed for benefits? Of course, there is a difference, and that has given rise to many problems.
The Minister did not tackle the fundamental issue, which is why she feels that the Inland Revenue and the Treasury are increasingly the right bodies to administer benefits in our system of government. I have never heard a proper explanation from her or the Chancellor of the Exchequer.
The Minister was pretty careful to say that she had regular meetings and checked that things were on track. I want her assurance, to which I can hold her in 12 or 15 months' time, that the system will work. There is a big IT challenge. If the Minister is so confident that the Inland Revenue is able to meet that, she can assure us that there will be no administrative cock up with the child trust funds and the issuing of 1.8 million vouchers next spring. She talked about the various IT systems and the eight stages, and so on. Perhaps she could tell us whether it is true—as I read in the paper—that the Inland Revenue has sacked its IT provider and is looking for a new one. What company will be doing the IT on this project?
Ruth Kelly (Labour, Bolton West)
I can certainly give the hon. Gentleman the assurance that all risks are being minimised. I receive a regular monthly update on progress on the administration of the child trust fund. I have been down to the Inland Revenue offices and been walked through the process, looking in detail at all the inter-linkages in the system. He points to specific risks. There are always risks in introducing a new IT system, for example. I cannot say that those risks somehow evaporate because of prudence and sensible courses being taken in the delivery of the project. I am sure that if he were in a similar position he would not wish to give such an assurance. We are taking every step to minimise the risks.
The hon. Gentleman correctly said that the Inland Revenue announced on 11 December that Cap Gemini Ernst & Young had been selected as its preferred supplier for the Aspire contract that is relevant to the delivery of the child trust fund. That contract will commence on 1 July 2004. Transition planning with both bidders and incumbent suppliers will commence in October to ensure that, regardless of the outcome of that competition, all parties will be ready to start the transition. The key areas of joint planning include the current service and projects that are in the process of being delivered, including the child trust fund. I am confident that there will be a smooth transition.
George Osborne (Conservative, Tatton)
The Minister appears to be saying that just a couple of months after this brand new system is introduced, the Inland Revenue will swap to a wholly new IT provider. Would it not be better perhaps to delay the introduction of child trust funds until the autumn? It does not make any difference, as it will be 18 years before people can collect the money. It does not matter whether they are handed out in April next year or September or October next year. It might interfere with the election timetable—God forbid—but apart from that it would at least allow the new company to have ownership of the system from the beginning rather than having to pick it up a month or two after it is up and running.
Ruth Kelly (Labour, Bolton West)
That is not the case. Every precaution has been taken to ensure the smooth delivery of the child trust funds. There will be a comprehensive back-up procedure. We do not envisage any problem in the delivery of the vouchers.
George Osborne (Conservative, Tatton)
I am grateful to the Minister. I can hold her to that assurance that she does not envisage any problems in the issuing of vouchers. I beg to ask leave to withdraw my amendment.
Amendment, by leave, withdrawn.
Clause 1 ordered to stand part of the Bill.
Clause 2 - Eligible children
George Osborne (Conservative, Tatton)
I beg to move amendment No. 5, in
clause 2, page 1, line 13, leave out '2002' and insert '1992'.
Joe Benton (Labour, Bootle)
With this it will be convenient to discuss the following amendments: No. 142, in
clause 2, page 1, line 13, leave out '2002' and insert '2010'.
No. 104, in
clause 2, page 2, line 26, leave out subsection (7).
No. 34, in
clause 8, page 4, line 34, at end insert—
'(1A) Regulations under subsection (1) must prescribe an initial contribution of nil in respect of any child trust fund held by a child born before 1st September 2002.'.
No. 37, in
clause 9, page 5, line 3, at end insert—
'(2A) Regulations under subsection (2) may prescribe a contribution of nil in respect of any child trust fund held by a child born before 1st September 2002.'.
George Osborne (Conservative, Tatton)
This is arguably the most important series of amendments. My Liberal Democrat colleague will speak to amendment No. 142: it verges on being a wrecking amendment but I will leave it to the Minister to argue that. With the exception of amendment No. 104, which I will come to at the end, my amendments would extend the child trust funds to children born after 31 August 1992. In other words, it would allow people to open child trust funds for older children.
I make it quite clear from the beginning that I would not expect an initial Government contribution or indeed any Government contribution. I do not seek to spend more public money. I merely seek to allow parents to open child trust funds and to have all the benefits of being able to save for their children, putting in amounts of up to £1,200 a year and having a tax free sum at the end. The amendments would change the date from 2002 to 1992. I chose 1992 because I thought that that would be sensible. We could have an earlier date, but I am talking about anyone who is not a teenager. Given that it will be a year or so before the funds are up and running anyway, people are more likely to save for their younger children—children who are not teenagers—although I am happy to listen to arguments to extend the provision to teenagers. To achieve my objective, I would amend the date from 2002 to 1992. With amendment No. 34, I would amend clause 8 to make it clear that the initial contribution from the Government would be zero in respect of a child trust fund held by a child born before 1 September 2002.
I do not propose that it should be compulsory to start a child trust fund; I do not suggest that everyone should do so. I am merely saying that we should
provide parents with an opportunity to open a child trust fund for older children. I have a personal interest in this, as has the Minister. One of my children is eligible for a child trust fund; the other is not. As I intend to put money into the child trust fund for my young daughter on a yearly basis, I would like to do the same for my son.
David Laws (Liberal Democrat, Yeovil)
I understand why the hon. Gentleman raises this issue, but he does not propose that the Government should contribute to the accounts of children born before the date that they have set, and the tax advantages of the child trust fund are pretty marginal for most people compared with existing savings reliefs. Therefore, is the only advantage that he is really offering parents who would take advantage of his proposals a tax-advantaged account that has some handcuffs, if I can put it that way, in that the money is kept in it for 18 years? Otherwise, they could presumably exploit other means of tax-advantaged saving.
George Osborne (Conservative, Tatton)
There are other savings vehicles on the market. That issue has been raised in discussion of child trust funds, but the truth is that many parents do not use those savings vehicles, for whatever reason. I think it quite likely that parents in my situation—with one child or more who qualify and one child or more who do not—will want to open accounts for the older children. My proposal would be time-limited. After 12 or 13 years or so, it would be redundant anyway, because everyone will have child trust funds. People will not need to be able to open child trust funds for older children, because they will already have them.
The Government's stated objective, as the Minister repeated on Second Reading, is to encourage
''children and their parents to save for the future.''—[Official Report, 15 December 2003; Vol. 415, c. 1337.]
I am merely asking why we should restrict the benefits of child trust funds to newborn babies.
David Laws (Liberal Democrat, Yeovil)
I still have not heard a clear explanation of what the hon. Gentleman would gain as a parent from having the option to put money into a child trust fund for a child who is not covered by the Government's proposals, compared with using another form of tax-advantaged saving. Is he merely saying that the risk is that parents will be irrational in not understanding the other savings options open to them, so the Government should provide accounts for irrational parents to encourage them to make equal provision?
George Osborne (Conservative, Tatton)
I do not want to disappoint the hon. Gentleman, but many people are irrational in life.
James Purnell (Labour, Stalybridge and Hyde)
The Tory party.
George Osborne (Conservative, Tatton)
The hon. Gentleman mentions the Tory party, but I shall come on to a list of Labour people. [Interruption.] One Labour Member who is about to intervene supported this proposal on Second Reading.
Michael Jabez Foster (Labour, Hastings and Rye)
Does not one advantage relate to charges? The charge for the child trust fund will probably be limited to 1 per cent., whereas many of the schemes currently available rob children of 3, 4 or even 5 per cent. of their savings simply to set up those expensive options. The child trust fund will be a better alternative.
George Osborne (Conservative, Tatton)
The hon. Gentleman makes a good point. I do not necessarily support the 1 per cent. charge, but I certainly do not support charges as high as 3, 4 or 5 per cent. We shall discuss the charge cap later. My proposal is about simplicity. I would be able to say to my children that they both had child trust funds—which would mature at the age of 18—and, indeed, the tax-free savings that would accrue as a result.
Michael Weir (Scottish National Party, Angus)
Is there not a potential problem here? I am sure that the hon. Gentleman has already made provision for his elder child, as most of us whose children will not qualify for the bonds probably have. Is he not in difficulty with his promise that those who would benefit from child trust funds by receiving the initial Government input are those on lower incomes? Under his proposal, they would not get such an input for older children. I fail to see how that would benefit any older children.
George Osborne (Conservative, Tatton)
Of course, in an ideal world, if we had vast sums of money at our disposal, we could provide initial contributions in the form of Government vouchers to children of all ages. I am, frankly, realistic; I know that that is not feasible, as the money is just not available. I am merely suggesting that many of the other benefits of the child trust funds scheme—benefits that go beyond the initial voucher—can be offered to parents with older children. I am in good company here, because the Treasury Sub-Committee's excellent report on child trust funds—to which a Liberal Democrat member of the Committee signed up—concluded:
''We consider that the natural reaction of parents with children born on either side of the cut-off date will be to try to see that they are treated equally. This may mean that those parents with sufficient financial resources will make additional provision for children who do not qualify for a child trust fund account. We believe they would be encouraged to do this if child trust fund accounts, identical in all respects save the absence of a Government endowment, were available for their other children. In the light of the evidence of the cost to the Treasury of the extra tax relief afforded by child trust funds is negligible, we recommend that consideration be given to extending the availability of child trust fund accounts but without Government endowments, to children born before 1 September 2002.''
The amendments seek to implement the recommendations of the Treasury Sub-Committee, to which Conservative and Liberal Democrat Members signed up.
Desmond Turner (Labour, Brighton, Kemptown)
I thank the hon. Gentleman for his patience in giving way so often. I am puzzled by the spat between Conservative and Liberal Democrat members of the Committee. As an outsider to it, it seems that the Conservatives are adopting the mildly
generous view that is more traditionally associated with the Liberal Democrat party, and the Liberal Democrats are adopting the more traditionally Conservative Gradgrind meanness. Can the hon. Gentleman explain that?
George Osborne (Conservative, Tatton)
Yes, I can. We have worked out how to get out of Opposition into Government.
David Laws (Liberal Democrat, Yeovil)
I do not want the hon. Gentleman to misrepresent the Committee's views in any way. He will be aware that the responsibility of Select Committees is to try to come to a majority view, even when their members may have slightly different emphases on particular points. If he finds that surprising, I refer him to the comment made by one of the Committee's Conservative members, the hon. Member for Bury St. Edmunds (Mr. Ruffley), who referred to child trust funds as
''a quarter of a billion PR stunt''.
That seems to collide with the views that the hon. Gentleman has expressed on behalf of the Conservative party.
George Osborne (Conservative, Tatton)
My hon. Friend the Member for Bury St. Edmunds is a good friend of the Minister—they had some good, lively discussions in the Committee—and believes that the proposal is a bit of a gimmick, but he still supports it. He suspects that the timing of the introduction of the vouchers, just before the general election, makes them a bit of a gimmick. However, he supports the principle behind child trust funds, which is to encourage savings. He did not vote against the proposal, unlike the Liberal Democrat Member who, strangely, signed up to the report, but then went into the Opposition Lobby to vote against the measure on Second Reading.
David Laws (Liberal Democrat, Yeovil)
Will the hon. Gentleman give way?
Joe Benton (Labour, Bootle)
Order. We are moving slightly off the point of the amendment. I will take the intervention, and then ask hon. Members to return to the amendment.
David Laws (Liberal Democrat, Yeovil)
I am grateful for your guidance, Mr. Benton. I am sure that you are quite right to warn us of the dangers of moving away from the amendment. The hon. Member for Tatton sought to claim, on the basis of the Select Committee report, that there was agreement on all points. Does he really believe that the hon. Member for Bury St. Edmunds supports the proposals after he described them as a £250 million PR stunt?
George Osborne (Conservative, Tatton)
Well, he can support a PR stunt. However, taking into account your advice Mr. Benton, I will bring my remarks back to the amendment and pray in aid other authoritative sources, for example the report from the Treasury Sub-Committee. As well as that, the Chairman of the Treasury Committee, the hon. Member for Dumbarton (Mr. McFall), urged the Minister on Second Reading to
''keep open the opportunity to open a child trust fund for children born before 1 September 2002.''
He said that the Government
''should not give endowments, but offer the same tax breaks for such sums.''
He reminded the Minister that she told the Committee that
''extra tax relief afforded by the child trust fund is negligible'' —[Official Report, 15 December 2003; Vol. 415, c. 1357.]
and he urged the Financial Secretary to consider the measure.
The hon. Member for Hastings and Rye (Mr. Foster) will remember that, on Second Reading, he also urged the Financial Secretary to open the scheme up to other children. He said:
''The Financial Secretary said in her opening remarks that the scheme is for all children, but it is not for all children if 80 or 90 per cent. will not be included... Extending the scheme to all would be a popular choice; it would also be an important one''.—[Official Report, 15 December 2003; Vol. 415, c. 1369.]
He went on to set out the reasons for that, and he will perhaps speak later in this debate.
There is support for the measure from all parts of the House and from the Treasury Committee. It is difficult to understand why the Financial Secretary refuses to accept that. It cannot be an issue of cost, because she told the Treasury Committee under cross-examination, to which I have already alluded, that the cost of extra tax relief would be negligible. Therefore, the cost is not what is holding the Government back. It seems that the Financial Secretary is concerned about the financial providers' ability to deliver child trust funds to more children. On Second Reading, she said that she was
''disappointed to tell the House that the administrative burden on providers of allowing all children from previous cohorts to benefit from an identical tax-free vehicle is disproportionate to the benefits that would be offered. Providers would have to monitor and track the accounts of all children. We would require returns on all accounts, and the Inland Revenue would need much larger IT systems.''
The hon. Member for Hastings and Rye intervened and said
''Is that not a problem anyway? As time goes on, greater numbers will apply, so in 18 years' time people would have to deal with that volume of applications in any event.''—[Official Report, 15 December 2003; Vol. 415, c. 1394.]
The financial providers that are likely to offer the products have universally said that they want to do so. They believe that they will be able to market the products better to parents if they can say, ''You can have them for all your children, not just those that received the initial voucher and have a plum set up anyway.'' The Association of British Insurers told the Treasury Committee that it considers that
''a strong case can be made for extending the Child Trust Fund regime so that parents could open a Child Trust Fund account in their child's name even if they did not receive Government money''.
That is an example of a representative body saying that its members are more than up to delivering the product and do not share the Financial Secretary's concerns about their ability.
In response to the Financial Secretary's comments on Second Reading, the chief executive of Children's Mutual, in a note to the Committee, stated:
''We urge the standing committee to ensure the regulations are brought in to allow the children born before the 31st August 2002 to benefit from tax-free savings. The Minister in her remarks in the 2nd Reading argued that one reason for not extending the CTF to ineligible children is that it would impose a burden on providers. We would be happy to work with the Government on how any administrative burdens could be overcome, something we believe to be possible.''
Thus the industry is also saying that it is up to offering older children the benefits of child trust funds, of which the Minister has frequently spoken. The Opposition are proposing it, the financial sector is saying that it can do it, the Labour Members who spoke on Second Reading propose it, and the Treasury Sub-Committee, which has a Labour majority, called for it. I cannot understand why the Financial Secretary does not want to spread the savings culture, and the virtues that savings bring, to older children.
Finally, amendment No. 104, which was also signed by the hon. Member for Yeovil, would remove the extraordinary subsection (7), which I had to reread several times to make sure that I had not misunderstood it. As members of the Committee, who will have done their homework, know, clause 2 clearly specifies that the measure applies to children born after 31 August 2002. It is about the only hard fact in the Bill, because most of its important features are left to regulation, which we have not yet seen. Subsection (7) states:
''Regulations may amend subsection (1) by substituting for the reference to 31st August 2002 a reference to an earlier date.''
So, the Minister has provided herself with a subsection that allows her to extend the benefits of child trust funds to children born before 31 August 2002. I should be happy not to press my amendment if the Minister can assure me that she will use the get-out clause in subsection (7) to extend the benefits of child trust funds to children born before that date.
David Laws (Liberal Democrat, Yeovil)
I start on a note of agreement. I support amendment No. 104 and agree with what the hon. Gentleman said about it.
It is surprising that the Government want to leave open the question whether they will introduce an earlier date for entitlement to the child trust fund. Perhaps the comments made by the Minister on Second Reading show that the Government still have an open mind on the issue, although I presume that they initially decided not to include an earlier date in the Bill because they were concerned about the administrative costs involved.
The hon. Member for Tatton was right to say that we should resolve the issue now rather than leaving the vague subsection (7) in clause 2, which would allow the Government to return to the issue later. We are entitled to know their views on the issue, rather than waiting for everything to be determined by regulations that we have not yet seen. I agree entirely with the hon. Gentleman that we want a definitive Government line on the matter from the Minister.
I understand why the hon. Gentleman raised the issue today; he is right to say that the concern has been expressed by many Labour Members of the Treasury Committee and the financial providers who made representations to the Treasury and to the Select
Committee. I am not sure that the hon. Gentleman has made a convincing argument for backdating the legislation to include children who will currently fall outside its scope . He may have shown the weakness of his argument by acknowledging that, by and large, only irrational people would want to take up the opportunity of a child trust fund that was backdated prior to the date in the Bill. Even he is not arguing that there should be any Government contribution to such funds.
I believe, moreover, that the hon. Gentleman would acknowledge, as would I, that the number of people who would benefit from tax relief is extremely small, given that other forms of tax-advantage savings are available, and that the tax advantages of the child trust fund are very modest. The hon. Gentleman therefore relies on the idea that if parents were not able to establish a child trust fund—even one with no advantages—they would not make any savings. They would not put money into any other forms of tax-advantage savings, even though, in our view, those have better characteristics, in terms of access, than the child trust fund, particularly for lower-income families, and have largely the same tax advantages. In the case of a family in which one or more children are entitled to the child trust fund, but other children are not, any sensible parent wishing to establish some sort of equity within their own family would seek to ensure that any additional savings made in the child trust fund would also go into an account set up for the other children.
George Osborne (Conservative, Tatton)
I am aware that the hon. Gentleman opposes the idea of child trust funds and voted against them on Second Reading. However, on the logic of what he says, I assume that he would not advise parents to make any contribution to a child trust fund, since, as he puts it, there are other, more advantageous, savings vehicles. Presumably, he would argue that parents should take the initial contribution and keep that in the account, but they should put their savings elsewhere.
David Laws (Liberal Democrat, Yeovil)
Without being knocked astray from discussion of the amendments, there is much good sense in what the hon. Gentleman says. We do not yet know what the Government propose for the savings gateway. Parents might tie up savings in a child trust fund account, which has negligible tax advantages, even on the Minister's own assessment, when they could receive the same tax advantages through accounts that are already available such as the ISA. They might also find that the child trust fund is not a good place to put money, if the Government introduce new proposals in which there is an additional element of advantage and Government contribution.
In fairness to the hon. Gentleman, I acknowledge that the savings market is often characterised by a fair degree of short-sightedness, and sometimes of what appears to be irrationality. I recall learning recently that a large number of employees of Members of
Parliament were not taking up the option of free money offered to them for their pensions by the House of Commons authorities. Not only had they not set up a pension account of their own, but they were not taking advantage of money that was being offered to them at no cost. Perhaps it is on such irrationality that the hon. Gentleman bases his argument that parents would not establish other accounts—ISAs, for example—if they did not have something called a child trust fund. However, that argument is fairly weak and marginal when set against the additional administrative and other costs of establishing the child trust fund entitlement for children who would not currently have that entitlement.
I admit that my views on the matter might be different if I were not so sceptical of the value of the current proposals, both in respect of the use of scarce Government money and of the advantages that the Government believe that the child trust funds have, which I believe to be very small. My unwillingness to support the hon. Gentleman's proposal to allow more people to access the child trust fund than the Government will allow may be based partly on my scepticism about the scheme as a whole. However, I do not believe that the hon. Gentleman has clearly established the advantages that his proposal would give parents whose children are currently not entitled to the child trust fund.
I shall speak briefly to amendment No. 142, described by the hon. Gentleman as almost a wrecking amendment. I do not want to revisit issues that we discussed on Second Reading but, through the amendment, I invite the Government to think again about whether this is the right time to introduce the Bill. Are they convinced that a later start date would not be advantageous, as that would allow them to direct scarce financial resources to where they could make most impact?
On Second Reading, I mentioned that the Prime Minister made a statement on the launch of the child trust fund in April 2001, when he said:
''We are committed to extending opportunity to all. All our children—especially the most disadvantaged—should have the chance for a proper start in life.''
Many commentators have pointed out that the child trust fund will make no financial difference to children in their early years. Indeed, it could take away from funding that could be available to support education, because that money will be locked away in an account for 18 years, and we will not have any tangible advantage from it until 2020—that is unusual for a Government policy.
I also commented on the proven, rather than the alleged, value of the other Government measures for young children, such as the Sure Start schemes and children's centres. I urge the Government to think about whether it would not make more sense to continue to roll out those important initiatives across the country—including to areas such as Somerset, which the hon. Member for Bridgwater (Mr. Liddell-Grainger) and I represent in part. That would allow the important work that the Government are doing on early years to be completed before they expend what
could, in the next spending review, be pretty scarce money on the initiative, the benefits of which many people feel are unproven.
The proposal embedded in amendment No. 142 is that the Government should delay the introduction of the child trust fund, allowing them in the meantime to focus the £250,000 a year, at least, that they would be saving on the other Government policies that certainly help some of the most disadvantaged people in society.
There are other issues that the Government would be well advised to deal with before they introduce these measures. Subsection (7) perhaps shows the extent to which we are reliant on regulations; it suggests that Government policies on these matters have not been sufficiently thought out.
I mentioned earlier the importance of considering the interaction between other forms of tax advantage saving and the child trust fund. It seems odd to introduce the fund without making a clear statement, particularly to those on low incomes, of what other Government initiatives, such as the savings gateway, will exist to boost savings. The pilots involve giving match funding to individuals who are saving in order to encourage them to do more. I should have thought that that would do much more to stimulate saving among those on low incomes. Also, if the Government introduced such a measure after the child trust fund had been introduced, many lower-income families who had locked up money for 18 years in the child trust fund for no tax advantage would find that they could have used the money to far more advantage in the savings gateway.
A number of issues would benefit from further Government consideration. For all those reasons, and without reopening the Second Reading debate, I urge the Government to think about the value of shifting the scheme back a number of years in order to get the proposals right, and to make sure that the scarce amount of money available really goes towards tackling disadvantage in the early years, rather than into a scheme that will have no effect until people reach the age of 18.
Michael Jabez Foster (Labour, Hastings and Rye)
I support the principles that the hon. Member for Tatton displays in wishing to extend the benefits of this excellent scheme, which I wholly support. However, he is too modest in seeking, through amendment No. 5, to extend it only to those born after 1992. If we want to benefit all children, we should extend it to all children. For that reason, I shall certainly not support an amendment that simply creates a divide different from that which already exists.
I acknowledge that, as the Minister said on Second Reading, there is an administrative issue, and she may be wise in not wishing to go too far too fast, especially given the reservations of Labour Members and others about the ability to set up and run efficiently a big scheme for a group of people—in this case children. In the Minister's reply, I would welcome some indication of the administrative burden. How difficult will the task be, how many extra staff will be required and what would be the cost of extending the scheme to everyone?
It is important to extend these simple, effective child trust funds across the board. In many respects, the present provisions are as tax-efficient as the child trust funds; there is negligible difference for most children from modest backgrounds. The tax benefits are also negligible. None the less, the charges are excessive; for example, up to 4 or 5 per cent. of some of the funds that have been mentioned today. That is perhaps justified because of the fragmented way in which the schemes operate. Advertising and promotion are expensive, and the funds suffer as a consequence.
The child trust fund is a simple scheme in essence, and it will not require substantial promotion, as the payments themselves will promote it. For that reason, the costs will be low, and the Bill provides for a limit on those costs. I shall leave it to the Minister to explain why the administrative burden is so great that a more comprehensive job cannot be done. If that is impossible, I hope that a gradualist approach will be taken so that children born after an earlier date can be included. The idea of not having a cut-off point at 1992 could be pursued.
Michael Weir (Scottish National Party, Angus)
There is an air of unreality in the debate about extending the measure to children born after an earlier date. In many ways, I support the comments of the hon. Member for Tatton; in an ideal world, every child would have a trust fund. However, it is easy for a relatively wealthy parent to say, ''I will equalise provision for my children. Child A gets £250 from the Government so I will set up a trust fund for Child B with £250.'' However, many on low incomes and benefits have absolutely no chance of doing that. The sum of £250 may not seem a huge amount to the hon. Gentleman, but it is a substantial sum for many of our constituents. Most of those people have little chance of being able to set up trust funds for two or three of their other children at the same time as they get this money from the Government.
If we go down this route, most parents will try to set up a trust fund to equalise provision for their children, but there is a danger that those on low incomes will put any spare money into a trust fund for another child, rather than build up the trust fund for the first child, so the situations will never be equalised. It is unrealistic to expect them to be. In an ideal world all children should be equal, and I accept that the hon. Member for Tatton has good intentions, but the scheme has to start somewhere, and I fear that if we put back the date it will have no effect apart from on those who will save for their children in any event.
George Osborne (Conservative, Tatton)
Many of the objections that the hon. Gentleman is deploying against my amendment can be deployed against child trust funds. First, any child born before 31 August will not have a trust fund, so parents, whether they are on low incomes or not, will have to explain why one child has a fund and one does not. Secondly, someone with several children who each have a fund under this scheme may put different amounts into each child's fund. Thirdly, of course wealthier parents are more likely than less wealthy parents to put money into child trust funds. Later, we can talk about the fact that, as a result of this scheme,
a child from a wealthier family can end up with £35,000 on their 18th birthday and a child from a low-income family can end up with £900 or £1,000. Many of the problems that the hon. Gentleman has identified lie with the proposals for the child trust fund. I am trying at least to give parents the chance to remedy the inequality between the treatment of two children.
Michael Weir (Scottish National Party, Angus)
I accept what the hon. Gentleman says. I made much the same points on Second Reading. However, what he is attempting to do will not affect that situation; in fact, in many ways it may make it worse.
Peter Atkinson (Conservative, Hexham)
What the hon. Member for Yeovil says is true: people are extremely irrational about their savings—and that does not just apply to the House of Commons staff who do not collect their free pension contributions. Many people hold on to mortgages that are vastly more expensive than is necessary, even when they could change them quite happily and save many thousands of pounds a year. I support the proposal made by my hon. Friend the Member for Tatton because his scheme has the advantage of simplicity. People will put little sums of money into accounts when it is convenient to do so.
I speak from experience, but I come to the subject from a slightly different angle. Unlike the Financial Secretary or my hon. Friend, I have no vested interest. My children are grown up—although the bad news is that they still cost me quite a lot of money. The Financial Secretary and my hon. Friend think that when their children are mature that is the end of it, but it certainly is not. If only I had had the opportunity to contribute to something like this. If the Government get their way, the cost of university education will go up and up, so this sort of nest egg will be valuable to people. It is important that such schemes are open to everybody, so that when they mature, they will provide a considerable sum to help pay for university education, although there may not be £35,000.
David Laws (Liberal Democrat, Yeovil)
Is the hon. Gentleman saying that if there had been a child trust fund open at the relevant time for his children and even if there had been no tax advantage in relation to other forms of saving and no Government contribution, he would have made savings provision for his children, whereas in reality he made no provision?
Peter Atkinson (Conservative, Hexham)
I would not have made any contribution, but my wife would. When people deal with larger financial matters, such as pensions, they—and men in particular—tend to ignore or dismiss such savings vehicles. I know that my wife, like other people, used to squirrel money away on behalf of the children in all sorts of ways. One of the beauties of this scheme is that it fulfils that objective. It may be irrational, but it would be useful to many parents.
David Laws (Liberal Democrat, Yeovil)
I do not want to probe too much into the hon. Gentleman's family financial arrangements—and I do not know how much his wife was squirreling away from him for his children—but, notwithstanding the fact that he seems not to be the key financial decision maker in his household in respect of his children, is he saying that his wife would have saved more for them than she did?
Peter Atkinson (Conservative, Hexham)
I am not sure whether discussing my family's financial affairs is in order. Nevertheless, my wife runs most of the financial affairs in my household. My hon. Friend's amendment is important because it provides a useful method of saving for many people and such a provision should be extended. As I look at subsection (7), I am convinced that that is at the back of the Government's mind. Subsection (7) is included to allow the provision to be extended in future. That is not happening at the moment because, sadly, as we have learned, nothing that this Government ever do is without less than a sum advantage to them. They think that they can get political kudos from introducing baby bonds and that they can have a second bite of the cherry later. I believe that that is behind subsection (7) and the agenda generally.
Ruth Kelly (Labour, Bolton West)
I have listened with great interest to Opposition Members, and particularly to my hon. Friend the Member for Hastings and Rye. It is right at this stage to draw a distinction between three very different proposals. Sometimes when the issue is discussed, those proposals can become confused. Therefore, to aid the Committee, I shall outline the three distinct issues that we should consider.
The first issue is whether children from a previous cohort should be eligible for exactly the same child trust fund as those who were born after 1 September 2002—whether they should have Government endowments provided in exactly the same way; whether they should have a lock-in up to age 18; whether stakeholder accounts and Inland Revenue accounts as specified in the Bill should be provided for them; and whether a charge cap and risk controls and so on should be available for such stakeholder provisions.
Amendment No. 104 would allow us to draw a previous cohort of children into the mechanism and into the child trust fund. It would provide a degree of flexibility, making it possible for other children to benefit. Those in favour of the Bill might think that that is unambiguously a good thing—they might not. However, if one accepts that all children born after the start date of 1 September 2002 should benefit from the child trust fund, it seems reasonable that we should think about including a greater number.
David Laws (Liberal Democrat, Yeovil)
Is the Minister saying that the Government have not decided whether they wish to allow people with children born prior to the existing cut-off date to take advantage of the child trust fund? Does she wish to leave that option open? If that is so, can she tell us when the Government will make a decision on that issue?
Ruth Kelly (Labour, Bolton West)
I am not saying that we have not decided. We have decided that those born after the cut-off date of 1 September 2002 should benefit, but we have allowed for a certain degree of flexibility, such as the ability to give top-ups at ages other than those set out. Should the research back us up in making further provision and should the funds become available from Exchequer resources, we will be able to decide whether to bring in another cohort of children.
Some hon. Members have proposed that the child trust fund without the Government endowment should be available to all children under the age of 18. It has been suggested that the shell should be made available compulsorily to those born before the cut-off date of 1 September 2002, that there should be a lock-in, and that there should be stakeholder provisions with risk controls and so on, so that a fund that mimics the child trust fund exactly, apart from the Government endowment, would be available to all. I argued against that on Second Reading because it would mean that 10 million children at a stroke would be allocated shell child trust funds. That would impose a significant administrative burden, not just on providers but on the Inland Revenue. Indeed, it would impose a tax burden on the Exchequer.
George Osborne (Conservative, Tatton)
People who proposed that—indeed, I proposed a similar measure for anyone who is not a teenager—are suggesting not that everyone would be allocated a child trust fund, but merely that people would be able to set them up. Optimistic though I am that parents would make use of my proposals, I do not think that, realistically, 10 million children will have child trust funds. The number will be a fraction of that. Many financial providers say that that may enhance their ability to sell the product to families, by encouraging them to put in contributions for their youngest children, who have the initial Government contribution.
Ruth Kelly (Labour, Bolton West)
I was about to come to the hon. Gentleman's proposal, which was the third option for discussion. I am dismissing the proposal to allocate a shell child trust fund to all children under 18. That is for reasons of administrative burden, but also because it would, for example, be difficult to argue that a stakeholder product should be allocated to a 17 year-old, whose lifestyle requirements would not make it appropriate. The issue therefore becomes much more complex, and we would have to think it through. We could not introduce the proposal on the start date of the child trust fund.
However, the hon. Gentleman suggested a third option. The Inland Revenue would offer an account with the same tax advantages—an ISA-style account—for children born before the cut-off date of 1 September 2002. Like the child trust fund, it would also have a lock-in facility, and there would be stakeholder accounts for those who wanted to benefit from them. I am sure that the hon. Gentleman will correct me if I have got this last detail wrong, but I believe that the account would also be available only for children born after a cut-off date of 1992. Of
course, there would still be the issue of whether stakeholder provision was relevant, but I am sure that we could return to that.
Then there is the argument presented by the hon. Member for Yeovil as to whether it is proportionate to make the proposed accounts available and whether demand for them would exist and is currently not met by products on the market. In the past, I have argued that many savings and investment accounts on the market are aimed at children. Each child already has a personal allowance of £4,615 a year before they are liable to pay tax on money that is gifted from a parent. They have to earn an income of £100 a year before they become liable for tax. So, there are significant advantages for people who wish to invest in an account for their children.
Michael Jabez Foster (Labour, Hastings and Rye)
Does my hon. Friend know of any scheme available on the market that has charges as low as those of the child trust fund?
Ruth Kelly (Labour, Bolton West)
I believe that the Children's Mutual has a charge of about 2 per cent. Of course, we have not yet announced the level of the charge that we are likely to introduce for the child trust fund, but it will become known in due course.
The question is whether there would be unmet demand for the type of child trust fund product that we are likely to offer. If there were demand for such a product, providers may well offer a look-alike product that has an 18-year tie-in and which uses the current tax advantages in the system, and which they market with the child trust fund when they send information to new parents and when there are top-ups and so forth. In fact, I am sure that providers would do that if there were demand. There may be an issue about charges, but competition would drive them down, perhaps to the level offered by the child trust fund. So the issue becomes whether there is a gap to be met between the tax advantages in the system and those that we are offering in the child trust fund.
Having heard the strength of feeling on the matter, I am perfectly willing to talk to providers to see whether they think that there would be a gap that needed addressing. There would be some cost to the Exchequer in offering such a product, and, given stakeholder provisions and so forth, I do not think that it would be as easy to offer a solution as is sometimes suggested. The easiest way to meet demand could be through the market, as I have suggested. However, if it became clear that there was unmet demand, I believe that it would be possible, through regulation, to establish a similar children's ISA product that would make the child trust fund arrangements almost in their entirety but without Government endowments and so forth. I undertake to ask providers whether they believe that such unmet demand exists or is likely to exist so that we can review the situation in the future. On that basis, I ask the hon. Member for Tatton to withdraw his amendment.
George Osborne (Conservative, Tatton)
The Minister has rather taken the wind out of my sails. I was getting ready for a vote and had my Whip all lined up, and now she has said that she will consider—[Hon. Members: ''He has just left.''] I let him go. It is good news that the Minister will consider the issue seriously. The hon. Member for Hastings and Rye and I are pleased at the outcome of the debate.
I take at face value the Minister's assurance that much of what I am suggesting needs to be done in the Bill can be done by regulation and that a similar product can be developed. In my discussions with all the representative institutions and some of the companies, each one said that it would like to offer the products to older children and that that would help its marketing to families. After all, we are talking about something that is going to be time limited, because in 18 years every child will have a child trust fund. I am grateful that the Minister is prepared to consider that.
On amendment No. 104, I am still a little unclear about the Government's proposals. Do they really envisage including older children at a later date and spending large sums of money on doing so? I suspect that the Minister does not need subsection (7) and that it will never be used, but I suppose that I take her argument that she needs the flexibility. I beg to ask leave to withdraw my amendment.
Amendment, by leave, withdrawn.
George Osborne (Conservative, Tatton)
I beg to move amendment No. 103, in
clause 2, page 1, line 14, leave out 'entitled to' and insert 'eligible for'.
Joe Benton (Labour, Bootle)
With this it will be convenient to discuss amendment No. 124, in
clause 9, page 5, line 12, leave out 'entitled to' and insert 'eligible for'.
George Osborne (Conservative, Tatton)
I confess that I may not have the wording of these amendments exactly right, and the Minister will undoubtedly tell me that it is wrong. The amendments would change the wording of clauses 2 and 9, and I have tabled them to examine the Bill's explanatory notes, in which the Government say that
''it will be essential to claim child benefit for a child if that child is to qualify for a CTF account.''
The exception is a child in care, which is dealt with separately and which we will discuss later.
The point is that it is essential to claim, rather than be eligible for, child benefit. Child benefit has one of the highest take-ups of any benefit because it is universal and not means-tested. When I asked a written question to the Treasury about take-up rates at the end of last year, the Paymaster General replied:
''Precise figures are not available, but the take up rate of child benefit is thought to be around 98 per cent.''—[Official Report, 8 December 2003; Vol. 415, c. 330W.]
However, that still leaves 2 per cent. of children—by my maths about 1,400 children a year—for whom child benefit is not claimed but who are eligible for child benefit and, therefore, eligible in theory for a child trust fund.
Amendment No. 103 would allow the Government to provide those children with a child trust fund even if their parents do not apply for child benefit for whatever reason. I am not sure why that 2 per cent. of people do not apply for child benefit—perhaps they are just not up to it or have particular objections to taking Government handouts—but whatever the reason, it is not the child's fault. Surely if the Government are keen to extend the new fund to every child, they should at least give themselves the option of trying to track such children down. Parents who are not claiming child benefit are unlikely to want to set up child trust fund accounts, but the Bill provides a clause that enables the Inland Revenue to set up accounts for children whose parents refuse to or do not set up accounts for whatever reason. The amendments would give the Government the option of opening child trust fund accounts for children who are eligible to have child benefit claimed in their name but for whom child benefit is not being claimed at present.
Ruth Kelly (Labour, Bolton West)
I understand the point that the hon. Gentleman is making. We want as many people as possible to have the advantage of a child trust fund, but the key principle in developing the child trust fund was to keep the system as simple as possible for parents, providers and the Inland Revenue. The vast majority of parents, as he pointed out, receive child benefit. So making the award of child benefit the key to eligibility for the child trust fund ensures that parents do not have to worry about any other claims in what is inevitably a busy time for them following the birth of a child.
David Laws (Liberal Democrat, Yeovil)
Can the Minister explain why a small proportion of people do not claim child benefit? What categories of people do not make that claim?
Ruth Kelly (Labour, Bolton West)
It is difficult to understand why that 2 per cent. of people choose not to claim child benefit. One can only speculate. Clearly some people make a deliberate decision not to do so. Others may do so through oversight or because they do not understand the procedure. But without knowing who they are it is impossible to understand their motives. If we did not have the link to child benefit we would have to link the award of a child trust fund to some other eligibility system, which would almost inevitably be more complicated than the direct link to child benefit.
George Osborne (Conservative, Tatton)
I am not suggesting breaking the link with child benefit. I merely suggest that the link should be eligibility for rather than receipt of child benefit.
Ruth Kelly (Labour, Bolton West)
I am sure that the hon. Gentleman will understand that the direct link to child benefit is what makes the system so simple for the Inland Revenue to administer and relieves it of a huge burden of trying to identify eligible parents.
David Laws (Liberal Democrat, Yeovil)
The hon. Member for Tatton has identified an important potential hole in the group of people who may be entitled to child trust funds. As the Government have taken clear and decisive action elsewhere in the Bill to ensure that children are not disadvantaged by their parents' inactivity, perhaps
they could look again at the hon. Gentleman's proposal to ensure that no children lose out as a consequence of decisions made by their parents.
Ruth Kelly (Labour, Bolton West)
I do not think that there is a big hole. If people have deliberately avoided contacting the Inland Revenue to claim child benefit, it is highly unlikely that they will want to take up a child trust fund on behalf of their children and the Government endowment that it is attached to it.
George Osborne (Conservative, Tatton)
We are guessing because we do not know who this 2 per cent. of people are. Some of them will be extremely incompetent people, frankly, who have been unable to claim child benefit on behalf of their children. They are likely to be the most disadvantaged families. Therefore, would it be possible for the Inland Revenue to have a small team of a couple of people who would try to track down some of these children and at least give them the benefit of a child trust fund? They clearly are not getting other benefits in life. They may be some of the most disadvantaged children in our society.
Ruth Kelly (Labour, Bolton West)
If we found out about such a disadvantaged family we would encourage them to claim child benefit and they would not have to make an additional claim for the child trust fund. Anecdotally, however, the Inland Revenue understand that it is generally wealthy people who want no contact with the system whatever who choose not to claim child benefit. The hole may be even smaller than we first thought.
David Laws (Liberal Democrat, Yeovil)
The Minister appears to be saying that the Government believe that parents are entitled to decide whether their children have the child trust fund. She appears to say that where parents have taken a conscious decision not to claim benefit the child should be excluded from the child trust fund. Surely elsewhere in the Bill there is a clear Government view that even if parents do not take up the child trust fund option when they receive child benefit, the Government will take it up for them. Therefore, the amendment raises legitimate concerns that a very vulnerable group of children could lose out. The Government could do more to safeguard their interests.
Ruth Kelly (Labour, Bolton West)
I do not think that that point is valid. The most disadvantaged people are most likely to have direct contact with the child benefit system. By accessing that system, they also access the child trust fund system. It would make no sense to have a team of people in the Inland Revenue trying to track down people who had not claimed their child trust fund. That is different from not having the team try to track down people who had not claimed child benefit, for whatever reason. The direct link between the two makes the whole process much easier to administer for the Inland Revenue, and much simpler for parents to understand and make claims.
George Osborne (Conservative, Tatton)
I speak from a position of ignorance, but does the Inland Revenue actually seek out people who do not claim child benefit? Does it write letters to
people, saying that it has noticed on its computers that they are not claiming child benefit? Perhaps it should if it does not.
Ruth Kelly (Labour, Bolton West)
I understand that it is very difficult for the Inland Revenue to write letters to people if it has no information on which to base them—if it has no address for the person and so on. However, the hon. Gentleman is correct to say that the priority should be to contact those who have no link to the benefit system, rather than merely to isolate the child trust fund and concentrate resources on detecting those who have not applied for that. For those reasons—the simplicity of the link and so on—I urge him to withdraw the amendment.
George Osborne (Conservative, Tatton)
I was merely trying to explore what happens to the 2 per cent. of people who do not claim child benefit. Now that the Inland Revenue is in charge of administering child benefit, like many other benefits, it would be interesting if it did some work on finding out who that 2 per cent. of people are. I am not sure that the Minister is right to say that it has no information on those people. They were born somewhere, so presumably there are hospital records and so on. We take what she said at face value: 2 per cent. of the population disappear completely from the system and presumably do not pay any tax or appear on any Government records. Now I come to think about it, the figure is probably more than 2 per cent. In any case, I accept the Minister's point that the problem relates more to the claiming of child benefit than to the claiming of the child trust fund. Perhaps just to satisfy her own mind, she could investigate why those 2 per cent. of people do not claim child benefit and what kind of people they are. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
George Osborne (Conservative, Tatton)
I beg to move amendment No. 6, in
clause 2, page 2, line 4, leave out subsections (3) and (4).
Joe Benton (Labour, Bootle)
With this it will be convenient to discuss the following amendments: No. 7, in
clause 2, page 2, line 10, leave out subsection (5).
No. 163, in
clause 2, page 2, line 18, at end insert—
'(5A) A child is also an ''eligible child'' if he is—
(i) a child for whom a parent gains entitlement to child benefit in respect of the child at any time before the child's eighteenth birthday; or
(ii) a child whose parents were not previously entitled to claim child benefit, who is subsequently taken into the care of a local authority.'.
George Osborne (Conservative, Tatton)
The purpose of the amendments is to probe who is eligible for child trust funds. I thought that the best way to do that was to table amendments to exclude various subsections of the clause that deals with eligibility. Subsection (3) covers children who, as I understand it, live in the UK but whose parent works in another EU country, so they receive child benefit from that country because of an EU agreement. The explanatory notes say that
''the most common situation is where a family lives in Northern Ireland and the only working parent works in the Republic of Ireland''
and therefore the child benefit is paid by the Republic. Clearly, however, others will fall under subsection (3).
In tabling the amendment, I was interested to know how many people we are talking about. What does the clause mean when it talks about children living in the UK? What happens to children born of British parents who are out of the country when they are born? If their British parents are working abroad, perhaps for a long time, do the children ever receive a child trust fund?
Subsection (4) deals with the reverse situation. It excludes from child trust funds children who are not living in the UK but whose parents are here and so claim child benefit from the United Kingdom by the same EU regulations. The explanatory notes say:
''If such a child moves to live in the UK, he or she will be eligible from the time of that move''.
Does that mean, for example, that a French or German person who works in the UK and brings a child here can set up a child trust fund for them? How long would the child have to be in the UK before becoming eligible for a child trust fund? I am talking now about EU nationals, who have a right of residency. What if an EU national were to work here for just six months? Does a child then receive a child trust fund for the rest of its childhood? How many people would be in that situation?
Finally, subsection (5) concerns immigrant children from non-EU countries. The only such children who would be eligible would be children who are settled in the UK and who have no restriction on the period that they can remain here. Does that mean that when they become an ordinary resident of the UK, some system is triggered and they receive a child trust fund? The purpose of my amendments—I do not intend to press them to a vote—is merely to ask the Minister about those different categories of people and to explore some of the system's anomalies and loopholes.
Michael Weir (Scottish National Party, Angus)
I tabled amendment No. 163, based on the same lines as the amendment moved by the hon. Member for Tatton, to deal with an immediate specific problem relating to child trust funds. As the Minister has previously explained, eligibility for child trust funds depends on eligibility for child benefit. Subsection (5) would exclude asylum seekers. The effect of that would be that those seeking asylum in the UK would not be eligible to apply for child trust funds. The position of those successfully applying for asylum after the Bill has been enacted is not clear.
It is conceivable, for example, that someone who successfully applied for asylum and acquired UK citizenship, could give birth to a child who would otherwise be eligible, before being granted asylum or citizenship. Such parents would not be able to claim child trust funds under the proposed system. What would be the position if, in time, the Government judged that they were deserving of asylum, and they acquired UK citizenship? That decision might be
many months or years down the line. If such parents then became eligible for child benefit for their child or children, would they then be able to make a claim for a child trust fund? It is not clear whether the Bill would entitle them to do so. On one reading of clause 2(1), they might be able to make a claim as soon as they became eligible for child benefit. On another reading, they would be able to do so only if the child was eligible at the time of birth. Can the Minister clarify whether, in such a situation, a child would become eligible for a fund if the parent were to become eligible for child benefit at any time prior to the child's 18th birthday? I concede that the provision does not entirely create a level playing field, because it would not make provision for a fund that could have accrued since birth. I cannot think of a practical way of doing so. Amendment No. 163 seeks to make the child eligible from the time that the parent becomes eligible for child benefit.
Sub-paragraph (ii) of the amendment is in a similar vein, and is an attempt to tackle a specific problem that could arise if the new Asylum and Immigration (Treatment of Claimants etc.) Bill is enacted. The Child Trust Funds Bill makes provision for children in care to receive trust funds. However, it is clear from the Second Reading debate on the asylum Bill that there is a possibility—I put it no higher than that—that some children of parents who have been refused asylum would end up in local authority care. It is not clear to me what their position would be on this or any other benefits. Much depends on what their position becomes under the asylum Bill. If they end up in local authority care, will they be given a right of abode in the UK? Will they be liable to deportation at some point, perhaps when they become adults? If their parents disappear, will they be considered for adoption or fostering? At the moment, none of that is clear. I understand that many of these issues will be addressed in the Committee stage of the asylum Bill.
If these children are to be in local authority care and perhaps remain in the United Kingdom, they should be treated in the same way as other children in local authority care and be eligible for the fund—perhaps at the point at which they come under local authority care. Can the Minister give us an idea of how many children are in that group? I hope that there are very few of them.
Ruth Kelly (Labour, Bolton West)
The child trust fund is a long-term savings policy that is intended to benefit those who live in the United Kingdom. Eligibility for the child trust fund is based on eligibility for child benefit but, as the hon. Member for Tatton pointed out, European Union legislation requires the introduction of these two subsections if all children in the UK—and only those children—are to benefit from the child trust fund.
Under domestic law, the person claiming child benefit is required to be ordinarily resident in the United Kingdom and the child is required to be present. However, that is overridden by EU social security regulations designed to secure free movement by giving reciprocal rights to migrant workers. That can mean that child benefit for children living in the
UK is paid by another member state and that UK child benefit is payable for children who do not live in the UK. The hon. Member for Tatton asked how many children might fall into that category: I believe that there are fewer than 500 children living in the UK whose child benefit is covered by another country.
The child trust fund is not a social security benefit. It is not paid in respect of the needs of the child but to ensure that the child gets a good start in adult life. Subsection (3) ensures that children who live in the United Kingdom but in respect of whom child benefit is not payable by the UK because of EU legislation are eligible for the child trust fund. For example, without subsection (3), children living in Northern Ireland who have one parent who works in the Republic of Ireland would be excluded from the fund because under European regulations child benefit for that child is paid by the Republic of Ireland rather than the UK.
Subsection (4) ensures that children who do not live in the UK but for whom UK child benefit is paid because one of the parents works in the UK will not be eligible for the child trust fund. There is no case for the UK Government to pay endowments to encourage saving for and by children whose ties are not within the UK.
George Osborne (Conservative, Tatton)
As I asked in my opening remarks on this amendment, does that mean that an EU national—a French person, for example—who comes to the United Kingdom with their child to work for a year would get a child trust fund?
Ruth Kelly (Labour, Bolton West)
No: the funds are intended for children who are settled in the UK. If the hon. Gentleman wants a definition of how that will apply, I will write to him. The child trust fund is primarily for children who are ordinarily resident in the UK and who intend to stay. It is a long-term savings policy and it is right that it is awarded on that basis.
Michael Jabez Foster (Labour, Hastings and Rye)
In matrimonial law, the word ''domicile'' is often used, which gives a better definition of what we are talking about than ''ordinarily resident''. Has the Minister considered using a different definition, because ''ordinarily resident'' may create all sorts of definitional problems, particularly with regard to EU law, and especially for workers with short-term contracts and so forth?
Ruth Kelly (Labour, Bolton West)
I have been assured that ''ordinarily resident'' is an appropriate term in this context, but I will consider my hon. Friend's point and inform him of the result of the investigations.
I draw the Committee's attention to the important point that if a child who was resident abroad comes back to live in the United Kingdom, the moment that there is an application for child benefit for that child, he or she will be entitled to receipt of the child trust fund. No child will miss out by being temporarily away from the UK. For those reasons, the hon. Gentleman should consider withdrawing amendment No. 6.
It being twenty-five minutes past Eleven o'clock, The Chairman adjourned the Committee without Question put, pursuant to the Standing Order.
Adjourned till this day at half-past Two o'clock.
Joe Benton (Labour, Bootle)
I remind the Committee that with this we are discussing the following:
Amendment No. 7, in
clause 2, page 2, line 10, leave out subsection (5).
Amendment No. 163, in
clause 2, page 2, line 18, at end insert—
'(5A) A child is also an ''eligible child'' if he is—
(i) a child for whom a parent gains entitlement to child benefit in respect of the child at any time before the child's eighteenth birthday; or
(ii) a child whose parents were not previously entitled to claim child benefit, who is subsequently taken into the care of a local authority.'.
Ruth Kelly (Labour, Bolton West)
May I start by saying what a pleasure it is to welcome you to the Chair, Mr. Amess? I look forward very much to working with you as you steer our proceedings during the next few weeks.
It falls to me now to deal with amendments Nos. 7 and 163. The hon. Member for Angus (Mr. Weir) asked whether children whose parents have successfully claimed asylum in the United Kingdom will be eligible to the child trust fund. I assure him that such children will be eligible, and I wish to clarify the position of people seeking asylum. While an application for asylum is being considered, there is no entitlement to claim benefit, including child benefit. Children of parents in that position will not be eligible for the child trust fund.
However, when permission to remain definitely in the United Kingdom has been granted, people are entitled to claim benefits in the same way as British citizens. Parents who previously claimed asylum will be entitled to claim child benefit for their children, and those children will become eligible for the child trust fund, subject to other conditions being met such as the child being of the appropriate age. I trust that the hon. Gentleman is satisfied on that point. On the basis of my comments, I ask him and the hon. Member for Tatton (Mr. Osborne) not to press their amendments.
Michael Weir (Scottish National Party, Angus)
The Minister did not deal with the second part of my question, which was about children who may be taken into care under the asylum legislation that is currently going through the House. Does she have any comments to make on that?
Ruth Kelly (Labour, Bolton West)
Yes. When children have been granted indefinite leave, they are entitled to other benefits according to the same criteria as other families. As soon as they are settled permanently in the United Kingdom, they will be entitled to the child trust fund. If an unaccompanied child had not been granted that status and was refused asylum, the child would be removed only if appropriate reception and care arrangements existed in the country to which he or she was to be removed. However, if the child were granted asylum, he or she would be eligible for the child trust fund as would other children in care.
Michael Weir (Scottish National Party, Angus)
I am sorry to press the Minister on the matter, but I do not understand her argument. She is referring to the position when a child is granted asylum. There could be a situation in which parents who are in danger of being, or who have been, refused asylum, disappear and the child is taken into local authority care. Would that child be permanently resident in the country and entitled to the child trust fund or would the child be in danger of being deported and, thus, not eligible for the fund?
Ruth Kelly (Labour, Bolton West)
An argument about the possibility of deportation threatens to go outside the scope of the hon. Gentleman's amendment. When children are granted asylum, they will become entitled to the child trust fund. If they are refused asylum, their claims will not stand. On that basis, I ask the hon. Gentlemen not to press their amendments.
Michael Weir (Scottish National Party, Angus)
I shall press for a vote on the amendment in my name. I am not satisfied that the Minister has given me a clear answer.
George Osborne (Conservative, Tatton)
I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Amendment proposed: No. 163, in
clause 2, page 2, line 18, at end insert—
'(5A) A child is also an ''eligible child'' if he is—
(i) a child for whom a parent gains entitlement to child benefit in respect of the child at any time before the child's eighteenth birthday; or
(ii) a child whose parents were not previously entitled to claim child benefit, who is subsequently taken into the care of a local authority.'.—[Mr. Weir.]
Question put, That the amendment be made:—
The Committee divided: Ayes 1, Noes 12.
Clause 3 - Requirements to be satisfied
George Osborne (Conservative, Tatton)
I beg to move amendment No. 9, in
clause 3, page 2, line 31, at end insert—
'(1A) Regulations under subsection (1) may not impose a requirement that the charge levied by the account provider must be set at less than 1.5 per cent. of the total value of the relevant funds under management by the account provider, divided by the number of child trust funds held with the account provider.'.
I should like to welcome you to the Committee, Mr. Amess—[Interruption.]
Normally, hon. Members try to get out of Committees, not into them. The hon. Gentleman is a keen Treasury Minister who wants to check up on his colleague.
Amendment No. 9 is about the charge cap, which is one of the most important unresolved issues in the Bill. I propose that the regulations may not impose a requirement that the charge levied by the account provider must be set at less than 1.5 per cent., and later I shall say why I chose that figure. This element of the Bill is crucial. Many financial providers argue that the level of the charge cap will be fundamental to the success of child trust funds. Does the policy encourage lower-income families who do not currently save for their children to do so? That will be the test of whether child trust funds really work.
I know that the Minister has set out various objectives for this policy—we debated them on Second Reading—among which are encouraging savings, building assets, and helping people to understand the benefits of savings and make better financial choices. Those are laudable objectives, but I suggest that the last three are dependent on the first. If the proposal does not get people saving, they will not understand the benefits of it, they will not build a substantial asset, and they will not be able to make the better financial choices that we all want to see.
Regardless of how the Minister will judge whether the policy is successful, it is clear to members of the Committee and the wider world—or at least those who are remotely interested—that child trust funds will
succeed only if it is clear that lower-income families who do not currently save are using them as a vehicle for saving and building up assets of their own.
Andrew Love (Labour/Co-operative, Edmonton)
I am intrigued by the fact that the hon. Gentleman's amendment contains a minimum for the charge cap but not a cap on the maximum that may be charged.
George Osborne (Conservative, Tatton)
The hon. Gentleman makes a fair point, but that is the job of the Government. I am trying to establish what figure they will set as the minimum. The amendment is intended to tease out of them information that the Committee should, but does not, already have.
It is important that people understand that it is not enough simply to set up child trust funds for everybody, give them a voucher and hope for the best. If the policy is going to work, financial institutions must encourage people, market the idea to them and coax them. Sadly, people in our society do not wake up on a Sunday morning and think, ''It is time to start saving, for my children or for myself.'' The fall in the savings ratio over recent years is proof of that. With trust funds, we are particularly targeting lower-income families, many of whom will never have saved before.
Financial providers, who we hope will take up this policy, have never targeted their marketing at lower-income families, and they will need to make a double effort. As I am sure the Minister accepts, the blunt truth is that financial institutions will do that only if they can make money from it. They are not in this business because they are charities, and they will make an effort to encourage people to save, and to reach out to lower-income families who do currently save, only if they feel that they will get a financial return. All that depends on the level of the charge cap and on the related issue of the sales regime that will accompany this product.
The charge cap will be set by the Government, and frankly it is incredible that, as we debate the Bill in Committee, we do not know what it will be. I remind the Minister of what the Treasury Committee said in its report:
''The Child Trust Fund Bill was introduced into the House without the relevant regulations covering important aspects including the proposed sales regime. We consider that these must be produced in time for the standing committee to consider them thoroughly.''
The Treasury Committee felt strongly last month that the Government should announce, as soon as possible, the relevant sales regime and the charge cap so that the Standing Committee could take that information into account during our debates. However, we have not received that information from the Government. This is all the worse because, as we said on Second Reading, we were promised this information by the end of last year.
The Financial Secretary is shaking her head, but she needs to read her own White Paper, published in October. [Interruption] Now she says ''Ah, yes, the White Paper. Heaven forbid that we are held accountable for what we put down in White Papers.'' However, it says:
''The Government will issue a report detailing the charge cap for the CTF (including specifying whether a charge cap will apply to non-stakeholder CTF accounts) and other products in the Sandler suite later this year.''
In that context, ''later this year'' means 2003, not 2004.
When I pressed the Minister on Second Reading, she eventually responded:
''When we made those comments the Financial Services Authority told us that it would be ready to make an announcement about the appropriate sales regime in December, although it now appears that that date has slipped to the new year. However, to benefit the Bill's parliamentary passage and to ensure the Parliament is kept fully informed, I intend to make the announcement on the charge cap for the child trust fund during the passage of the Bill. It is important''—
she said without a hint of irony—
''that Parliament is kept fully informed.''—[Official Report, 15 December 2003; Vol. 415, c. 1394.]
This is the only debate on the charge cap that we will have, even without the details. I would like the Minister to tell us in her reply when she expects to make an announcement on the charge cap. Perhaps she will make it now; we wait in anticipation. Certainly I would welcome her assurance that it will be announced by the time the Bill passes through the House of Commons. I suspect that, when she said that the announcement would be made during the Bill's passage through Parliament, that was a get-out clause, intended to include the time that the Bill would spend in the House of Lords. However, if the Minister intends to make her announcement during the Bill's passage through this House, I must point out that we have only a couple of weeks left to discuss it in committee. After that, I suspect that the Government business managers will ensure that the Report stage comes along, and we will dispense with the Bill on Third Reading—assuming that the Liberal Democrats do not vote it down at that point.
There is a strong indication from the Government that the charge cap will be set at 1 per cent. In the White Paper, they say that there is
''a high threshold of persuasion for any move from a 1 per cent. charge cap''.
The Government do not want to be seen to be retreating from the 1 per cent. commitment that they made when they quickly responded to the Sandler report.
Those of us who completed A-level maths will understand that a 1 per cent. cap means that on a child trust fund worth £250, the financial provider will be able to charge just £2.50 per year, and on a £500 fund, the charge will be just £5. Out of that, the provider will have funds the costs of setting up an account, taking the customer through the sales process, storing the voucher, administering the account, dealing with any inquiries that the customer might have, on the telephone and so on, and sending the customer an annual statement. All that is set out in the Bill. On top of that, there are the costs of designing and selling the product.
2.45 pm
I am sure that the Financial Secretary is aware that the result is that many financial providers say that they will simply not bother selling child trust funds or, if they do, they will focus all their marketing efforts on better-off families who are more likely to make contributions to the fund rather than on the more expensive and less lucrative—as far as they are concerned—marketing to lower-income families. That is the view of the Association of British Insurers, the Association of Friendly Societies, the PEP and ISA Managers Association, the Building Societies Association and the British Bankers Association.
That is also the view of Norwich Union, the biggest long-term savings provider in the country. It got its fingers a bit burnt over stakeholder pensions, for which the charge cap was set at 1 per cent. The result of that is that almost all stakeholder pensions are now sold to people who are already making pension provision for their retirement. Norwich Union has publicly stated that if the charge cap for this product is set at 1 per cent. it will not bother to sell it.
There are also the views of other companies, such as Children's Mutual. I have met its chief executive; it is worth hearing what he has to say. Children's Mutual is enormously enthusiastic about child trust funds. It would like to claim that it was in at the beginning of designing the whole thing, and it specialises in selling products to parents on behalf of their children. When its chief executive was asked about the matter by the Chairman of the Treasury Committee, the hon. Member for Dumbarton (Mr. McFall), he said:
''If the charge cap on the Child Trust Funds were reduced as low as 1 per cent . . . I am not sure, in our view, that there would be any providers in the market at all. I think the danger would be, at best, that you would force people to cherry pick at the rich end of the market . . . and the lower income groups would be left out.''
That is the danger of low price caps. The chief executive of Children's Mutual is the most enthusiastic person I have met when it comes to child trust funds, and he makes his case very clearly.
The industry is reluctant to set out the figure that it wants but, reading between the lines, it is clear that it is calling for a price cap of about 2 per cent. I suspected that the industry was asking for more than it was going to get, so I decided to split the difference between its figure and the 1 per cent. referred to by the Government, and to table an amendment that fixes the price cap at 1.5 per cent. It is not terribly scientific.
If the amendment is agreed to today—I am ever an optimist—we will end the uncertainty that surrounds the mystery of what the price cap will be. That will allow the financial providers to get on with designing the products and systems, which will reduce the risk, referred to by the Minister, that child trust funds will not be ready in time. It will also increase the chances that financial providers will market their products at low-income families, which we all want to happen, and it will make it much more likely that child trust funds will encourage people to save. I therefore urge the Minister to agree to my amendment, or to say that she will do the same thing by regulation.
Michael Jabez Foster (Labour, Hastings and Rye)
Despite the eloquence of the argument of the hon. Member for Tatton and his campaign for those financial institutions, I think that the amendment is unnecessary, and I hope that the Minister will not be persuaded by it.
This is a market issue. Some organisations have said that they will not take part, and that is well and good, because others will take part at the 1 per cent. that the Government initially suggested. I hope that the Minister will not be persuaded that a higher charge is required. I say that for a number of reasons. First, this is a simple product; it does not require lots of those glossy brochures, which we get in our post, that persuade us to invest in all sorts of things. All that is required is something simple. When people get Sainsbury's Nectar vouchers, they understand that they should spend them; they do not do nothing with them. I suspect that families of all social classes and groups will do something with their child trust fund voucher when it is posted to them. If not, the Bill makes provision for something to be done on the child's behalf. The costs will therefore be low.
George Osborne (Conservative, Tatton)
The hon. Gentleman is focusing only on the setting-up of the account. What I am talking about, and what I am sure he wants to see, is parents and other relatives making regular contributions to child trust funds so that they build up during a child's life. I do not think that anyone on the Committee wants there to be millions of accounts worth £900 to the holder at the age of 18 because no one has put any money into them. If such contributions are to happen, financial providers will have to send that glossy literature that the hon. Gentleman talked about.
Michael Jabez Foster (Labour, Hastings and Rye)
I understand the hon. Gentleman's point, but that would not add significantly to the costs. Certainly, we want people to make regular payments so that the funds build up. However, as they do, the 1 per cent. charge would be levied not on £250 or £500, but on the total value each year. Assuming a 4 per cent. rate of return, which would not be unusual at present, a quarter of that total return would be taken in charges to pay the costs, and if the charge were as great as 2 per cent., half the return would be going in charges. That would be wholly unacceptable; we might as well not have the scheme at all but just send out the voucher.
For the reasons that I have given, I hope that the Government will hold firm to the lowest possible cost and test the market. If the market says no, then of course we must think again. However, I am pretty confident that 1 per cent. will be sufficient.
David Laws (Liberal Democrat, Yeovil)
I, too, welcome you to the Chair, Mr. Amess.
We should be grateful to the hon. Member for Tatton for tabling the amendment and provoking a debate on a key issue. We should also be grateful to him for explaining the scientific process by which he arrived at the figure of 1.5 per cent., which we could term ''splitting the difference''.
I have a degree of sympathy with the Government. It is immensely difficult to calculate a charge or charge cap that would strike precisely the right balance
between the interests of those owning the trust fund accounts and the providers, who will utilise the accounts and make sure that they earn high returns for the investor. We should approach with some scepticism the representations made by the commercial entities involved in the consultation. I say that as one who used to work in the financial services industry. After all, it is the job of those entities to make sure that they get the best deal out of the Government scheme. They therefore have a clear commercial interest in arguing for the charge to be as high as possible.
We should approach with appropriate scepticism the claims, which a number of institutions are making, that they would not take up the scheme at all. One suspects that there will be a lot of spin-off benefits to financial institutions that get people to open child trust funds with them. Those funds are bound to offer future cross-selling opportunities, for products for which financial institutions have offered people incentives in the past.
The hon. Gentleman makes a particularly important point in saying that it is difficult to make a judgment about the right level for the charge cap without understanding all the other elements of the Bill. We are still waiting for the regulations on many of those elements. The right level for the charge cap will depend on various administrative and other costs and on Government proposals on transfers. All those issues will have implications for the costs of running the accounts, so it is genuinely regrettable that the Government have not come forward with a figure. I notice that the Financial Secretary is nodding enthusiastically, so perhaps she is about to reveal herself to us and give us the figure.
The fact that we do not have the figure makes it doubly difficult for us to say anything intelligent about the appropriate level for the charge cap. We are forced to fall back on the sort of calculation that the hon. Member for Tatton made, which we all chuckled over, but which is probably no better or worse than any other calculation—he is right about that. The issue is particularly important when we consider the substance of the Government's proposals in the Bill, and how much money is likely to be in the accounts as a consequence of the various regulations and detailed measures that the Government are introducing.
The Government's consultation paper, published in 2003, contained an illustrative table to show projections for future fund growth. The Financial Secretary will want to confirm that the table used a nominal rate of return of 7 per cent. That gave people the impression not only that it was reasonable to assume such a return, but that there would not necessarily have to be any deduction for charges from that 7 per cent. Since the document was released, the Financial Secretary and others have spoken of the figures that it suggests one would arrive at after 18 years as if they were a legitimate description of the likely outcome, whereas if a charge of 1 per cent., 1.5 per cent. or 2 per cent. were levied, it would have a significant impact on the returns to the account. It
might also have an impact on the extent to which people should be encouraged to take a large amount of risk with the account.
If people took such a risk and, as a consequence, ended up paying a higher charge to financial market providers, that could wipe out any alleged advantage from high returns in the equity market when compared with putting the money on deposit, or in a long-term bond with far lower risks. A substantive issue concerning the returns from child trust funds arises from the assumptions that we make.
Another important issue that I hope that the Minister will take particularly seriously, and that the hon. Member for Tatton alluded to, is how far the accounts will be structured so as to help people on low incomes to save. The Minister referred a number of times, when giving evidence to the Treasury Committee, about people on low incomes who might be saving some £5 a month, which is not an unreasonably low amount for people on the very lowest incomes who are reliant on means-tested benefit. It was clearly in the mind of Ministers that people might be saving as little as £5 a month, or £60 a year.
The Minister will be aware that many of the financial market providers suggested, in their evidence, that they would not wish to accept monthly deposits of anything less than £20, or in some cases £50. Obviously, that would depend in part on the charge that they levied for administering the account. The implication is that the more small payments are received, the higher the charge that they would want to set. I am concerned that if the charge is set at the wrong level, it could not only erode the yield from the child trust fund accounts in a serious and unnecessary way, but make it difficult for the Government to achieve their objective of encouraging those on very low incomes to use the child trust fund to save.
George Osborne (Conservative, Tatton)
Having been rude about the way that I came up with my calculations, the hon. Gentleman now seems to be coming up with exactly the same numbers. He says that, on the one hand, the charges cannot be too high and, on the other, they cannot be too low.
David Laws (Liberal Democrat, Yeovil)
I thought that I was extremely generous to the hon. Gentleman, because after teasing him about the back-of-the-envelope method that he used for his calculation, I suggested that that was perhaps the only legitimate way of arriving at a reasonable number, given that the Government have put so little information into the Bill and have left so much to regulations that we do not know, and cannot easily assess, what the cost will be to financial market providers.
For all those reasons, I hope that the Financial Secretary will follow through on her enthusiastic nodding at the beginning of my speech, and tell us what she has in mind for the charge cap.
3 pm
Ruth Kelly (Labour, Bolton West)
I am grateful to the hon. Member for Tatton for setting out the objectives behind the child trust fund, which are to encourage savings, to encourage people to understand the benefit of savings, to make better financial choices and to have the benefit of a financial asset.
However, the hon. Gentleman falls in to the trap that is all too common among his hon. Friends: he assumes that an asset that builds up to about £1,000 at the age of 18 is of no material relevance to the average 18-year-old. I strongly dispute that and I remind the Committee that research based on the national child development survey shows that an asset sum of about £300 will have a material impact on a young person's opportunities at the age of 18. We hope that it will also encourage savings and that children will contribute from their own funds and that parents, grandparents and other relatives will do so on the child's behalf, so that the asset builds up to a higher amount. There will be a further Government endowment when the child is seven. Encouraging the level of savings is just one of the objectives of the child trust fund; it is certainly not the only one.
David Laws (Liberal Democrat, Yeovil)
Since the Financial Secretary gave an example to the Select Committee on several occasions of someone on a low income saving £5 a month, can she give the Committee a cast-iron assurance that when the level of charges is set, it will not be such that it will prevent such low contributions being made?
Ruth Kelly (Labour, Bolton West)
Perhaps the hon. Gentleman will be patient, as I shall come to arguments about the charge cap in a moment.
All our evidence is that young people between the ages of 18 and 25—the only category that is measured at present—have, on average, zero financial assets. Even a small amount of capital behind them can make a difference to their opportunities. Other recent evidence suggests that a small windfall to a child can have a significant impact on their future savings behaviour. Recent evidence from a survey undertaken for the Department for Work and Pensions showed that of young people between the ages of 16 and 19 who received a small windfall—an average of about £57—40 per cent. went on to save further, whereas only 25 per cent. of a similar reference group who did not have that windfall saved. A Government endowment or another windfall in an account can have a significant impact on future savings behaviour.
On our promise in the White Paper to publish the regulations and the charge cap towards the end of last year, I admit that that was our intention then to do so. However, we also made it absolutely clear that we were dependent on the Financial Services Authority to look at the sales regime and to come up with a figure that took into account the nature of the sales regime behind the product. It would not make sense to consider the two things in isolation. As the hon. Gentleman is aware, we are considering not just the child trust fund but the range of other stakeholder products—pension and medium-savings products, too. It is important to take the two decisions in tandem.
Given that the FSA has told us that it is not yet in a position to announce the proposed sales regime, we have decided to announce the level of the charge cap on the child trust fund in advance of the announcement on the other products, partly because the child trust fund product is far less dependent on the sales regime than the other products. Indeed, many providers have said that they intend to use direct offer as the main channel in selling the products; in most cases there will not be face-to-face sales advice.
George Osborne (Conservative, Tatton)
I am struggling to follow the Financial Secretary's logic.
She told us that it was important to consider the sales regime and charge cap in tandem. Now she says that because there has been a problem with the FSA, she will have to announce the charge cap on the child trust fund early. Where is the logic in that?
Ruth Kelly (Labour, Bolton West)
I think that the hon. Gentleman has misunderstood. It is important to announce the two aspects together for the majority of stakeholder decisions, and we intended to announce the whole package before Christmas. In fact, the child trust fund is the least dependent on the sales process. The stakeholder pension product is far more dependent on the sales process, and it would be nonsensical to decide the level of the charge cap without understanding the sales regime under which it was being offered. However, providers have made it clear that the child trust fund, because it is universally available, will tend to be offered by direct offer without a sales process. Therefore, we can de-link the decision for the child trust fund. I have made it clear, given the natural parliamentary interest and concern in the level of the price cap, that we will publish draft regulations on that shortly.
George Osborne (Conservative, Tatton)
We may press the Financial Secretary on what she means by ''shortly''. However, she seems to be saying—and this would be welcome—that there will be no requirement under the sales regime for face-to-face interviews, or for applicants to go through the questionnaire that the FSA is developing and having problems with. If that is what she is saying, she is giving us a hint about what the regulations on the sales regime will be.
Ruth Kelly (Labour, Bolton West)
I am not saying that. People will still be able to use an advised channel to buy a child trust fund.
George Osborne (Conservative, Tatton)
But they will not have to.
Ruth Kelly (Labour, Bolton West)
The hon. Gentleman is correct that they will not have to; they will be able to take it up through direct offer. Therefore, the commercial considerations for providers are much less dependent on the nature of the sales process than in the case of stakeholder products. We are planning to publish regulations that set out the level of the charge cap shortly. I refer him to my comments on Second Reading that committed me to publishing the regulations during the passage of the Bill in the Commons, so that hon. Members will have an opportunity to comment on the level of the charge cap.
I shall return to the subject of what the charge cap should be. The hon. Member for Yeovil (Mr. Laws) eloquently set out the balance that must be struck between commercial considerations and value for money for the consumer. My hon. Friend the Member for Hastings and Rye (Mr. Foster) made a powerful case on behalf of consumers that they, and not the commercial providers, should reap the benefits. Given the significance of the decision, we commissioned independent research by Deloitte into the potential trade-offs between the rate of return for an efficient provider and providing value for money. That will not produce a precise figure, but it will illustrate the potential trade-offs.
David Laws (Liberal Democrat, Yeovil)
The Financial Secretary mentioned the report that Deloitte is compiling. Has the report been completed and returned to her in its entirety? If so, will it be published in the near future?
Ruth Kelly (Labour, Bolton West)
The report will be published, and I dealt with that point in the Treasury Committee.
The research on which the child trust fund hinges is part of wider research that has implications for the whole range of stakeholder products. We cannot publish that research until we make an announcement on the charge cap for the other stakeholder products. I do not think that Deloitte would be prepared to have some of its comments taken out of context. The research will be put into the public domain, but I am not prepared to commit myself on when that date will be. It should not take too long because we hope that the FSA will produce the results of its sales process in the next few months.
George Osborne (Conservative, Tatton)
The Financial Secretary seems to be saying that she has commissioned research into what the charge cap will be and that the research has been carried out by Deloitte, but she has not asked it to produce a figure—presumably she would not have the flexibility to disagree with a figure. However, she will not publish the report until after she has set the level of the charge caps. We, in Parliament, will not be able to judge the basis on which she has decided on the charge cap.
Ruth Kelly (Labour, Bolton West)
I am saying that it is not possible to pre-empt the ongoing work with the FSA on the sales process. That work is being finalised, and if we took out the one part of it referring to the child trust fund and put it into the public domain now, that would lead people to draw conclusions. It is unfortunate; I would have liked to publish the entire piece of independent research at this point, but that is not possible. However, I assure the Committee that Deloitte's research does not suggest a figure, but illustrates the trade-offs that can be made. The trade-off that one might choose would be dependent on figures such as what we chose as a minimum contribution level, or what the exit penalties might be, or otherwise, for changing from one child trust fund provider to another child trust fund provider. The trade-offs would be dependent on ministerial decisions.
David Laws (Liberal Democrat, Yeovil)
The Financial Secretary is getting very close to the part of her speech in which she will answer my earlier question, which was whether, in making those trade-offs, she will ensure that the charge is set at such a level—as in the example that she gave several times to the Select Committee—that someone is able to save just £5 a month.
Ruth Kelly (Labour, Bolton West)
I am certainly aware of the impact of minimum contribution levels for people in the lower socio-economic groups, and want to ensure that the child trust fund is available to them as a savings vehicle. That is one of the matters that I will bear in mind. The minimum contribution level will be set out in the regulations, alongside the level of the charge cap.
In the detailed proposals to which the hon. Gentleman referred, he may have missed that the level of the charge was included in the figures. A footnote was omitted from the detailed proposal document, so the £911 figure to which he referred actually includes a 1 per cent. charge for illustrative purposes.
When the detailed regulations are set out—shortly—we will publish a range of illustrations on our website to guide people as to the level to which the asset might accrue by the time a child reaches the age of 18. The document contains only one illustrative example, but includes a 1 per cent. charge on the fund. I hope that that reassures the hon. Gentleman.
George Osborne (Conservative, Tatton)
Given that the Financial Secretary repeated the 1 per cent. figure, and said that it was used in the calculations in the White Paper, would it be fair to say that there is still a high threshold of persuasion to move away from the 1 per cent. figure?
Ruth Kelly (Labour, Bolton West)
We have always made it clear that there is a high threshold of persuasion: that is why we commissioned independent research to examine the matter. We will take the decision in an unbiased way, ensuring the best possible trade-off between value for the consumer and a reasonable return for an efficient provider. I reassure the Committee that the regulations will be available during the passage of the Bill through the Commons. On that basis I ask the hon. Gentleman to withdraw his amendment.
George Osborne (Conservative, Tatton)
I suspected that this would be the least satisfactory of the debates that we will have in the Committee. We do not know what the charge cap will be, and are being told by the Financial Secretary that the figure will be available during the passage of the Bill through the Commons. We are now in Standing Committee, the proceedings of which will be fairly brief, and Report will probably take place in a couple of weeks' time, so we are on the threshold of getting that figure. However, we do not have it now, but are debating it in Committee. That is unsatisfactory.
We do not know what the sales regime will be. The Financial Secretary revealed a little today, when she said that the Government would not require parents to go through the questionnaire that the FSA is developing for other Sandler products. As far as I know, we have discovered that fact today.
We do not know what the minimum contributions will be. On a couple of occasions, the Financial Secretary evaded the question put by the hon. Member for Yeovil about whether she will set the charge cap at a level that will allow people to make monthly contributions of £5—an example that she herself has used on several occasions—which would seem reasonable if the Government are trying to attract savers from low-income families. Moreover, we will not see the research by Deloitte, on which this is all based, until long after the Bill has passed through the Commons, and possibly through the Lords as well. That is also unsatisfactory. Despite that, I do not want to force my provision for a figure of 1.5 per cent. on to the Bill. I have a hunch that I may be right; I am a lot cheaper than Deloitte. However, I shall not press for a vote, so I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
David Laws (Liberal Democrat, Yeovil)
I beg to move amendment No. 143, in
clause 3, page 2, line 33, at end insert
'and it meets risk and transparency criteria set down by the Financial Services Authority'.
Joe Benton (Labour, Bootle)
With this it will be convenient to discuss amendment No. 162, in
clause 3, page 2, line 33, at end insert—
'(2A) Prescribed accounts will include—
(a) bank accounts,
(b) building society accounts,
(c) equity-linked investments.'.
David Laws (Liberal Democrat, Yeovil)
We are now moving to a slightly different issue. Amendment No. 143, to which I shall speak, relates to subsection (2) of clause 3, to the end of which it tacks a requirement that the accounts that the Government approves in relation to the child trust fund should meet
''risk and transparency criteria set down by the Financial Services Authority''.
I would characterise the amendment as wide-ranging and probing. It is designed to give the Financial Secretary an opportunity to tell the Committee how the Government would ensure that people who put money into child trust funds—which, as financial products, will vary to a great degree between different providers and different types of account offered—invest wisely and do not end up putting their money inappropriately at risk. Many people who do not have great financial literacy would invest and it is, after all, one of the Government's aims to boost financial literacy as a consequence of their child trust fund initiative.
Hon. Members who have sat for any period of time listening to the Treasury Committee—even without hearing the evidence in its recent inquiry into the savings and investment markets in the UK—will be conscious of the fact that there are often widespread allegations of various forms of mis-selling of financial products. Sometimes, such allegations genuinely relate to misrepresentation by market providers, but quite often, they relate simply to consumers misunderstanding the products that they are buying.
The amendment gives the Financial Secretary an opportunity to describe in general terms how the Government and the FSA would ensure that people invest their money wisely, in a way in which they would be conscious of the risks that they are taking, and in a way that would not rebound against the Government later when people came along with a large range of claims that the Government might have been involved in mis-selling.
Mis-selling is particularly an issue for stakeholder child trust funds, which would essentially be the default option for the Government and the Inland Revenue for those people who have not taken out child trust funds for their children and for children in care. I am talking about a particular sector of the population whose financial literacy is likely to be a lot lower than that of others. Hon. Members will know that the Government have taken a decision that the default option for those children who would not otherwise have a child trust fund, is to have a stakeholder child trust fund, which will be heavily—certainly significantly—invested in equities.
In the evidence sessions held by the Treasury Committee, that issue arose during the grilling of officials and also during the Minister's evidence. What was striking during the evidence given by officials and the Minister herself, was the extent to which she and her colleagues were willing to go to sell and promote the equity option, in effect, to those people who would take up a child trust fund, and to those who would not have a choice and would be depend on a decision made by the Inland Revenue. I refer hon. Members to only a few of the exchanges that occurred in the Committee hearings.
On 12 November Miss Rookes of, I assume, the Treasury, in giving evidence said that,
''one of the things we are trying to do is to encourage families to take out equity accounts''.
She did not say ''to give families the option of taking out equity accounts'' or ''to let families know the historic returns on equities versus cash deposits''. She said that she wanted positively to encourage families to take out equity accounts.
Mr Holgate, also of the Treasury, in the same evidence session on 12 November said:
''We think that is the most sensible thing for the great majority of people to do''.
In other words, there was a deliberate attempt by officials as well as the Minister to encourage people to take out equity accounts. Mr Holgate went on to say to one of the Committee members, the hon. Member for Newcastle upon Tyne, Central (Mr. Cousins),
''I think you will find that over any respectable length of time equities have, on the whole, produced better returns''.
He then appeared to contradict the line taken by the Treasury, saying:
''I should again enter a caveat here that I am not qualified to offer financial advice, but I can read the numbers off a table''.
The Committee returned to precisely that issue when the Financial Secretary came before them on 3 December. Asked by the hon. Member for North Norfolk (Norman Lamb) whether she was keen to
promote the equity product, the Financial Secretary replied in the affirmative. In further evidence to the Committee, she went on to say:
''The fact remains that over 18 years the best bet is to invest in equities rather than cash''.
That exchange caused the comment to which I referred earlier from the hon. Member for Newcastle upon Tyne, Central, who described the Minister as someone who would make a charming and persuasive member of a sales force. I presume that he was thinking of someone who would be particularly active, not only in selling Government policies, but potentially, if the hon. Member for Tatton's cardigan strategy ever pays off and the Conservatives win Bolton, West, certainly there will be a job opportunity.
The hon. Member for Newcastle upon Tyne, Central, who is one of the most longstanding and respected members of the Treasury Committee, went on to express his grave concern that essentially the Treasury is not only obliging individuals who do not make the decisions themselves or who have children in care to take up an equity option, it is also going way beyond providing information that suggests that the equity option is likely to be the most favourable in actively promoting that option. If so, I hope that the Financial Secretary will tell us in respect of this amendment how the Financial Services Authority can have an involvement in these products to describe and control to some extent the risk taken and to respond to changes in risk in the financial markets over a period of time.
This is one of the greatest concerns about the child trust fund proposals. We are talking in particular of those groups in society that have not been exercising the choice over account type themselves where the account type will be chosen by the Inland Revenue. It seems that all the Minister's comments about the justification of the very much equity-based investments are based on the historic returns available on equities in this country as opposed to in cash deposits. We have questions about the comparator used by the Treasury in relation to cash deposits and whether it included long-term investment in cash deposits or in fixed rate bonds that might have provided a higher return than short-term deposits.
The Minister must also recognise that one of the greatest mistakes that can be made by investors and people in financial markets—I am sure that all regulators in financial markets are keen to warn about this persistently—is that the future can never be relied on to look exactly like the past. That was one of the great themes of the opening paragraphs of John Maynard Keynes's book ''The Economic Consequences of the Peace'', written just after the first world war, in which he warned that the power to become habituated to his surroundings was a marked characteristic of mankind. It seems in this respect to be a marked characteristic of the Treasury.
George Osborne (Conservative, Tatton)
John Maynard Keynes was particularly correct about Liberal Governments. In the previous 50 years there had been almost entirely Liberal Governments—there have been none since John Maynard Keynes wrote that opening sentence.
David Laws (Liberal Democrat, Yeovil)
Indeed. The distinguished economist was exactly right and he showed how things can change radically in the future, which is something to which I am looking forward in my party.
Perhaps I can draw the Minister's attention to some of the evidence about what has happened to stock markets throughout the world. She seems to have confined many of her calculations to recent experience in the UK. Frankly, what happened 50, 60 or even 70 years ago is recent experience in terms of the fundamental assumptions that she makes in promoting the equity product.
In 1987, when I left King's college, Cambridge—the college of John Maynard Keynes—I went into the financial markets and attended a training course in New York. At that time, the Dow Jones industrial average was trading at about 2,000 or 2,500; it is now about 10,000 or 10,500. That will give the Financial Secretary no great encouragement to believe that she is right to force equities down the throats of some of those who will not be able to exercise the choice themselves. She may be less aware that in 1987, when the Dow Jones industrial average was trading at 2,000, the Nikkei stock market was trading at about 26,000. After peaking two years later at 38,000, it traded down to a low of 7,800 about nine months ago. It is still at about 11,000. In other words, the troughs decline over a very long period of time. We are talking about something like 80 per cent. Even today, the Nikkei index is well over 50 per cent. down in total terms on the level that it was at 16 years ago.
The Financial Secretary is therefore being over-optimistic in assuming that people can be encouraged to go into equities without a sense that there is a long-term risk. I hope that the presence of the Financial Services Authority and its commitment to do more to address the concerns of consumers, rather than of the financial services industry itself, will mean that it can play a role in ensuring that particularly those people who do not exercise choice for themselves are protected from what can often be quite volatile financial products.
Michael Weir (Scottish National Party, Angus)
Amendment No. 162 would in many ways do the same as the amendment proposed by the hon. Member for Yeovil, but it comes at the issue from a different perspective. My concern is also that the Government's preference is for the funds to be equity-based investment. As has been stated, the Minister made it clear on Second Reading that that was based on the view that over any 18-year period, equity investments perform better than cash deposits. By focusing on equity investments, however, the Minister may exclude many lower-income families from exploiting the full potential offered by the bonds to save for their children's future.
It was mentioned in this Committee, in the Treasury Committee and on Second Reading that a crucial factor in making the funds work is for parents and others to be able to put in sums additional to the initial investment from the Government to produce funds for the future. We do not yet have the regulations relating
to the final shape of the funds, but if they follow the traditional pattern, it is likely that providers will be looking at funds that have a regular monthly investment or occasional large investment, or a combination of both.
The National Consumer Council in its evidence to the Treasury Committee stated:
''The Government states it will make a decision at a later date on minimum contributions that CTF providers will be required to accept. This should certainly not be more than the £20 minimum that currently applies in the case of stakeholder pensions. Indeed, if the Government wants it to be accessible to disadvantaged families (including children when they get older), then even smaller, over-the-counter contributions will need to be possible.''
I think that that is correct. The tables in the report show an additional monthly contribution starting at £5—the figure mentioned by the Minister. It has been said that £5 is a reasonable monthly investment for families living on lower incomes and benefits, but it is highly likely that many families, especially those with more than one child, would find it impossible to meet a regular commitment to a fund—even of £5 a month, let alone the £20 that was mentioned earlier.
I would be interested to know whether the Minister has had any specific discussions with possible fund providers about the minimum that they would be prepared to accept. I think that that was the question asked by the hon. Member for Yeovil in the previous debate, to which a clear answer was never given. If we do not tackle that point and allow a greater choice in the type of investment that is allowed for the funds, we will end up with a large number of equity-based funds that never contain anything other than the initial investment of £250 or £500. That is not desirable for either the providers or the owners of the funds.
I was interested in the Minister's saying in the previous debate that the providers' main mechanism for selling the funds was a direct offer, with little or no face-to-face advice. If so, that makes an even greater case for allowing those who open the funds to choose something that they are comfortable with. Many people would be much more comfortable if they were able to open a traditional building society or bank account in which to invest the money.
After all, two of the fund's objectives were to
''help people understand the benefits of saving and investing''
and to
''encourage parents and children to develop the saving habit and engage with financial institutions''.
Would it not therefore be more realistic to try to achieve those ambitions by opening up the funds to those more traditional types of accounts? That would allow lower-income families to invest smaller amounts as and when they could afford to do so, without being tied down to saving regularly. Many of them could and should not tie themselves into that. Even the Minister has accepted that sometimes the best financial advice is not to put money into such funds, but to pay off other debts or to deal with other financial needs. By tying the fund to a regular investment, the Government are closing the avenue to many.
I fully accept that the explanatory notes refer to the funds being a glove into which various things can be slotted, one of which is a cash deposit. However, to
follow the ISA model, the only thing that comes to mind is a mini-cash ISA, which generally requires a fairly substantial lump-sum investment or regular monthly investments. It does not allow for irregular investment, which is much more likely to be the way in which low-income families contribute to funds.
I accept that such accounts may not necessarily offer the same benefits as equity-based investments, but they are less risky. Many people, particularly those on low incomes, are risk averse. In response to the hon. Member for Tatton, the Minister mentioned that £1,000 would seem a large sum to many. Yes, it would—and so would £500 to many of our constituents who do not have it. They would be very averse to the risk of putting such a sum into an equity investment that, let us be frank, many of them would not understand. There is a danger that, if the providers' main sales mechanism is a direct offer, people will invest in the accounts without understanding them and be unable to invest further or to follow what is happening to their investments.
It could be argued that the reliance on equity-based investment would encourage people to look further afield and to experiment with new types of investment. I suspect that it would have the opposite effect: there would be a plethora of very small accounts of £250 or £500 floating about. The National Consumer Council went even further and suggested that to ensure the widest possible accessibility to the funds, the Government should look to the Post Office with its large branch network and
''high levels of consumer trust''
to be an effective provider of the funds. That is an excellent idea, which might go some way to helping many sub-post offices that have suffered badly from other Government initiatives, such as removing their role in making benefit payments.
I support the idea of child trust funds, but I worry that by pursuing an unduly restrictive definition, the Government may undermine the concept among those on lower incomes—the very people who could benefit most from the introduction of the funds and particularly from the initial Government investment.
I ask the Minister to consider whether it is possible to design a building society or bank account for such people. It could be linked in some way with an equity investment by tipping into one that is set at a certain level. There must be more thought about the design. I appreciate that the regulations are not before us, but I want to explore the issue and find out the Minister's views on it.
George Osborne (Conservative, Tatton)
I did not table the amendments and I have already spoken enough. However, when I first looked at the Bill, I had some sympathy with the point of view expressed by the hon. Member for Angus about forcing, requiring or encouraging people to use equity products. When I met the Building Societies Association, it made the powerful point that some very small building societies of five, six or seven branches will not be able to offer the stakeholder equity products and will not therefore be able to enter the
child trust fund market. Also, low-income families who save have tended to do so in cash terms—in building societies and cash accounts.
However, on further consideration, I have been more persuaded by the argument that if one purpose of child trust funds is to educate people about the financial services industry, savings and so on, we should try to encourage more people to become shareholders and shareowners, as they would through equity stakeholder products. Of course, as a Conservative, I believe in a capital-owning, share-owning democracy and perhaps it takes a new Labour Government to turn us into that.
Ruth Kelly (Labour, Bolton West)
I am grateful to the hon. Member for Yeovil for tabling the amendment, which allows me to set out some of the thinking behind the stakeholder product.
We have in the child trust fund an ambitious project, which, as the hon. Member for Tatton rightly says, has at its core the objective of increasing financial understanding, awareness and education. That will be built around the delivery of the child trust fund. My personal view—I think that it is the view of many who deal with and think about financial education—is that one of the key challenges facing us is how to communicate effectively to citizens of this country the nature of risk and how to deal with it in their everyday lives as they take more and more responsibility for financial decisions generally. It strikes me that this is a wonderful opportunity to communicate the idea of investment and investment risk. I am talking not just about children but about their parents and others who have some connection with the child trust fund.
Clearly, financial education is not just a huge challenge. It is our responsibility to ensure that decisions are communicated in the clearest possible way, that people have maximum opportunity to understand the issues involved, and that citizens are able and equipped to deal with the accounts that we are offering them. We have carried out research into how to communicate with parents about the child trust fund and the financial decisions involved. The information pack that will accompany the child trust fund voucher will be specifically developed to meet the needs of those with no or very little experience of savings and investment.
There will be other measures as well. A dedicated website will be developed to meet the needs of parents, and—increasingly—of children. We are working closely with the Department for Education and Skills to develop teaching material that over time could be used in the classroom at both secondary and primary school level.
The FSA has recently set up the financial capability steering group, of which I am a member. It looks in broad terms at the opportunities for increasing the level of financial awareness and education, and has identified the child trust fund as one of the key products and life events around which it can build financial education. That is not in itself sufficient reason to argue that people should have their accounts
invested in equities. I just point out that it is a huge opportunity for us and that we should not forsake it lightly.
The hon. Member for Yeovil may say that this reason is not good enough, but we are arguing that the majority should have an equity-related account because over the past 18 years from 1984 onwards, £100 invested in the stock market would have yielded £321, despite the recent stock market falls, while the same sum invested in a building society account would have yielded just £171.
David Laws (Liberal Democrat, Yeovil)
Will the Financial Secretary give way?
Ruth Kelly (Labour, Bolton West)
I hope that the hon. Gentleman will let me develop my argument for a moment. There is a significant difference in the total yield.
Since 1918, the mean cumulative return over 18 years has been 6.9 per cent. As I have pointed out, that is in real terms, so it is not particularly ambitious to base our predictions on a nominal return of 7 per cent. Over a period of 18 years, it is reasonable to assume that the performance of the equity market will outstrip that of money placed in a bank or building society account.
David Laws (Liberal Democrat, Yeovil)
Will the Financial Secretary give way?
Ruth Kelly (Labour, Bolton West)
If the hon. Gentleman lets me develop my argument a little further, he will see that we are not prescribing that money should be invested in equities. We are saying that the stakeholder accounts should be risk-controlled and lifestyled, which means that the provider should take account of the market situation and the investor's needs and should manage the account. At the beginning, there will be significant growth potential, but as the child approaches the age of 18, the fund will move from a riskier to a less risky asset, such as a cash-based asset. As such, the fund will become much less volatile and the amount reached by the age of 18 much more predictable.
David Laws (Liberal Democrat, Yeovil)
The Financial Secretary is sticking loyally to her script, which we have heard several times and is in her evidence to the Treasury Committee. She said a minute ago that it was reasonable to assume that over an 18-year period returns in the equity market would be positive, substantial and more than in the cash market. However, citing the evidence of one country for one limited period of time will not suffice. What would the Minister say to someone in another major country such as Japan, where the equity market fell over a period of 14 or 15 years by 80 per cent. and is still about 50 per cent. lower than 18 years ago?
Ruth Kelly (Labour, Bolton West)
If the hon. Gentleman had listened to the concluding lines of my argument, he might have noticed that I was not arguing for pure equity investment over that time. I was saying that the equity argument is partly a diversion, because we are not being prescriptive in the Bill. We are setting out regulations that are principles-based.
David Laws (Liberal Democrat, Yeovil)
I hope that the Minister is clarifying her earlier comments and making it clear on behalf of the Treasury that it is not reasonable to assume that equity markets will always produce positive returns over an 18-year period.
Ruth Kelly (Labour, Bolton West)
Of course I am not saying that in every situation the equity market returns will always be positive—that would be completely unreasonable. I am pointing to a very long period in which that has happened. We have left that decision to the providers' discretion. They must provide an account that is appropriately risk-controlled and moves from riskier assets in the early years to less risky assets as the account matures. That leaves a discretion to invest less in equities and more in some other product— for instance, if they are operating in a bear market. However, that would be policed by the FSA and would be a responsibility of the provider.
Michael Weir (Scottish National Party, Angus)
I understand the Financial Secretary's point, although it seems that the return will very much depend on the investment strategy of the firm managing the account, and there have been some spectacularly bad investment strategies in recent years. I can foresee many accounts containing £500 or £250 for over 18 years and I doubt there will be much management of those accounts and the lifestyling she describes. There is a danger of many of them being left doing very little for a great number of years unless people can be persuaded to invest more in them by making them attractive and easy to operate.
Ruth Kelly (Labour, Bolton West)
On the contrary, it will be a requirement of the stakeholder account that they are lifestyled. Providers will have to offer that management strategy to lifestyle the accounts. Significant consumer protection is built into the system because only those firms that have been authorised by the FSA will be able to enter the market in the first place. They will then have to get Inland Revenue approval and so must meet the requirements of the regulations. The Inland Revenue will visit the firms on a regular basis to check that they are operating the accounts appropriately. The financial ombudsman service will operate for complaints about firms' investment advice and the financial compensation scheme will act as a safety net if the firm goes out of business. The appropriate consumer protection vehicles will still be there. The option of investing in a riskier asset towards the start of one's life and moving into a less risky asset as the account progresses is the right one.
George Osborne (Conservative, Tatton)
The Minister should not rest too much on lifestyling, to use the buzzword. By my calculation this would not have worked for children born in 1982. Just as they were coming up to the stock market boom of the late 1990s their returns would have been frozen and they would not have benefited from the gains because their account would have moved out of equities. Indeed, if they had been born in 1988 and were approaching 18 now they would be locked into the losses of the stock market in the late 1990s and the present decade and would be moving into bonds at a
time when they probably should be moving into equities. Lifestyling may be a buzzword but it does not eliminate risk and it does not protect people from the ups and downs of the stock market.
Ruth Kelly (Labour, Bolton West)
Some assets can be classified as riskier than others and some as less risky. Of course, one may miss out on the peaks but one also misses some of the troughs. It will not be completely stable because no asset return is completely stable. One cannot eliminate risk entirely, but I would suggest that the lifestyling requirements are the appropriate way of managing these funds. On that basis I ask the hon. Gentleman to withdraw his amendment.
David Laws (Liberal Democrat, Yeovil)
I am not sure that I am necessarily minded to press the amendment to a Division, but I am not entirely comforted by the Minister's comments either. She will understand from her own recent experiences, not least with Equitable Life and many of the other financial market products with which there have been problems over the last couple of years, that there is a great deal of consumer ignorance about some financial products and consumers tend to expect compensation to be paid when things go wrong. The Government have quite a job to do to extend financial education to overcome those problems. I hope that the FSA will play an active part in that.
I am more concerned about those accounts that are essentially managed by the Inland Revenue where it takes on the role and responsibilities of parents. That is particularly the case for children in care where there might be an expectation that the Inland Revenue will have the care and responsibility for those accounts over a person's entire childhood and certainly for a long period. In such cases we understand from the Financial Secretary and from the Bill and all the other documents that the chosen child trust fund product will be the stakeholder product that will have a significant equities element in it. In other words, the Government will make a positive decision to ensure that those individuals who have nobody to manage that risk for them and who will not be expected to manage that risk will be invested quite heavily in equities.
I ask the Minister to envisage the circumstances in which there could be a significant long-term bear market in equities such as there has been in Japan since the late'80s when the stock market has fallen by as much as 80 per cent. One could envisage a situation in which many ordinary consumers opt for very different child trust fund accounts. Perhaps cash and bonds will come back into fashion—they will if bond yields go up a great deal. People could choose to place their initial endowments on long deposits at much higher interest rates. One could envisage a worst-case scenario where the Government and the Inland Revenue loyally went on placing the money of children in care into equity accounts that had a much higher degree of risk than was chosen by many other individuals who chose accounts on behalf of children.
If we were faced with many vulnerable individuals with accounts that were being managed by the state and who were experiencing losses of 50, 60 or 70 per
cent., there would be public outrage. There would be great pressure on the Government to compensate the children whose accounts had suffered for the losses that they had experienced. As was suggested by the hon. Member for Newcastle upon Tyne, Central during the Select Committee hearing, it would be a great temptation for lawyers to go back on the words of the Financial Secretary and Treasury officials, and demonstrate that they were actively promoting the equity component of the child trust funds, while essentially undertaking a management role themselves in choosing equities. They, as a consequence, would be responsible for losses.
I urge the Minister to consider whether the management of those particularly vulnerable accounts, which the Inland Revenue is essentially managing for individuals, should be policed by the FSA rather than simply by the product provider chosen by the Treasury and the Inland Revenue. The Minister should be concerned about that. Should the FSA have a policing role that could reflect the fact that large amounts of the child trust funds belonging to individuals with small financial assets could otherwise be lost? When individuals in financial markets choose the financial products that they invest in, it is significant that those individuals with the lowest quantity of financial assets will often choose the financial assets with the lowest risk because they can afford to lose a lot less than somebody who has a £100,000, £200,000 or £1 million. It is quite possible that the Government might therefore be investing that small amount of money that children in care have in a way that is totally different from how they would choose to invest that small pot of money if they had the choice themselves. I hope that that is a problem that never arises, certainly in our lifetimes, but as the experience of Japan has shown it is not inconceivable. I hope that at some stage the Minister will consider whether the FSA has a role to play in policing the level of risk accepted by accounts that are managed by the Inland Revenue. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
George Osborne (Conservative, Tatton)
I beg to move amendment No. 105, in
clause 3, page 2, line 34, leave out subsection (3).
I trust that this will be a short debate. I tabled the amendment to find out from the Minister the purpose of subsection (3) and I thought that the best way to do that was to propose that we leave it out.
Subsection (1) states that financial providers must be
''approved by the Inland Revenue''.
Subsection (2) states:
''An account is not a child trust fund unless''
it conforms to regulations introduced by the Inland Revenue. So why do we need subsection (3)? It says that financial providers will only be approved as child trust fund providers if they provide accounts that are child trust funds as defined by subsection (2). That is self-evident if one reads the clause carefully—or so it seemed at midnight last night. What is the point of subsection (3)?
David Laws (Liberal Democrat, Yeovil)
I am largely content to hear what the Minister has to say to justify the clause, but I wonder whether she has in mind restricting the number of financial market providers that can offer alternative CTF accounts that are solely cash based. I am not sure that there is a strong argument for restricting consumer choice in that way. If that is the intention, I urge her to think again.
Ruth Kelly (Labour, Bolton West)
As the hon. Member for Yeovil (Mr. Laws) said, under subsection (3) the regulations may require providers to offer a certain type of child trust fund account as part of their range of child trust fund products. The regulations will require all providers to offer a stakeholder child trust fund account that follows the principles, is simple, low cost, accessible and allows control. If we did not force all companies offering the child trust fund account to offer a stakeholder product, some—perhaps small building societies and others, including those with links with local communities—might have decided to offer only cash-based products. Such companies may have a relationship with a low-income community, which would mean that that community would not be offered a product that was comparable with the opportunities for greater returns over the 18-year period.
Perhaps that is not an obvious argument, but having thought carefully abut it we considered that significant segments of the population could have missed out on the opportunities of having an equity based product if they were presented with only the cash-based product. Subsection (3) will require all companies that offer the child trust fund to offer a stakeholder investment.
George Osborne (Conservative, Tatton)
I am not a parliamentary draftsman, thank God, but could not the Minister achieve that through subsection (1)? Under subsection (1), surely the Inland Revenue could act only in accordance with regulations and would approve only providers offering an equity-based product. The Minister does not need to subsection (3).
Ruth Kelly (Labour, Bolton West)
I have full confidence in the ability of the draftsmen. I urge the hon. Gentleman to withdraw his amendment.
George Osborne (Conservative, Tatton)
I am trying to come up with good, efficient, lean legislation.
David Laws (Liberal Democrat, Yeovil)
As we have established the Government's intention in this section, perhaps the hon. Gentleman could tell us whether he shares the concerns that were discussed a moment ago on the restriction of access to the child trust fund market for a number of smaller building societies that believe that they will find it difficult to offer the stakeholder product. I accept the Minister's concern that everyone should have access to stakeholder accounts with equity elements. However, in denying consumer choice in this way, are not the Government taking this obsession a little bit too far?
George Osborne (Conservative, Tatton)
I dealt with that in my brief contribution to the previous debate. I can appreciate the strong arguments put forward by the Building Societies Association. Some building societies are very small, are not currently under the regulatory regime of
the FSA, would not be able to offer the stakeholder an equity product, and would not be able to participate in the child trust fund market at the moment. However, I believe in a share and capital-owing democracy—as Iain McLeod once put it—and I am persuaded by the Government's arguments that we should, through this vehicle if not others, try to encourage people to take on products that at least have an element of equity.
David Laws (Liberal Democrat, Yeovil)
I am sorry that the hon. Gentleman is not more enthusiastic about consumer choice, which is another Conservative concept, or commitment. Surely, we can be confident enough in the Government's attempts to ensure that people are aware of the opportunities that are open to them that we do not have to restrict the choice of consumers who wish to invest in such building societies. Will he also acknowledge that the issue of the charge cap will be particularly relevant? If it were set at a low level, it may be difficult for some smaller building societies to offer the stakeholder CTF product. They will be locked out of the market altogether.
George Osborne (Conservative, Tatton)
I am beginning to feel like the Financial Secretary defending the Government's policy.
Jim Fitzpatrick (Labour, Poplar and Canning Town)
Keep going.
George Osborne (Conservative, Tatton)
Perhaps one day, when the constituency of Bolton, West falls to the Tories.
I do not accept the arguments that have been advanced. If the Government get the charge cap right, there will be a lot of providers. I suspect that many building societies will have relationships with bigger companies to provide products to enable them to enter the market. Although I do not want the market to be restricted unnecessarily, only a small number of building societies would be excluded at present, but I am sure that they would find ways in which to become involved in the market. I do not wish to press the matter to a Division, so I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
George Osborne (Conservative, Tatton)
I beg to move amendment No. 106, in
clause 3, page 2, line 44, leave out 'except as permitted' and insert
'other than by the child that is beneficially entitled to the investments under it or by a responsible person in circumstances specified'.
Joe Benton (Labour, Bootle)
With this it will be convenient to discuss the following:
Amendment No. 144, in
clause 3, page 2, line 44, leave out 'as' and insert
'from the accounts of children of 16 years or over where the child who holds the account wishes to withdraw an amount from the account and where permission has been secured from a responsible person and as otherwise'.
Amendment No. 107, in
clause 3, page 2, line 44, leave out 'and'.
Amendment No. 108, in
clause 3, page 2, line 46, at end insert
'and
(f) provide that a responsible person may, at the time of opening an account, inform the account provider that he is a responsible person in Scotland.'.
Amendment No. 110, in
clause 3, page 3, line 8, leave out '18 or, in Scotland,'.
Amendment No. 111, in
clause 3, page 3, line 9, leave out ', in Scotland,'.
Amendment No. 137, in
clause 30, page 15, line 15, after 'Act', insert
'except section [reduction of age of majority in respect of child trust funds]'.
Amendment No. 138, in
clause 30, page 15, line 16, at end add—
'(2) Section [reduction of age of majority in respect of child trust funds] extends to Northern Ireland, but does not extend to Scotland.'.
New clause 4—Reduction of age of majority in respect of child trust funds—
'(1) For the purpose of any contract entered into in respect of a child trust fund, the age of majority shall be 16.
(2) The Family Law Reform Act 1969 (c.46) is amended as follows.
(3) After section 1 insert—
''1A Reduction of age of majority in respect of child trust funds
(1) For the purposes of any matter specified in subsection (2) which relates to a contract entered into in respect of a child trust fund, a person shall attain full age on attaining the age of sixteen.
(2) Those matters are—
(1) any rule of law, and
(b) the construction (in the absence of a definition or of any indication of a contrary intention) of the expressions listed in section 1(2) and similar expressions in—
(i) any statutory provision, whether passed or made before, on or after the date on which this section comes into force; and
(ii) any deed, will or other instrument of whatever nature (not being a statutory provision) made on or after that date.
(3) Subsections (6) and (7) of section 1 shall apply to the provisions of this section as they apply to the provisions of that section.
(4) In this section 'child trust fund' has the meaning given by section 1(2) of the Child Trust Funds Act 2004.''
(4) In section 28(4) (extent), after paragraph (a) insert—
''(aa) section 1A extends to Northern Ireland;''.'.
George Osborne (Conservative, Tatton)
In your wisdom, Mr. Amess, you have put together the two sets of amendments that we are about to discuss. However, I wish to debate them separately if that is all right. Amendment No. 106 would allow children and responsible persons in certain circumstances to withdraw money from child trust funds before the children reached their 18th birthday. One of the worries of the poverty lobby—if I can call it that, or the Child Poverty Action Group—about child trust funds is that it is not necessarily in the interests of low-income families to lock away their savings for 18 years. That might not be the best financial decision for them to make. Inevitably, due to their greater exposure to financial misfortune, they are more likely to have to draw on the funds in unforeseen circumstances. The amendment would allow them to do that, although the nature of those circumstances can be prescribed by the Government.
I envisage people being prevented from withdrawing the initial Government contribution from the child trust fund before their 18th birthday, but I am
exploring whether there will be flexibility to allow them to withdraw other contributions that they have made themselves in cases of unforeseen financial hardship. Indeed, if they at least knew that the money would not be locked away for long periods with no possible access, such flexibility could encourage low-income families to save into child trust funds.
Much research has been undertaken in the United States into individual development accounts. Low-income families who are not used to saving are reluctant—for understandable reasons—to put away their money so that it cannot be touched for 18 years. The purpose of amendment No. 106 is to explore whether such action would be possible or not.
The rest of the amendments deal with persons aged between 16 and 18 who have a child trust fund. When I first read the Bill, I was struck by the fact that if people live in England, Wales or Northern Ireland, they would have no control over their child trust fund until the day on which they turn 18. They cannot manage it. They cannot swap from equities to bonds and take the sort of action that we debated earlier. They cannot change provider. Only the responsible adult who is in charge of them can take such action. However, if the 16 or 17-year-old person lives in Scotland, he does not need his parents to undertake such matters. Such people can manage their accounts as they wish, although they are not allowed to make any withdrawals until they are 18 years old.
First, that creates an enormous range of anomalies. If someone lives just over the border in England, but gets their child trust fund in the local village in Scotland, what kind of account is it—English or Scottish? What happens if I walk into a branch of the Royal Bank of Scotland in Edinburgh—or, indeed, London—and open an account for my daughter? Will she be able to manage the account at 16, or at 18? What happens if I move to Scotland with my daughter? Is she therefore resident in Scotland, and can she manage the account at 16 or at 18?
What of the financial providers? Will companies such as Children's Mutual have to keep track of whether its child trust fund holders live in England or Scotland? Will it have to differentiate between its customers? Will it have to set up special systems to allow those living in Scotland to manage the account at 16? What happens if someone is born in Edinburgh and moves to London? What happens when they turn 16 in those circumstances? The difference is a recipe for total chaos.
I have two approaches to the problem, which appear in the amendments that have been grouped together. Amendment No. 108 would provide one solution. It would allow a person, upon opening the account, to specify whether they want it to be treated as a Scottish account. If they did, it would be set in perpetuity as a Scottish account. That might be one of the attractions that Scottish financial companies could offer people across the United Kingdom. At least it would be clear from the word go whether an account was Scottish or English. The financial providers would not have constantly to keep track of where someone was at any one time.
However, in all modesty, I think that I have a better solution, which is provided in new clause 4. The new clause is an attempt to deal with the reason for the anomaly. The Government say that the Bill will apply different criteria in Scotland because it is only under Scottish law that someone aged between 16 and 18 can enter into contracts to buy or sell equity, and child trust fund accounts, as we have just heard, will include investments in equities. In England, Wales and Northern Ireland, children aged 16 and 17 cannot enter into binding contracts to buy and sell equities. That is why they will not be allowed to manage their accounts.
New clause 4 is pretty ambitious, because it would change the law to allow persons aged 16 or 17 in England, Wales and Northern Ireland to enter into contracts to buy or sell equities, but restricts that solely to child trust funds. I am not proposing to turn all 16-year-olds in England, Wales and Northern Ireland into stock market speculators; I am restricting the measure solely to child trust funds. Of course, that would get rid of the anomaly, because there would then be the same situation in Scotland, England, Wales and Northern Ireland.
As we have already debated, one of the aims of the child trust fund scheme is to improve people's financial education. It seems pretty sensible to at least involve them in the direct management of their own child trust fund once they turn 16. Indeed, that management could be linked to school lessons. If the Government want to engage people in making better financial choices about their lives, why not give them a dry run at the ages of 16 and 17 by letting them make informed decisions, based on their school lessons and so on, about their child trust fund? Given that the children will have just sat through several classes in school about the subject, they would probably be better equipped to make informed decisions than their parents, who will not have sat through such lessons.
That is an unanswerable point, because if the Financial Secretary says that the Government do not think that it is right for 16 and 17-year-olds to make those decisions, and says that they cannot be trusted to manage their own accounts, why are they letting them do so in Scotland? That is an inconsistency, and it is not terribly difficult to change the law to reduce the anomaly. It seems to me that, instead of the Government tackling the anomaly, the Bill has been designed around it. New clause 4 is my attempt to tackle it.
David Laws (Liberal Democrat, Yeovil)
The hon. Gentleman talks good sense on this string of amendments. I will address the general theme—the eccentric way in which the age limits in respect of child trust funds are being applied by the Government in different parts of the United Kingdom and in respect of 16-year-olds' other entitlements. The entitlements of people in this country who have reached the age of 16 are as follows: they can choose to leave education and enter full-time employment; they can have sex, smoke, play the national lottery—a form of gambling if ever there was one—join a trade
union and apply for a passport. The Government are happy for them to pay tax and national insurance and, with parental consent, they are allowed to join the armed forces, get married and leave home. The Government are now actively considering whether 16-year-olds should also have the entitlement to vote.
Like the hon. Member for Tatton, I ask whether it makes sense, given the entitlements at the age of 16, not only to deny people access to their child trust fund and the ability to manage it, but, worse than that, to allow people in some parts of the United Kingdom, but not those in other parts, to manage their child trust funds. An additional anomaly is that parents who are below the age of 18 will be engaged in all those other activities that the Government allow for people of 16 and over, but will not be able to take basic decisions for their child about the management of the child trust fund accounts. Those decisions will instead be left to another body such as the Inland Revenue.
The Government think that it is appropriate that at the age of 17, individuals should take the decisions in respect of entitlements that I mentioned earlier, but not manage the trust fund accounts of their children. Frankly, most people would regard that as utterly daft. I hope that the Financial Secretary will take a fundamental look at the clause—she is not nodding; even when she does so, one does not always get what one is hoping for. We are arguing for flexibility from the Government in four key areas. The first is the extraordinary situation to which the hon. Member for Tatton referred: children over the age of 16 in Scotland will be allowed to manage their own accounts, even if they have an equity element, because the law in Scotland allows people over the age of 16 to be involved in managing equities, whereas children in the rest of the United Kingdom cannot do so until they are 18.
It emerged from the Treasury Committee proceedings that if someone has a cash child trust fund account, in theory, there is nothing in the existing law to prevent a 16-year-old in Northern Ireland, Wales and England from taking decisions about the management of the cash element. However, I presume that under the Bill, such a person would still be prevented from having any involvement. Surely, the idea of the child trust fund initiative is not only that people should sit in dusty classrooms learning about the financial markets, but that they should be encouraged at the earliest possible age to get involved actively in taking decisions, as the hon. Gentleman said. Otherwise, decisions on investment in the child trust fund will be taken by parents, or, potentially by the Inland Revenue—God help us. Surely, individuals should be taking such decisions.
Please will the Government look again at allowing people over the age of 16 in Northern Ireland, Wales and England to be involved in managing their child trust fund accounts? Will the Minister say whether at present people over the age of 16 in England, Northern Ireland and Wales will be prevented from managing even cash accounts, although existing law does not prevent their taking those decisions?
Secondly, I have tabled an extremely mild-mannered and generous amendment that does not even go as far as the views indicated in my comments. I hope that it will appeal to Labour Members who are conscious of the fact that huge cohorts of young people leave school at the age of 16—they do not go to university or stay on for A-levels. Those individuals may want to take advantage of an aspect of the child trust fund, to which the Financial Secretary has drawn attention, that allows them to draw down on their child trust fund and use the money to help them go into work, buy a computer or perhaps set up a small business. Those individuals, more than anyone, would need support at that stage of their career. Amendment No. 144 would lead to individuals over 16 being allowed, even if only with parental agreement, to draw down some element of their child trust fund to support the initiatives that the Financial Secretary seemed to have in mind. It would also allow people entering the labour market before the age of 18 to access the child trust fund account so that it can be used in the way that the Government intend.
We also have the bizarre situation that parents below the age of 18, despite having all the huge responsibilities for a child that they are allowed under the law, will be denied the opportunity to manage the child trust fund accounts for their children. They will instead have to contract them out to the state to make decisions. That is potty, and I hope that the Government will consider that. If they want to encourage people to take responsibility for their financial affairs, they should allow people to exercise independent thought at the earliest possible date.
I hope that the Financial Secretary will now tell us that the clause is a ghastly mistake and that she will correct it during the proceedings on the Bill. Otherwise, we will divide on either the amendment or the clause.
Ruth Kelly (Labour, Bolton West)
The hon. Member for Tatton said that the Bill was designed around an anomaly. I should point out that the anomaly that he referred to is the fact that the general law in England is different than that operating in Scotland. I do not take the view that that is an anomaly that must be sorted out on a case-by-case basis, because Bills are considered in Committee. Others perhaps have different views. However, I point out to him that border issues regarding children resident in Scotland or England, and what happens when they move from one to the other, arise in many instances. They are generally sorted out and there have never been specific difficulties in dealing with them, although I agree that they are a complication. I do not think that it would be appropriate for this Committee to try to level the playing field between the different operation of the general law in Scotland and England.
There is another argument that children under 18 should have an input into the management of their accounts in conjunction with their parents. I hope that they will begin to understand and appreciate the benefits of the accounts. I hope that the accounts will
be used in classroom teaching, so that children grow up to understand the benefits of investment and the concept of risk and reward.
David Laws (Liberal Democrat, Yeovil)
Does the Minister think that the state is better positioned to take investment decisions for a child trust fund belonging to a child with a parent under the age of 18?
Ruth Kelly (Labour, Bolton West)
We are following the provision of general law in this country, and I do not think that there is a clear rationale for departing from that for the Bill. The hon. Gentleman may disagree, but that is my opinion.
George Osborne (Conservative, Tatton)
I am not entirely convinced by the Minister's blanket argument that, because it is the general law of England, Wales and Northern Ireland that 16 and 17-year-olds cannot own shares, it should not be changed for the specific case of child trust funds. Child trust funds are a new concept that will, for the first time, give many children shares. Many of those children have never had shares before; I think that only one in five children have savings put aside for them at the moment. We are, in effect, creating share-owning children. It would apparently not take much to change the general law, as the Minister puts it—I think that it is a common law provision—to enable in this specific case, not in general cases, children aged 16 and 17 in three parts of the United Kingdom to do what children in one part of the UK will be able to do.
Ruth Kelly (Labour, Bolton West)
I take the hon. Gentleman's point, but I was going to say that this is not to do with anomalies between the general law in England and that in Scotland, but with whether, in England, we want children under 18—perhaps those over 16—to have some say in the management of their accounts. I put it to the Committee that there are real difficulties in changing contract law on that point. I certainly undertake to consider whether it is a simple issue, but I suspect that it is much more complicated than hon. Members appreciate. If the hon. Gentleman wishes, I shall come back to him on Report, to give an update on the complexities of changing contract law. I suspect that it would be rather difficult to change the law during the passage of the Bill.
George Osborne (Conservative, Tatton)
I am grateful to the Minister for giving way and for her decision to consider whether it would be possible to change the law. She said that she is not sure that it would be desirable to allow 16 and 17-year-olds to manage their own accounts—maybe I misheard her. There are 6 million or 7 million people living in Scotland; if it is not desirable for English, Welsh or Northern Irish children aged 16 or 17 to manage their accounts, why is it desirable for Scottish children to do so? If I can prolong my intervention a little, putting to one side the question of whether it would be easy to change contract law, does the Minister think that it would be a good idea or a bad idea for 16 and 17-year-olds to manage their accounts?
Ruth Kelly (Labour, Bolton West)
There is a case in principle that people over the age of 16 ought to be able to manage their accounts, but that would depend on the ability to
change contract law, and the administrative burden that providers would face. They would then have to deal with a different responsible person after the age of 16. I have heard no view from providers as to whether that would be a good change, but perhaps the hon. Gentleman has, and he may inform me of his discussions.
George Osborne (Conservative, Tatton)
We are beginning to have a fruitful discussion. Of course, there will be an administrative burden. A big company such as Norwich Union, which would be selling products to Scotland, England, Wales and Northern Ireland, will have the administrative burden of differentiating between those who are 16 in Scotland and those who are 16 in England. It may be administratively easier and less burdensome for companies to decide that all 16-year-olds can be in charge of their accounts. The alternative would be to raise the age in Scotland, and I am not in favour of that, because there are merits in having 16 and 17-year-olds actively managing their accounts.
Ruth Kelly (Labour, Bolton West)
I have said that I am prepared to consider the point and report back on Report, if the hon. Gentleman wishes.
The other amendments referred to the possibility of children withdrawing money from their accounts and, before the age of 18, having access to their own contributions, as well as those of their parents, grandparents and other relatives. I have serious reservations about that, partly because I think that relatives will contribute to the account on the basis that neither the children nor their parents will be able to withdraw money before the child reaches the age of maturity. I think that that will be a strong selling point. I do not think that allowing access, however limited, at the age of 16, is within the spirit of the child trust fund.
David Laws (Liberal Democrat, Yeovil)
I understand the Minister's concerns about introducing complexities and a situation that might not be consistent for all CTF holders, but does she accept that people enter the work force at different ages? Many 16 and 17-year-olds are actively engaged in the work force, and it might be valuable for them to use the proceeds of the child trust fund. Will the Minister consider, in the generous way in which she has considered other points, whether there is scope for allowing 16-year-olds who leave full-time education and go into work to have earlier draw-down of their funds, with parental consent?
Ruth Kelly (Labour, Bolton West)
Some have made representations that young adults should not be allowed to draw down their accounts until the age of 21 or 25. Many have argued that young adults should not be given that opportunity until they are significantly older. Others have argued that once the age of maturity is reached, the fund should be restricted to good uses, such as undertaking education, putting down a deposit on a house, or some other good, which could be defined in regulation. We have attempted to strike a balance between granting a reasonable degree of freedom at an appropriate age—18, the age of maturity—and
respecting a young person's ability to make judgments about their own best interests at that age. I think that that strikes a sensible balance. On that basis, I ask hon. Members not to press their amendments.
David Laws (Liberal Democrat, Yeovil)
On a point of order, Mr. Amess. I seek your advice on that issue. I am relatively encouraged that the Financial Secretary has said that she will report back to the Committee on the wider issue of the management of accounts by 16-year-olds, to establish whether it is possible to explore changes in the situation in Northern Ireland, England and Wales. However, she has not shown any flexibility on the issue of early draw-downs, which is explored in amendment No. 144. Is it possible to have a specific vote on amendment No. 144, rather than on the clause as a whole?
Joe Benton (Labour, Bootle)
It is perfectly in order to have a vote on amendment No. 144.
Sitting suspended for a Division in the House.
On resuming—
George Osborne (Conservative, Tatton)
I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Amendment proposed: No. 144, in
clause 3, page 2, line 44, leave out 'as' and insert
'from the accounts of children of 16 years or over where the child who holds the account wishes to withdraw an amount from the account and where permission has been secured from a responsible person and as otherwise'.—[Mr. Laws.]
Question put, That the amendment be made:—
The Committee divided: Ayes 1, Noes 9.
George Osborne (Conservative, Tatton)
I beg to move amendment No. 109, in
clause 3, page 3, line 1, leave out subsection (5).
I do not wish to detain the Committee for long on this amendment because, as with an earlier amendment to this clause, I tabled it to discover the purpose of the Bill, in this case subsection (5), which states:
''Regulations may impose other requirements which must be satisfied in relation to child trust funds.''
Much of the clause sets out requirements, so why is this final catch-all subsection needed? What are the ''other requirements'' that the Minister has in mind?
David Laws (Liberal Democrat, Yeovil)
I, too, am confused about why we need this subsection. The explanatory notes shed no light on the rationale for it, and I look forward to hearing the Minister's comments.
Ruth Kelly (Labour, Bolton West)
I can inform the Committee that the use of regulations is based on the ISA model. I imagine that the child trust fund providers requested that we base our regulations on a model with which they are familiar, and that we use the ISAs as a precedent. The details of ISAs are set out in regulations, as indeed were their predecessors—personal equity plans. The model that we have followed in the Bill is the one that was followed in those two previous instances.
George Osborne (Conservative, Tatton)
I do not feel that the Minister has answered my question, nor even addressed it. She started discussing PEPs and ISAs, whereas I asked about the purpose of the subsection. What are the regulations that might impose other requirements? What is the purpose of the subsection? What requirements does she envisage that will not be covered by subsections (1), (2), (3) and (4)?
Ruth Kelly (Labour, Bolton West)
As I understand it, the subsection merely allows us to lay the regulations, so as to give us the flexibility to change something quickly and effectively
if that is necessary in light of experience. It provides nothing other than a power enabling us to lay the regulations.
David Laws (Liberal Democrat, Yeovil)
The subsection states:
''Regulations may impose other requirements which must be satisfied.''
Could the Minister list one possible other requirement?
Ruth Kelly (Labour, Bolton West)
The sort of regulations that we have in mind are those that specify the nature of the risk controls on stakeholder products. As the hon. Gentleman knows, we intend to lay such regulations.
George Osborne (Conservative, Tatton)
The Minister's response is unsatisfactory. The one example that she gave could be covered by subsections (2) or (3). However, I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 3 ordered to stand part of the Bill.
Further consideration adjourned.—[Jim Fitzpatrick.]
Adjourned accordingly at twelve minutes to Five o'clock till Tuesday 13 January at half-past Nine o'clock.