Child Trust Funds Bill

Public Bill Committee, 13 January 2004.

Standing Committee A

Clause 4 - Inalienability

George Osborne (Conservative, Tatton)

I beg to move amendment No. 112, in

page 3, line 18, leave out subsection (2).

Joe Benton (Labour, Bootle)

With this it will be convenient to discuss amendment No. 113, in

page 3, line 25, leave out subsection (5).

George Osborne (Conservative, Tatton)

It is good to resume after a week's gap. My only regret is that my party is not here in full strength, and nor are the Liberals.

David Laws (Liberal Democrat, Yeovil)

We are at half strength.

George Osborne (Conservative, Tatton)

Sadly, we are not here in full numbers, or we might be able to make some constructive changes to the Bill.

The clause concerns what the Government call inalienability. That is to say, one cannot assign a child trust fund or have an agreement to charge against a child trust fund investment. Subsection (2) states:

''On the bankruptcy of a child by whom a child trust fund is held, the entitlement to investments under it does not pass to any trustee or other person acting on behalf of the child's creditors.''

I tabled the amendment out of curiosity because I want to know under what circumstances a child can be declared bankrupt. Given that we have previously had debates about how they are not able to enter enforceable contracts, it seems a bit harsh to declare a child bankrupt. However, if there are such circumstances, and the Minister tells us what they are, why should creditors, who might be suffering hardship or owed substantial sums, not have access at least to additional savings put into a child trust fund, if not the original Government contribution? I can see why the Government might want to protect their original contribution, but why, in what are presumably extraordinary circumstances, should a creditor not have access?

If one can apportion blame in such cases, and the bankruptcy was the child's fault—perhaps it entered into an ill-conceived and ill-advised financial arrangement that led to the bankruptcy—surely losing the additional savings in the child trust fund would be a good lesson about the dangers of doing such things. However, if the bankruptcy was the fault of the parents, and the additional savings were put in to the child trust fund by the parents, should not the creditors have the right to access them?

Ruth Kelly (Labour, Bolton West)

The hon. Member for Tatton (Mr. Osborne) asks whether a child can be made bankrupt. In law, a

child can be made bankrupt—for example, if he misrepresents himself to be over the age of 18 and enters into contracts, those contracts may be binding on him. In ordinary circumstances, it is not possible to have an enforceable contract, but if the child has misrepresented his age, it can be possible. A child could start a business and buy stock, pretending to be 18. If he could not then pay for the stock, the supplier could sue, resulting in the bankruptcy of the child.

The hon. Gentleman asks why, if there were to be such a case and it was clearly the fault of the child, the child should not lose the assets. This touches on a centrepiece principle of the Bill. The assets should be locked away until the child reaches maturity at the age of 18.

George Osborne (Conservative, Tatton)

Surely, if a child has set up a business under false pretences, and he is being made bankrupt, other people might have lost money in dealing with him. Might he not then, at the very least, lose his precious child trust fund? That would be a valuable lesson to him.

Ruth Kelly (Labour, Bolton West)

The hon. Gentleman makes a good point, but as I was explaining, the purpose of the Bill is that everyone, no matter their history or family history, will have access to an asset at the age of 18, whether it is their own or their parents' fault that they have had financial difficulties in the past. That is a key principle of the Bill, and on those grounds I ask the hon. Gentleman to withdraw the amendment.

George Osborne (Conservative, Tatton)

I shall not press the amendment. It seems a little strange that a 17-year-old, for example, could enter into all sorts of arrangements and cause people to lose money, and then a few months later receive the windfall of the child trust fund. I suppose that there is a question—the Minister need not get to her feet, but might perhaps answer it when she speaks on the next group of amendments, if you allow that, Mr. Benton—whether, once the child is 18 and the child trust fund matures, someone could claim against those assets. Perhaps if there is an ongoing action for bankruptcy, and the creditors are trying to recover money, they will wait until the child is 18. However, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Question proposed, That the clause stand part of the Bill.

Joe Benton (Labour, Bootle)

With this it will be convenient to discuss amendment No. 136, in

clause 20, page 10, line 41, at end insert—

'( ) any person who assigns, or enters any agreement to assign, investments under a child trust fund or who charges on, or enters any agreement to charge, any such investments.'.

George Osborne (Conservative, Tatton)

Amendment No. 136 applies to clause 20, which we have yet to reach and which sets out the penalties for those who, among other things, make fraudulent claims for child trust funds. The amendment would apply a similar penalty of a fine up to £3,000.

Clause 4 sets out, in the round, the admirable objective of trying to prevent people from in effect mortgaging their child trust fund. In a worst-case scenario, someone could borrow from a loan shark

against their child trust fund, provided that the expected assets of the child trust fund are set as security against a loan. Indeed, I know that some poverty groups have been concerned about that, and one can envisage it happening in some parts of the country. It is a serious risk and we need to protect children and their assets from it.

As far as I can understand the matter—I am happy to be corrected by the Minister—all that the Bill does is render void any charge on funds held in a child trust fund. Obviously, that is quite a deterrent to a loan shark. However, other sanctions could be deployed. I merely propose in amendment No. 136 to give the authorities the power to punish loan sharks and the like, if they try to seize child trust funds.

David Laws (Liberal Democrat, Yeovil)

I want to make a comment somewhat in contrast with that of the hon. Member for Tatton on the amendment and the relevant aspect of the clause. The hon. Gentleman referred to circumstances in which individuals and others might attempt to use the content of the child trust fund as collateral—presumably in a loan agreement—and to draw down the proceeds of a child trust fund earlier than intended by the Government. He invited us to put those cases on a level playing field with attempts to defraud the Inland Revenue in respect of child trust funds.

I do not want to return to our previous argument about whether child trust fund accounts should be open to be drawn down when the child is 16. I expressed concern that the Bill was unnecessarily restrictive with respect to the opportunity to draw down early. However, we can perhaps imagine circumstances in which it might be more acceptable for people to want to gain access to the value of the child trust fund earlier than intended by the Government. The hon. Member for Tatton cited the examples of loan sharks who might want to exploit the collateral value of a child trust fund to make a loan at a high rate of interest. However, there might be extreme but not completely unlikely circumstances in which people might want to draw down from child trust funds. I invite the Minister to contemplate circumstances, which we hope will not arise in the future, in which a young person with severe medical problems might seek to draw down on the proceeds of a child trust fund in order to help contribute to vital medical treatment that might not be available in this country or through the national health service. Such situations do arise.

One can contemplate a situation in which an individual might have several thousand pounds in a child trust fund and might need expenditure for something of particular urgency, such as a medical operation. One can imagine there being a great deal of sympathy in public and press sentiment and in the minds of Ministers, one of whom may be in the Financial Secretary's position at the time, for people who wish to draw down on their child trust funds under those circumstances, particularly if the operation or the event in question is something of great importance in someone's life. There would be enormous frustration that the assets of the child trust

fund were locked up in the way the Government intend.

I do not necessarily expect the Minister to respond immediately with a solution to my problem and to address my concern, because what I have suggested seems contrary to the Government's intention to lock away the proceeds until the age of 18. I am not sure that I want to go as far as the hon. Member for Tatton in putting the attempt to draw down the child trust fund on an equal basis with fraud. I invite the Minister to contemplate whether there may any circumstances in the future in which she might exceptionally be willing to take a more flexible approach to drawing down or using as collateral the proceeds of these funds.

Ruth Kelly (Labour, Bolton West)

I will take the points made by the hon. Member for Tatton first. He answered his own question: the funds would be made legally void as security if someone attempted to use them as security. He asked whether it was appropriate to add the civil penalty to reinforce the point that one should not attempt to use the child trust fund for security against a loan, but that is clearly not the case in law. It is not appropriate to have an additional civil penalty for an act that has been made legally ineffective. If someone attempted to use the fund thus, the fact that there would be no force in law should act as sufficient deterrent in itself.

George Osborne (Conservative, Tatton)

Surely the Minister can envisage a circumstance in which, for example, a 17-year-old is approached by someone who says, ''Listen, in return for your child trust fund I'll give you £500 now''. It is true that that is unenforceable in law, but there will be other ways in which that person may try to extract the money by the time the child is 18. I am suggesting a civil penalty, which may not be used, but would merely be an option for the authorities. It would give them an extra deterrent to stop such people going around knocking on doors trying to get hold of child trust funds.

Ruth Kelly (Labour, Bolton West)

It is certainly possible to imagine loan sharks going round to people's houses and trying to extract value from a child trust fund. However, the young adult will be able to have the full benefit of those funds at the age of 18, so I cannot imagine any advantage to loan sharks in trying to go down that avenue. It would be completely without hope of reward. I am sure that if they took the matter to extremes, they could be pursued in the courts for harassment or other issues that may arise.

The hon. Member for Yeovil (Mr. Laws) made a point about access to the fund before the age of 18 under exceptional circumstances. We have considered that issue in depth. There are of course cases in which people may feel that they should have recourse to the fund, perhaps in exceptional circumstances before the child reaches the age of 18. Unfortunately, we have not been able to devise a solution to that problem. It would be extraordinarily difficult for discretion to be exercised by the Inland Revenue, or any other party that one might think of, and for judgment to be made in difficult situations. On the whole, we felt it better, although one might argue that this is rough justice, that the funds should be locked in until the age of 18.

On those grounds, I ask the hon. Member for Tatton not to press the amendment.

George Osborne (Conservative, Tatton)

If this turns out to be a major problem in 18 years time, the Government of the day will have to tackle it. As we do not know who will be in Government in 18 years time, we will have to wait for that occasion.

Question put and agreed to.

Clause 4 ordered to stand part of the Bill.

Clause 5 - Opening by responsible person

George Osborne (Conservative, Tatton)

I beg to move amendment No. 15, in

clause 5, page 3, line 35, leave out from 'may' to 'apply' in line 37.

Joe Benton (Labour, Bootle)

With this it will be convenient to discuss the following amendments:

No. 192, in

clause 5, page 3, line 36, leave out from 'within' to 'apply' in line 37 and insert

'a period of six months beginning with the day on which the voucher is issued'.

No. 17, in

clause 5, page 3, line 39, at end insert

'in accordance with the provisions of subsections (3A) and (3B).

'(3A) An application for the opening of a child trust fund may take the form of the responsible person—

(a) giving the voucher to an account provider, or

(b) otherwise informing the account provider that he is a responsible person who has been issued with a voucher.

(3B) Regulations may prescribe—

(a) the period beginning with the day on which the voucher is issued within which an application may be made, and

(b) the means by which information given in accordance with subsection (3A) must be provided and authenticated.'.

No. 18, in

clause 5, page 3, line 40, leave out 'receipt of the voucher' and insert 'provision of the application'.

No. 115, in

clause 5, page 3, line 40, leave out 'must' and insert 'may'.

No. 116, in

clause 5, page 3, line 43, leave out 'in accordance with regulations' and insert

'within four weeks of receipt of the voucher'.

No. 118, in

clause 6, page 4, line 9, leave out 'in accordance with regulations' and insert

'within four weeks of receipt of the application'.

No. 25, in

clause 6, page 4, line 15, leave out '5(3)' and insert '5(3B)(a)'.

No. 166, in

clause 12, page 6, line 43, at end add—

'(4) The Inland Revenue shall publish proposals for subscriptions to be made to child trust funds by electronic means.'.

George Osborne (Conservative, Tatton)

This group contains two sets of amendments that would do different things. I shall treat them separately, and shall come on to the more

important set of amendments in the second half of my remarks.

Amendments Nos. 116, 118, 25 and 192 would write or amend on the face of the Bill what we know that the Government intend to do by regulation. Subsection (3) states:

''A responsible person may, by giving the voucher to an account provider within such period beginning with the day on which the voucher is issued as is prescribed by regulations, apply to open for the child . . . a child trust fund''.

The explanatory notes state:

''The Government has proposed that that period be one year.''

In English, that means that if a parent or guardian had not opened a child trust fund after one year, the Government or the Inland Revenue would step in and set up an account for them. Amendment No. 192 is merely a proposal that that period be made six months, principally to provoke a debate about why the period of a year has been chosen. Six months seems quite a long time in which to apply for and set up a child trust fund. I cannot imagine that many people would not have done so in the first six months but then would do so in the six months after that. I suspect that a small number of the people applying would do so in the latter half of the year in which one can open a child trust fund.

Of course, income is forgone and no investments are made for the period in which an account is not set up and a voucher is not lodged in a child trust fund account. The child loses out because of the negligence or incompetence of their parents. I am not sure why the period of a year is required; why not make it six months? Six months is a long time after the birth of a baby to get around to opening a child trust fund. If the period is going to be one year, will the Government send a reminder after six, eight, or 10 months, stating that the person involved has not opened a child trust fund? If not, there is no point having a period of a year. The voucher will have been sent, but it will sit at the bottom of a pile of paper, or might be thrown out, and the parents will not open it. Amendment No. 192 would deal with that point.

Subsection 4(b) of the clause states that the account provider must, in accordance with regulations, inform the Inland Revenue that they have received the voucher. We know that the Government intend financial providers to do so within a fortnight. The White Paper states:

''For new or transferred accounts providers will be required to make a fortnightly return to the Inland Revenue including the name of the child, the unique reference number and the amount to be credited to the account.''

As I said, the amendments are probing. I seek to clarify why that period should not be a month. Is it really necessary to require financial providers to make fortnightly returns? That seems excessive. Surely a slightly lighter touch would involve a financial provider merely making a monthly return to the Inland Revenue.

Amendments Nos. 17 and 18 are more substantial. I will let my Liberal Democrat colleague speak for himself, but I believe that his amendment seeks a similar aim—to try to move away from the Bill's

ludicrously bureaucratic and outdated voucher system. Of all the things that we can debate, such as the principles of the Bill or whether it should be extended to different age groups, what strikes one as truly prehistoric is the paper-based voucher system. I believe that I am right in saying that every major financial institution, and every organisation representing financial institutions, has made the point that it is totally unnecessary. I will discuss their comments in a moment.

By all means, send parents such as me a nice certificate saying, ''You can open a child trust fund for your child,'' but why require them to take that voucher to a bank, building society or other financial provider? Why on earth will the Government not allow people to do that on the phone or via the internet? As I said, it seems extraordinarily old fashioned. The White Paper makes it clear that the parent or guardian will have to give the voucher to their chosen provider. Several financial institutions have responded to that point by saying that this is totally unnecessary. The Children's Mutual said:

''We stress the point of the administrative burden of providers physically having to receive and store CTF vouchers in all cases. This process should be made as simple as is possible making use of the latest technologies that are available to providers and the public. If the IR can request a provider to open an account without issuing a voucher, we would advocate that this approach could work for the providers and the responsible person.''

The Norwich Union says:

''Putting the onus on parents to approach a provider to open their account via use of a voucher system may not compel them to do so—thereby increasing the number of 'shell' accounts which do not attract further contributions other than the government's initial amount and not meeting the long-term savings aim of the CTF. Physical collection of vouchers may also lead to higher administrative costs if providers need to pursue parents to send them in.''

The Association of British Insurers also makes that point. It says:

''One minor example may help to illustrate the way that additional and unnecessary costs may be imposed which deliver no obvious benefit to the consumer'',

and that the requirement to provide vouchers

''negates the possibility of providers keeping costs to an absolute minimum by enabling parents to open CTF accounts by more cost-effective and customer-friendly means—e.g. over the telephone or on the internet. The requirement to collect the vouchers means that even if such methods are used to register an account, it cannot be authorised unless the voucher is physically sent to the provider. This, in turn, creates additional administrative complexities (and associated costs) for providers who must (i) make sure that the voucher has been received; (ii) chase individuals who fail to send it in; (iii) cancel accounts where the voucher is never received; (iv) store the vouchers for no discernible purpose. Although a very minor example, such requirements make it more difficult for providers to operate efficiently and offer consumers value for money. Moreover, such requirements may also have an adverse effect on take-up, given that it is generally true that the more complex the procedure to open an account the higher the drop-off rate.''

Those are very good points, made by organisations that, after all, have a lot of experience in handling complex financial transactions. They make two points: first, the requirement will deter some parents, who would much rather simply pick up the phone or go online to open their child trust fund account; secondly,

it will impose an unnecessary burden on financial providers. As all those organisations have made clear, not only will they have to chase parents who do not send the voucher and send out letters, which add to the cost of managing the account, but they will have to store the vouchers until the child reaches the age of 18. That conjures up a Dickensian view of financial institutions as counting houses with massive underground vaults and filing cabinets full of child trust fund vouchers. That is not how the modern financial industry operates. Many people bank online or over the telephone, and that involves much larger sums than child trust funds.

The Government's counter-argument is that, without the voucher, there is a risk of fraud. First, many more complicated and valuable transactions are completed online every day in the City of London, and they do not require vouchers. Secondly, parents will receive a unique child trust fund number on the voucher or letter that is sent to them. If someone has the correct date of birth, name and number, the risk of fraud is minimal. Indeed, the Government previously put the proposal down as having a low risk of financial fraud. Money laundering regulations that the Government have introduced in the past couple of years do not cover child trust funds because they are deemed unlikely to be used for fraud or money laundering.

It is strange that the Government are insisting on such a bureaucratic process. I suspect that they are nervous that it will not work and that they want an old-fashioned paper system. However, that might increase complexity and deter people from sending in vouchers. It might deter those parents, such as myself, who will receive the voucher and think, ''I must open this child trust fund. I will do it on the telephone.'' If parents have to find an envelope and a stamp, they might not get round to applying. Sadly, the irrationality of the consumer, which we discussed in a previous sitting, is a fact of life.

Finally, I remind the Minister that the Government have an e-envoy and a vicious target of delivering all Government services online by 2005. I am not sure how they are proceeding with that target, but the Minister is not pulling her weight with child trust funds.

David Laws (Liberal Democrat, Yeovil)

I shall not repeat the hon. Gentleman's comments on the first amendment, since they were designed to probe the Government's intentions for the time period that will be set out in regulations and the Bill. I shall briefly comment on the second issue that he raised, which was the means of contributing to the child trust fund, and whether that should be restricted to vouchers and cash amounts, or whether the Government should consider electronic payments.

Amendment No. 166 to clause 12, which sets out subscription limits, would require the Inland Revenue to publish proposals for subscriptions to be made to child trust funds by electronic means. Under clause 12, there is a restriction to ensure that contributions can be made only in monetary form and not with other products, such as equity products. However, as the hon. Gentleman indicated, the Government have

been reticent about embracing new technologies available to facilitate payments into child trust fund accounts.

The initial voucher payment made in paper form by the Inland Revenue may help consumers understand that a new product is being launched. The Minister is nodding and I hope that she will still be nodding after my second comment. She has a tendency to nod and then say something contradictory later. I accept that a voucher might be helpful when setting up the child trust fund, so my moderate amendment merely asks the Minister to consider publishing proposals to allow future subscriptions to child trust funds to be made electronically. Given the amendment's extreme moderation, I hope that she will back up her nodding by making constructive proposals and assuring us that the Government are not luddite on contributions to child trust funds and will help to stimulate payments by other means, including electronic means.

Ruth Kelly (Labour, Bolton West)

The hon. Member for Tatton started by asking a couple of more detailed questions about the structure of the child trust fund, including why we allow parents a year in which to exercise their free choice as to the provider of the child trust fund account. Clearly, we want the maximum number of people to exercise their free choice as to the provider, partly because through exercising that choice they begin to increase their financial awareness. We can use the opportunities for financial education around that. Those are two key objectives of the child trust fund. Indeed, the fund provides a tremendous opportunity for parents who have not so far engaged with the financial services industry to do so. It is far better for parents to exercise that choice than it is for the Inland Revenue to allocate families a child trust fund provider.

The hon. Gentleman rightly points out, however, that there is a trade-off between allowing parents the maximum possible time and allowing the maximum time for the endowment to grow for the child's benefit. We have chosen the period of a year to strike a reasonable compromise between those two positions. We shall allow parents the opportunity to consider the information pack that is sent out alongside the voucher and to become aware of the publicity campaign that accompanies the launch of the child trust fund.

We shall attempt to monitor the number of accounts that are opened over the first year of operation and into the future to see how long it takes the average parent to open an account and how many parents are failing to open an account as we approach the final months in the build-up to the cut-off point of a year. If a substantial number of families fail to exercise their free choice, the Inland Revenue will consider ringing them and reminding them that it would be in their interests to exercise that choice. We shall monitor that over the long term as we monitor and evaluate the policy itself. A year strikes a reasonable balance between the two objectives.

George Osborne (Conservative, Tatton)

I do not know the answer to this question—one is always advised against asking such a question in Parliament—and perhaps the Minister can write to me if she does not have the answer to hand, but I should like to know what period people have to apply for child benefit and to have it backdated to the date of their child's birth. In addition, given that the Inland Revenue now administers child benefit, what modelling has taken place? Is there a clear pattern that if people do not do that in the initial few months, they will not do so at all and will have to be reminded? If so, perhaps the Minister could look again at the period of a year. It might help her to see the pattern for child benefit, because I suspect that the one for child trust funds will be very similar.

Ruth Kelly (Labour, Bolton West)

The hon. Gentleman makes an interesting point. He will be aware that I am not the Minister responsible for child benefit, but I will certainly consider that issue. Given that this is a new policy, I think that it is right to give people the maximum flexibility and opportunity to hear the financial education messages that the Government and, no doubt, providers and voluntary organisations will put out at the relevant time. We shall have an opportunity to remind parents during the year if we find that they are not opening accounts promptly.

The hon. Gentleman also asks about fortnightly returns. Up to a point, that is the same issue. It has to do with a trade-off between providing maximum opportunity for the account to grow, and minimising any potential burden on providers. We do not think that it is necessary for providers to contact the Revenue on a daily basis to say whether they have received any new accounts. On the other hand, a month in the scheme of an 18-year policy is a significant amount of time. We think that two weeks is more appropriate, and that fortnightly returns should be created electronically by the providers using their software systems. The returns will be sent electronically via the internet. We do not think that sending fortnightly returns will place any significantly greater burden on providers. Indeed, the informal contact that the Revenue has had with providers exploring the issue suggest that they do not have a significant problem with that. In the interest of maximising the value of the endowment on behalf of the child, I suggest that a fortnight represents the appropriate length of time.

To turn to the more fundamental issues—how we communicate the policy to parents, and whether a voucher is appropriate in the circumstances—I draw the Committee's attention to the Bill's objectives. Those are: to increase savings habits; to increase a person's assets at the age of 18; to create responsible consumers and—a key objective—to build financial education. I would argue that sending a family a voucher with the child's name on it, with the amount clearly expressed, is a valuable tool to increase financial awareness and will lead to an increase in habitual saving.

I note that, in evidence to the Treasury Committee, the National Consumer Council, which carried out significant qualitative research among young people

and parents, found that the voucher was very attractive. It said:

''The £250 voucher will act as a trigger to parents to start, and to add to, a savings fund for all children born after September 2002 . . . It appears the prospect of a voucher with their child's name on it provided by the government, helps people feel that they are to be given a helping hand in meeting their personal financial needs. The CTF is regarded as providing a framework for giving their family a financial start, in a way that they could see as beneficial to them.''

George Osborne (Conservative, Tatton)

I agree with everything that the Minister has said in the last few minutes. I am happy that people will be sent vouchers. I think that they will act as an incentive, and that it will be great to send people a cheque for £250 or £500. However, once people have received the voucher, they do not then have to take it to a bank or a building society to open the account. The voucher will have a unique number on it: people can then phone the bank, or go online and do it via the internet. That is my argument, and the Minister knows it. She is also aware that almost every financial provider that she has consulted has made that argument.

Ruth Kelly (Labour, Bolton West)

I am well aware of the point that the hon. Gentleman makes; he is quick to jump to his feet before I develop my argument. The voucher is, in principle, a powerful way of reminding people that they have that asset on behalf of their child. There is, of course, nothing to stop providers handling the administration of child trust fund accounts, either electronically or by telephone. The point that the hon. Gentleman makes is that we are insisting that, in due course, the paper voucher is produced, either in the post or personally. That does not strike me as an unreasonable requirement. Indeed, one of the requirements of the individual savings account, for example, is that providers store the application form for the account. The child trust fund is closely modelled on ISA provisions.

I should like to correct a couple of misapprehensions under which the hon. Gentleman seems to be labouring. The first is that providers would have somehow to store a paper voucher for 18 years. In fact, a provider can scan the voucher in to the system and needs to store that scanned version for only three years, directly in line with the provisions of ISA accounts. That should not be such a burdensome requirement. The paper voucher also plays a vital part in reducing fraud, to which the hon. Gentleman alluded. While sophisticated fraudsters can produce a copy of any document, the voucher will be designed in a way to make copying difficult for the less sophisticated. The child trust fund providers will have a certain degree of confidence that a voucher accompanying an application to open the child trust fund is genuine. An electronic process would not provide that degree of certainty and could allow internet hackers to open multiple child trust fund accounts.

The paper voucher will contain vital information in the form of a barcode or microline that will allow providers to scan the voucher and keep that information electronically. That is crucial for child trust funds, as Government contributions will be

paid only where providers' claims reconcile with the Inland Revenue's child trust fund database.

The hon. Member for Yeovil asked whether we would consider electronic payments to child trust fund accounts. I can inform him that this is possible under the legislation. The child trust fund account is modelled on the ISA model, where payments can be made by a number of means, including electronic means, and this is envisaged in the current set-up for child trust funds.

David Laws (Liberal Democrat, Yeovil)

Will the Minister inform me—it is possible I have missed the paper—about where the Inland Revenue has described in detail the mechanisms that can be used to make subscription payments by electronic or other means? Is there a paper that sets out the detail of how that can be achieved, or is one due to come out?

Ruth Kelly (Labour, Bolton West)

The hon. Gentleman will be pleased to know that the detail of those proposals will be set down in regulations, which we will publish shortly.

David Laws (Liberal Democrat, Yeovil)

On what I hope is a legitimate point of order, Mr. Benton—although I am sure you will tell me if it is not—we had hoped that we would have the regulations in order to debate the issue in Committee. You will appreciate, having chaired these proceedings for some time, that many of the issues in these clauses are fundamentally affected by the information contained in the regulations. Is it in order for us to ask when the regulations will be published so that they can inform the debate rather than us remaining in a state of partial ignorance until Committee proceedings have finished?

Joe Benton (Labour, Bootle)

It is in order to ask, but I am afraid that the Chairman may not respond to the question. I suggest that the hon. Gentleman ascertains that information through the usual channels.

George Osborne (Conservative, Tatton)

In this Committee I have not pressed any amendment to a Division and I have generally been happy, where I have had issues of substance, to have the Minister agree to consider them. She agreed to consider the idea of extending the child trust funds to children born before 1 September 2002; she said it could be done through regulation and that she would talk to the financial providers. She also agreed to consider allowing 16 and 17-year-olds in England, Wales and Northern Ireland the same powers and rights that 16 and 17-year-olds in Scotland will have, and I was satisfied with that response.

However, I do not follow her arguments in this case. I accept—I made this point in an intervention—that the Inland Revenue should send every parent a child trust fund voucher, just as a parent of a recently born child receives a letter from the Inland Revenue saying that they can claim child benefit. That is perfectly appropriate; I do not mind whether the voucher is fancy and looks nice and encourages people to start saving and so on. But it seems ridiculous that the person then has to send the voucher to a bank or building society. The Minister rests her arguments on the idea of fraud and internet hackers. As she knows, every day complicated financial transactions worth many billions of pounds take place over the internet,

and over the telephone in the dealing rooms of the City of London. Every day, people buy books or other products online. There is not a major problem of internet hackers accessing my Amazon account, buying books in my name and sending them to some other address.

In the 21st century, it is possible to devise a simple internet system that would allow people to register online for their child trust fund. Given the fact that the Inland Revenue will give everyone a unique number, it will be easy for it and for the financial providers to check, before opening an account, that someone has not already opened an account elsewhere. It defies belief that the Government are ploughing on with this old-fashioned system.

The Minister said at the beginning of her remarks that this measure was about financial education for people. Does she really think that in 18 years' time the vast majority of the financial transactions into which we enter will not be done either electronically or over the telephone? If the intention is to educate people who may have very little financial education, a good place to start would be to give them the option of doing this kind of thing over the internet or the telephone. I suspect that the better-off people in society do more internet banking and telephone banking than the less well-off, so if we want to enhance financial education, this would be a good place to start.

As the Minister knows, it is not a credible argument that the only way to protect against fraud in such cases is to have a paper voucher that must be handed in to a provider. I shall therefore reluctantly press amendment No. 17 to a vote.

Joe Benton (Labour, Bootle)

Order. The hon. Gentleman must seek a Division on amendment No. 15 as the lead amendment, not No. 17.

George Osborne (Conservative, Tatton)

You are an expert in parliamentary procedure, Mr. Benton, and I am a total novice. I will therefore press amendment No. 15 to a vote, to make my point. I conclude by asking this simple question: what happens if someone loses their voucher? What happens if, during the year when they can open an account, they are unable to find it? Will there be some procedure through which they can open an account over the telephone? Do they have to telephone the Inland Revenue and say that they have lost the voucher? There are evident problems with a paper voucher system.

As I understand it from the Minister, there will be a process in which a computer will identify the people who are entitled to a child trust fund. They will be sent the paper voucher, and they will then have to take the paper voucher to a financial provider, who can then electronically store the information and electronically make returns to the Inland Revenue. That is crazy. In the time available before the legislation is introduced I ask the Minister to think about the issue again. All the financial providers to which I have spoken have made that point to me, and I ask the Minister to reconsider.

Question put, That the amendment be made:

The Committee divided: Ayes 3, Noes 10.

Clause 6 - Opening by Inland Revenue

George Osborne (Conservative, Tatton)

I beg to move amendment No. 117, in

clause 6, page 4, line 3, after 'selected', insert 'at random'.

Joe Benton (Labour, Bootle)

With this it will be convenient to discuss the following: Amendment No. 149, in

clause 6, page 4, line 20, at end add—

'(6) Accounts and account providers selected by the Inland Revenue under subsection (1) shall meet lower risk criteria set out from time to time by the Financial Services Authority, designed to reduce the risks of significant capital losses from child trust fund accounts which have been opened or selected by the Inland Revenue.'.

Amendment No. 150, in

clause 7, page 4, line 27, at end add—

'(c) a child trust fund opened by the Inland Revenue may be transferred from one account provider to another, or moved from a stakeholder child trust fund account to one of the other account descriptions as prescribed by regulations.'.

New clause 10—Investment information and advice from Inland Revenue—

'(1) The Inland Revenue shall provide summary information on investment options and risks to all those responsible for managing child trust fund accounts.

(2) But the Inland Revenue shall not itself offer any advice on which account types or providers should be selected.

(3) If the Inland Revenue can be shown to have offered advice which has resulted in investment losses then it shall be legally liable for such losses.'.

George Osborne (Conservative, Tatton)

I am still recovering from my shock defeat in the Division.

Most amendments in this group were tabled by the Liberal Democrats, but I tabled amendment No. 117. As we discussed earlier, the Government have made it clear that when parents or guardians fail to open a child trust fund account within a year, the Inland Revenue will do so on their behalf. That is good. The White Paper also made it clear that such accounts will always be stakeholder child trust fund accounts, which include equities. That is also the right way to act, as children should not lose out through the negligence, incompetence or ignorance of their parents. I am sure that the Liberal Democrats will have something to say on that point.

I have a few questions that relate to amendment No. 117. It is made clear that not all financial providers that offer child trust fund accounts will have to offer Revenue-allocated accounts. What estimates has the Minister had of the number of

providers that will offer such accounts? Will there be a wide choice for the Revenue or will only a few providers offer to administer the accounts? From the providers' point of view, it is likely, although not absolutely predictable, that if a parent cannot be bothered to open an account, they will not make substantial contributions to it, so it is unlikely to be lucrative for the provider to administer.

There may be other administrative problems. If the providers have to deal with parents or guardians who did not open the account, they may find it difficult to keep track of where they have moved around the country. If the child comes from a dysfunctional family that splits up, the provider may find it hard to keep track of who is responsible for the account. Some additional administrative costs may be associated with Revenue-allocated accounts, so will the Minister say whether a substantial number of providers will offer them?

The White Paper makes it clear that the accounts will be allocated in turn. I take it from that that there will be a list of providers and the Inland Revenue will simply move down the list to allocate funds on a rota basis. I am suggesting merely that that is done at random, so that there can be no suspicion that people were allocated a duff account provider or poor-performing account. My amendment would mean that we could say with confidence that the accounts were allocated at random.

Amendment No. 117 is a probing amendment designed for discussion of the issue, but there is a serious point. Providers are unable to refuse Revenue-allocated accounts once they have agreed to accept them, but smaller providers may reach a point at which they cannot administer the funds. The current provisions will encourage only large account providers to offer Revenue-allocated accounts. A small building society with only a few branches that has overcome the hurdle of having to offer stakeholder accounts may want to administer a few of the accounts, but would be unable to handle a quarter or sixth of the Revenue-allocated accounts throughout the country. That is an important point in relation to the provisions that require providers to accept all Revenue-allocated accounts, regardless of their situation, once they have accepted the principle of taking such accounts.

What help will the Inland Revenue give to providers of Revenue-allocated accounts in keeping track of the people involved? They are unlikely to have had any direct contact with the parents or family, so will the Inland Revenue inform account providers when the child changes address? That is likely to be picked up by the child benefit administration, but will it pass that information to the account provider? What steps will the Revenue take to remind children throughout their childhood that they have a child trust fund? The children may be completely unaware of the accounts if their parents have not told them about them, and even the parents may be unaware, which is why the account was not set up.

Lastly, will financial providers have to alert children at the age of 18 that they have a child trust fund? Is the

financial provider obliged to track down those who hold such accounts? If one was being cynical, one might say that it was in the provider's interests not to bother tracking down all those with accounts holding £900, £1,000 or £1,100. The cost might be disproportionate, and the provider might not mind having a large number of low-value accounts steadily gaining interest, without anyone being aware that they are entitled to the money.

That is a string of probing questions and I should be grateful if the Minister could deal with some of them.

David Laws (Liberal Democrat, Yeovil)

I want to speak to amendments Nos. 149 and 150 and new clause 10. Clause 6 is extremely important, as it sets out how the state is to exercise its functions in respect of those child trust fund accounts that it opens for children who have no one to take responsibility for the account or whom the states considers are not fit to take such a responsibility. The clause provides that, for those individuals without parents, or those who have no other family members to exercise the responsibility, the state should ensure that every child has an account, even those who are in care, which certainly seems sensible.

The state will therefore exercise a sort of parental responsibility in establishing child trust fund accounts. The Treasury believes that equity accounts will perform better over a longer period than cash or bond accounts, so the Inland Revenue will open all those accounts in a format that has a significant equity investment component. Under subsection (5), however, the Treasury and the state disown responsibility for their decisions when acting as the responsible entity in respect of those accounts. That seems extraordinary, and potentially dangerous. The Minister and the Treasury, doubtless for the most admirable of reasons, indicate that they believe that the equity account will be best for those particular individuals.

I question whether it is right for the Treasury and the Government to give such unambiguous investment advice as that embedded in the Bill and that given by the Minister on Second Reading and in evidence to the Select Committee. I also question whether adequate safeguards have been put in place for those accounts over time, so that a response can be made should the investment environment change. I question whether there should not be more flexibility in relation to the management of accounts. I question also whether it is fair for the Government to give such ambiguous investment advice in respect of equities as a class of investment and then, in subsection (5), to disown responsibility for managing the accounts. My incredulity about the Government's proposals and my sense that they pose a significant risk seem to be shared by a number of members of the Treasury Sub-Committee, not least the hon. Member for Newcastle upon Tyne, Central (Mr. Cousins) in his exchanges with the Financial Secretary when she gave evidence.

The background is the Government's unambiguous judgment that equities are going to be a better investment than cash or bonds. I repeat the evidence

that I cited in last week's debate, when my hon. Friend the Member for North Norfolk (Norman Lamb) asked the Financial Secretary in the Treasury Committee evidence session whether the Government wished to promote the equity product, she said:

''Absolutely, because people tend to do better with equities''.

The Government and the Treasury point out that equities tend to perform better than cash and other investments over time, yet in relation to the safeguard referred to in other evidence given, Ms Rookes told the Treasury Committee that

''we would hope that they''—

the people who make decisions about child trust fund accounts—

''would understand enough to know that, over the longer term, equity accounts do tend to provide higher returns; but, when all is said and done, they will still have the opportunity to move to a cash account if that is what they feel more comfortable with.''

That is absolutely true of those individuals who exercise responsibility over the accounts in question. However, it is not true of individuals who rely on the Inland Revenue to manage the accounts and exercise responsibility over them. Those individuals will have much less protection over time because, it seems, nobody will police their accounts or make decisions in response to changes in the investment climate.

There can be big changes in the investment climate, and I cite the example of the share market in Japan over the last 20 years. The majority of people who exercise responsibility over their own children's accounts might respond to changes by shifting the balance of the investment from equities to bonds or cash. However, those people whose accounts the Inland Revenue are to open will not have that flexibility, which should be a matter for concern. I know that we chortled somewhat over the Nikkei stock index accounts from Japan when we discussed the matter last week, but I invite the Minister to take a longer-term historical look, perhaps at the experience of the United Kingdom, as the Library has information on the share market in the UK that goes right back to 1700. Although I do not pretend that the investment circumstances in all those periods were precisely similar to those in the last 100 or so years, there is no reason why the 1800s and the industrial revolution should have been dramatically different from the last 60 or 70 years.

I invite the Minister to consider whether the results of investment returns from equity products to which the Inland Revenue has alluded are not heavily biased by the experience of the post-second world war period in the 20th century. In that period there were some incredibly high investment returns that have not been matched in many other countries—I mentioned Japan—or in other periods in British economic history. I would be very willing to go over some of the investment experiences of the 1700s, 1800s and the earlier part of the 20th century, although I suspect that you might not want me to do so, Mr. Benton, so I would be happy to pass my notes to the Minister if she would like to see them.

The point that I should like to underline, which should be evident anyway and which the Minister

should promote in her advice, is that, as the Building Societies Association put it in the memorandum that it submitted to the Treasury Committee,

''past performance is a fallible indicator of future returns''.

Yet there is a real possibility that the Government are taking decisions about the equity investment interests of those most vulnerable citizens on the basis of a limited period of years, without thinking about how those individuals could be disadvantaged in the future.

Ruth Kelly (Labour, Bolton West)

I wonder whether the hon. Gentleman would share something with the Committee: would he allocate cash accounts from the Inland Revenue to children in care? Does he seriously suggest that as a possibility?

David Laws (Liberal Democrat, Yeovil)

I am saying clearly to the Financial Secretary that there could be significant periods when vulnerable young people's investment interests could be far better served by investing in bonds, or even in cash accounts, than in equities. I invite the Financial Secretary to consider, for example, the long period in Japan, not in the 17th or 18th centuries but in the past 20 or 30 years, in which there has been a bear market in equities. They have declined from 37,000 or 38,000 until as we speak they are at something like 10,000 or 11,000. I invite the Minister to reflect on whether she would put her money into equity accounts in such circumstances; could we reach a situation in which the accounts being managed, essentially by the state, are dealt with quite differently from those being managed by individuals?

In case it seems too far-fetched to contemplate whether the equity accounts set up for vulnerable children and managed by the Inland Revenue should be managed more proactively in the future, I invite the Minister to go back to the evidence about child trust funds that she and her colleagues gave to the Treasury Committee on 3 December 2003. The hon. Member for Newcastle upon Tyne, Central, who clearly was very concerned about the issue, said to the Financial Secretary:

''There is no question of judgment here, you are binding your successors, they will not be able to exercise judgment, all this money will be placed in equity accounts come what may. That is the issue.''

In response to the hon. Gentleman, Ms Welsh, one of the officials who attended with the Financial Secretary, said:

''Looking at the legislation I think I am right in saying that there is flexibility for the accounts to be specified. I believe that there will be flexibility if the Government is made over time to see that the nature of that account should be changed that that would be a possibility.''

If that is so, I should like to hear more from the Minister because it seems to suggest that there could be significant changes in the equity composition of the accounts in question in circumstances in which equity investment was perceived, by the Government and by individuals taking decisions for their children, as far more risky.

The new clause and the two amendments that I have tabled touch on the issues and concerns that I have outlined today. Amendment No. 149 invites the Financial Secretary to contemplate whether there should be a specific role for the Financial Services

Authority in policing the riskiness of the accounts, and monitoring the risk over time. We debated that issue last week in respect of another clause. I shall not repeat the arguments here.

Amendment No. 150 is a reflection on whether there might be flexibility for the child trust fund accounts opened for the most vulnerable individuals to be shifted around between providers or between classes of child trust fund account. New clause 10 is essentially an over-arching clause that expresses our view about the Government's attitude towards promoting equity investment. It states essentially that the Government's role should be to provide information for all decision makers about the risk that they take in respect of child trust fund accounts, but that the Inland Revenue itself should not be giving such clear advice about the advantage of investing in particular asset classes. Where the Inland Revenue gives that advice and is responsible, potentially, for arranging, for a large group of people, a child trust fund account whose characteristics could mean significant capital depreciation over a long period, it is only right that the Inland Revenue should bear responsibility.

I agree with what I suspect the hon. Member for Newcastle upon Tyne, Central was hinting at in his comments to the Financial Secretary in the Select Committee: that if the equity market were deteriorating in the way that has happened in Japan, and child trust fund accounts of very vulnerable individuals, including children in care, were going down significantly, losing 50, 60, 70 or 80 per cent. of their value, it is inconceivable that the Government and the Minister could escape blame. There would be strong pressure for compensation for people whose accounts were invested in that way, particularly where the Government were perceived to have made that choice for these vulnerable individuals and to have got it wrong in relation to the risks in equity investment compared with bonds and cash.

I make no apology for going back over an argument that we covered to some extent last week. Fortunately, Mr. Benton, you were not in the Chair and so you have not had to listen to some of these arguments twice. We are considering how the Government intend to act in loco parentis to some of the most vulnerable individuals in society. We must ensure that those individuals are not disadvantaged by being locked out completely of an asset class that could appreciate in value. That is clearly the Minister's good intention, but neither must we put them, on the basis of the last 50 years of equity returns, in a position in which they could be significantly disadvantaged in comparison with those individuals whose accounts may be managed more proactively by parents, perhaps with the additional advice of financial advisers.

Ruth Kelly (Labour, Bolton West)

A number of issues have been raised in this group of amendments. The hon. Member for Tatton asked whether a wide choice of providers would offer revenue allocated accounts. At least one provider whom I met stressed how much they wanted to get into this market of offering revenue allocated

accounts. I cannot speak about all the meetings with providers, but officials have been exploring the issue them.

The hon. Gentleman argued that we should move from a system based on a rota for the allocation of Inland Revenue accounts to one that is mathematically random. Most people, while perhaps not mathematically correct, would consider a rota basis to be random. However, he makes a point in theory. The Inland Revenue would not select a particular provider on purpose. It will simply move from one to the next on the list and rotate. He asked whether the Inland Revenue would keep track of all those individuals who have Inland Revenue accounts opened for them. We hope that most of these people will eventually, through financial education and the campaigns that we will run, move provider and exercise their free choice, which they can do at any point without penalty.

We are currently in discussions about what information we should provide to those providers who offer Inland Revenue accounts. I could come back to the hon. Gentleman with more detail on that.

George Osborne (Conservative, Tatton)

When the Minister says officials are in discussion about information, that presumably is in answer to my question about whether the Inland Revenue would send changes of address to account providers. Is that what she was referring to?

Ruth Kelly (Labour, Bolton West)

That is precisely the sort of information that we are in discussion about.

On amendment No. 149, tabled by the hon. Member for Yeovil, the treatment of children in care presents real issues for the Government. I will not conceal from the Committee that those have not been easy issues for us to address. There are some quite difficult issues to resolve. We have been in consultation across Government about the best way to provide for children in care. I am determined to ensure that children in care have the maximum opportunity that we can offer them through this policy. I hope that we continue to work together across Government and with local authorities, voluntary organisations and other parties concerned about children in care and about how the policy can evolve for the benefit of those children. We have a choice. Assuming that we are not to deprive children in care of a child trust fund, what sort of child trust fund do we provide?

I note that the hon. Gentleman shied away from the possibility of suggesting that they should be offered anything other than a stakeholder account when I asked him whether the money should be invested in cash or bonds. We have to provide—

David Laws (Liberal Democrat, Yeovil)

I did not shy away at all. I said that it was possible that for significant periods the returns for these particularly vulnerable people could be higher in cash and bonds, and that the Government proposal did not allow for that.

Ruth Kelly (Labour, Bolton West)

I am going on to suggest how we might deal with that situation. Let me draw the hon. Gentleman's attention to the fact that the majority of children in care have somebody with parental

responsibility. That responsible person will, on behalf of the child, exercise—or not—choice with regard to the child trust fund account. A small minority of children are in care for a prolonged period, and for them the question of legal liability might arise in the way that has been presented. We are asking whether the Solicitor-General's office could act on behalf of those children. I cannot confirm today that that will be the eventual arrangement, because we are in discussion with the Official Solicitor as to whether that will be possible.

David Laws (Liberal Democrat, Yeovil)

I understand how difficult the issue is. Can the Financial Secretary say what her intention is in involving the Solicitor-General in that way? Is it to do with the legal liability for managing the accounts, and the need to insulate that from the rest of Government, or is it suggested that the Solicitor-General might make decisions relating to the investment proceeds of child trust funds, which seems less likely?

Mr. Michael Weir (Angus) (SNP) rose—

Joe Benton (Labour, Bootle)

Order. The Minister must respond to the first intervention.

Ruth Kelly (Labour, Bolton West)

We are not talking about legal liability. The Bill makes it absolutely clear that the Inland Revenue has a duty to provide these accounts for children in care. However, we are talking about who acts on a child's behalf. I cannot reveal the detail of discussions that are ongoing, but I shall keep the hon. Gentleman and the Committee informed of progress.

Michael Weir (Scottish National Party, Angus)

I apologise, Mr. Benton, for an inappropriate intervention. I wanted to follow up the point about the Official Solicitor's becoming involved, and to remind the Committee that there is a different official in Scotland. We should discuss what the position would be in Scotland.

Ruth Kelly (Labour, Bolton West)

We are, of course, mindful of the devolution arrangements, and are consulting the appropriate person in Scotland. I can assure the hon. Gentleman that we are giving the issues serious consideration and that I shall report to the Committee in due course. I would ask the hon. Gentlemen to withdraw the amendments.

David Laws (Liberal Democrat, Yeovil)

I am grateful to the Financial Secretary for giving way. I am a little surprised that her comments were that short; I was hoping that we would get a chance to probe some of her thinking a little more. While I am grateful to hear that she is engaging with the Solicitor-General on this important issue, it is unclear to me how the Solicitor-General's involvement is envisaged in respect of the types of risk that I alluded to in the amendments and their control. I was particularly envisaging some authority with a little more market sensitivity than the Solicitor-General. I do not wish to run down the Solicitor-General, whoever that is. No doubt he is well aware of these issues, but I envisaged the involvement of an agency or authority with a little more market sensitivity and more contacts with financial markets and market risks than the Solicitor-General.

I also hoped that the Minister would go into greater detail about the issue that Ms Welsh touched on in her

evidence to the Select Committee. She said that the Government might, in time, use additional flexibility to see if the nature of the account could be changed if the circumstances that they envisaged, presumably in relation to equity investment, did not come to pass. I hope that the Minister will re-examine that issue. Since she said that discussions with the Solicitor-General continue, and assuming that she has concluded her remarks—

George Osborne (Conservative, Tatton)

She is allowed to speak.

David Laws (Liberal Democrat, Yeovil)

I give way.

Ruth Kelly (Labour, Bolton West)

The hon. Gentleman makes a specific point about flexibility in response to a future change in climate. The risk controls are, of course, set out in regulation, which allows some flexibility, and they will be reviewed periodically as the policy progresses to ensure that we are dealing with stakeholder funds appropriately and specifying them accordingly.

David Laws (Liberal Democrat, Yeovil)

I am grateful to the Financial Secretary. I detect that she is, at least, more sensitive to the concerns that I expressed today than she may have been when we debated a similar issue last week. For those reasons, I shall not press my amendment to a vote, even if I were allowed to do so. I do, however, hope that we may return to the issue, and that the Minister will clarify the Government's intentions further before Third Reading. Perhaps we will have the opportunity to debate the issue again then.

George Osborne (Conservative, Tatton)

I have not engaged in the debate about the philosophy of equity versus bonds, and I shall stick to the grubby details of how the scheme will work in practice.

The Minister deployed against my amendment the best argument that she has deployed against any of my amendments, which was that a rota basis is, of course, random. That is, in fact, a knock-down argument, so it would be foolish of me to press the matter further. However, I raised another point that was not about my amendment. She did not respond to it, and I do not necessarily expect her to do so now, but she did say that she was aware of only one provider that was considering offering Revenue-allocated accounts, with which she had had a conversation.

The legislation contains a requirement that if a provider says that it will offer Revenue-allocated accounts, it must take all such accounts that the Inland Revenue sends its way. That may restrict the number of providers that enter the market. It is perfectly possible to imagine a building society with ties to a particular part of the country that may want to administer Revenue-allocated accounts in that part of the country but not throughout the country. It is perfectly possible to administer a small provider that says that it can handle several thousand, but not several hundred thousand, of those accounts. If the number of providers is small, the Minister may want to consider whether it is wise tying her hands in this way. I believe that that measure is in the Bill. It may be unusual for an Opposition spokesman to say this, but she may want to make it possible to change it by regulation. That may be a subject for another debate. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

George Osborne (Conservative, Tatton)

I beg to move amendment No. 119, in

clause 6, page 4, line 16, leave out from 'child' to end of line 18.

The amendment probes the Minister on some of the issues that she and my Liberal Democrat colleague discussed in the previous group of amendments. It leaves out subsection (4)(b), which states that the Inland Revenue can administer an account when

''it appears to the Inland Revenue that there is no-one who is a responsible person in relation to the child.''

It strikes me that when a child is not in local authority care—when they are in local authority care there is usually a responsible person—there must always be a responsible person in charge of them; for example, someone must be collecting child benefit on their behalf. As the explanatory notes explain, the Inland Revenue can act when it is

''satisfied that there is no 'responsible person' able to open an account for that child. This will usually be where the parents are under the age of 18 and not entitled to administer a CTF account.''

It also makes a point about the position in Scotland.

We have already had a debate about 16 and 17-year-old parents and it seems farcical that we trust young parents to raise a child and do many other things but not to handle a child trust fund account. I will not re-open that debate as the Minister said that she would consider the matter.

When there is no responsible person, usually because the child's parents are themselves children, would it be possible for a grandparent, or a relative or friend nominated by the parents, to act as a responsible person? Could a 16 or 17-year-old parent say that they would like their mother or father—the child's grandparents—to act on their behalf in that respect? Surely that is what the Inland Revenue would want because it would not want the job of setting up and administering these accounts.

Are there other circumstances in which a child who is not in local authority care has no responsible person in charge of them?

Ruth Kelly (Labour, Bolton West)

The hon. Gentleman is correct to state that underage parents are the prime source of children in the category of having no one with official parental responsibility for them. But children fall into other categories where no one has defined parental responsibility. I mentioned children who live with grandparents; often, the grandparent does not have full responsibility. There are other situations, too, in which a child is living away from parents with a responsible adult who does not have full parental responsibility. There are many different situations—the child could have special guardians, for example. Other individuals apart from parents—adoptive parents, step-parents and so on—have parental responsibility. Special guardians fall into the second category of person who has parental responsibility. This clause is designed to pick up those children for whom nobody has parental responsibility. Parental responsibility does not refer just to the child trust fund; the definition goes wider than that.

George Osborne (Conservative, Tatton)

I repeat, could 16 and 17-year-old parents nominate their parents—the child's

grandparents—to be the responsible person to set up the child trust fund account, or would the Inland Revenue have to do it on their behalf? It would make more sense to allow a grandparent to do it on the child's behalf.

Ruth Kelly (Labour, Bolton West)

I take the hon. Gentleman's point. I promise to look at the matter and come back to him. There will be categories of person for whom no one is willing or prepared to accept parental responsibility on behalf of the child, and the provision is clearly needed so that the Inland Revenue can allocate the account accordingly. On that ground, I ask the hon. Gentleman to withdraw the amendment.

George Osborne (Conservative, Tatton)

I am grateful that the Minister will consider my specific point about allowing grandparents to act as the responsible person where the parent, for whatever reason—perhaps because they are under age—is unable to do so. With that assurance, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

George Osborne (Conservative, Tatton)

I beg to move amendment No. 120, in

clause 6, page 4, line 19, leave out subsection (5).

The amendment touches on an issue raised in the earlier debate between my Liberal Democrat colleague and the Minister. It strikes me that subsection (5), which states:

''No liability is to arise in respect of the selection of an account provider, or a description of child trust fund, by the Inland Revenue under this section'',

is an attempt by the Inland Revenue to duck its proper responsibilities. No one, apart from perhaps the hon. Member for Yeovil, would expect the Inland Revenue to be held accountable if a Revenue-allocated account performed poorly because the stock market went down. Investments hold inherent risks, and even this Government are not to blame for them—at least, they are not to blame only when the stock market is increasing.

It is possible to imagine circumstances in which the Inland Revenue chooses a financial provider that is not up to administering Revenue-allocated accounts, when the Inland Revenue should have foreseen that. As I interpret subsection (5), and maybe the Minister will correct me, the child trust fund holder would not have recourse against the Inland Revenue in those circumstances. The explanatory notes state clearly that subsection (5)

''provides that the Inland Revenue will not be liable as a result of the choice of account provider''.

As I say, the Inland Revenue may not have properly assessed whether an account provider is able to administer Revenue-allocated accounts. Surely in those circumstances, where the Inland Revenue is at fault for not doing its job properly in selecting account providers, a child trust fund provider should have recourse to law and the Inland Revenue should be held responsible for its actions.

David Laws (Liberal Democrat, Yeovil)

I am not going to be as generous as the hon. Gentleman, although we have signed up to his amendment. I am concerned that the clause involves

the Inland Revenue and the Treasury essentially giving advice and making decisions, but then accepting no responsibility for the providers selected or for the asset classes in which the child trust funds are invested on behalf of those individuals for whom the Inland Revenue assumes responsibility.

I understand why the Minister is concerned that we ensure that those people who do not have family to manage their child trust fund accounts have their interests taken into account, and have the returns from their account maximised. That is why the Minister made the decision about the equity-skewed account. However, if the Minister is going to act in loco parentis to that extent, it is not good enough for the Inland Revenue to simply wash their hands of the credit and other risks that may be assumed to be dependent on the provider involved in an individual's account and the performance of the investment over a long period. I am not going to go back over the examples that I cited earlier, but they are relevant to this amendment.

If the Inland Revenue tries to exercise responsibility for, and take an interest in, particular vulnerable group of people, as implied by its decision to select an equity investment, that cannot be the limit of its involvement in respect of credit risk and market risk. I can only hope that the Minister's comments about the potential involvement of the Solicitor-General indicate some flexibility on this point.

Ruth Kelly (Labour, Bolton West)

It is important to say that even if the Inland Revenue has allocated an account, it is perfectly possible, indeed desirable, for parents to exercise their free choice and change the provider of the account at any time during its operation, even when children are in local authority care. With the vast majority of children, it remains the case that somebody exercises parental responsibility on their behalf. We would expect them to exercise that choice in due course and to move to a different provider if they thought that that was the better option for their child. I do not believe that the Inland Revenue will act as a financial intermediary, as the hon. Gentleman suggests.

If there are issues surrounding providers and the accounts that they offer, consumer protection will be delivered. The FSA approves providers of CTF accounts, and the financial ombudsman exists to deal with complaints about firms and investment advice. The financial services compensation scheme acts as a safety net if FSA-authorised firms go out of business. However, there will be no market relationship between the Inland Revenue and the child. We have tested that advice legally, but the Government have a duty to ensure that the accounts are allocated to children.

David Laws (Liberal Democrat, Yeovil)

Will the Minister tell us more about the extent of the compensation that would be involved if a CTF provider were to go into liquidation? What amount of investment in a CTF account would be covered in those circumstances?

Ruth Kelly (Labour, Bolton West)

The hon. Gentleman may be aware of the limits that operate under the financial services compensation scheme, but if he is ignorant of them, I will inform him. The maximum level of compensation

for deposits is 100 per cent. of the first £2,000, and 90 per cent. of the next £33,000, so a child trust fund holder could lose 10 per cent. of the value of the fund in excess of £2,000, but that first £2,000 would be fully covered. That offers adequate protection while ensuring that there is no risk of moral hazards arising for providers.

George Osborne (Conservative, Tatton)

Before the Minister finishes I want to turn her attention to a point that I raised. The FSA will certify providers as being able to provide Revenue-allocated trust funds, but not necessarily in large numbers. If it were able to do so, the burden would fall on it. However, if the Inland Revenue is to decide whether companies are able to provide Revenue-allocated accounts, subsection (5) should not remain in the Bill.

Ruth Kelly (Labour, Bolton West)

No, I make it clear that the FSA is responsible in that situation. However, if the Revenue has independent information about a provider, it would be up to it to notify the FSA of any concerns. It is also incumbent on us to ensure that adequate information is available to parents, even if they do not exercise their choice of provider. We have commissioned research into the best way to communicate with parents when they receive a voucher for the child trust fund on the birth of their child. We intend to build on that in future to maximise parents' opportunity of understanding the product on offer and exercising their choice in the best interests of their child.

George Osborne (Conservative, Tatton)

It is interesting that, as the Minister just said, if the Inland Revenue had independent information about a financial provider, it would be forced to pass that information to the FSA, because one could read subsection (5) as giving it immunity from being held responsible for any failure to do so. However, I will not push for a vote on the amendment, because I suspect that the courts would ignore subsection (5) and hold the Government to account.

The hon. Member for Yeovil was surprised that the Minister knew all about financial compensation. He will remember that she is one of the few people who have read the Penrose report; those issues are at the forefront of it. I will not embark on a debate about that or I will receive a thousand letters. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 6 ordered to stand part of the Bill.

Clause 7 - Transfers

David Laws (Liberal Democrat, Yeovil)

I beg to move amendment No. 171, in

clause 7, page 4, line 27, at end add—

'(c) additional charges can be imposed by providers for transfers allowable under this section, including the maximum amount of such additional charges.'.

The hon. Member for Tatton has been refreshingly candid about some of his amendments, so I start by acknowledging that I am not sure that I have framed mine in precisely the way that I intended. I shall describe this—as we do when we are not sure that an amendment has been framed as precisely as we would

want—as a probing amendment. The clause allows for transfers of CTF accounts. It gives the Treasury the power to make regulations to allow a responsible person to change an account from, for example, a cash to a stakeholder account, or to move an account from one provider to another.

To some extent, the discussion of amendment No. 150 returned us to a debate that the Committee had on the first day of our proceedings, when the Minister was asked what she had in mind for the charges that will be allowable for the management of CTF accounts. Amendment No. 171 invites her to tell us more about what charges she envisages applying to transfers, either between two CTF accounts with the same provider, or from one CTF provider to another. Does she intend that such potential costs will be covered by the charge cap that will be set for all CTF accounts? Will there be special provision for charges to apply in those circumstances? I put directly to the Minister the question that I wanted to ask earlier: when shall we know the levels of charge and the charge cap? We are waiting for them in advance of the publication of the regulations.

Ruth Kelly (Labour, Bolton West)

I can answer that point briefly. I am certainly attracted to the idea of the transfer being without charge, although we shall, of course, specify any decision when the regulations are laid. I repeat to the Committee that that will be during the passage of the Bill in the Commons. We try to ensure that the information is available at the earliest possible opportunity, so that there is maximum time for debate. I assure the hon. Gentleman that that continues to be the case. However, to clarify one point in which I am sure he is interested, recovery of the necessary costs of effecting a transfer, such as share dealing costs, and stamp duty costs on the sale of purchases of shares, would be allowed, and it would not count towards the stakeholder charge cap. I am minded to try to ensure that every other aspect of any transfer is free.

David Laws (Liberal Democrat, Yeovil)

I am very happy with that answer. I hope that the regulations will emerge before the last quarter-hour or half-hour of the debates on the Bill, either in Committee or at Third Reading. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

George Osborne (Conservative, Tatton)

I beg to move amendment No. 121, in

clause 7, page 4, line 27, at end add

'provided that no transfer may take place without the agreement of a responsible person'.

The amendment provides that a CTF account can be transferred from one provider to another only with the agreement of a responsible person. Like the previous amendment tabled by my Liberal Democrat colleague, it is a probing amendment. When I was reading the Bill and trying to frame amendments to keep us all busy, it struck me that this idea may provide some important consumer protection. The explanatory notes say:

''This clause gives the Treasury power to make regulations allowing a responsible person to change the type of CTF account, e.g. from a cash to a stakeholder account, and to move a CTF account from one provider to a different provider.''

Our previous debate was about the responsible person making the decision to transfer an account, either changing the type of account or changing from one provider to another.

As I read it, however, the Bill would allow a financial provider to transfer an account without the consent of the responsible person, and surely that is unacceptable. If, for example, a financial provider decided to sell its book of CTF accounts to another provider, or if it wanted to wind down that part of its business and transfer or sell it to another provider, it should seek the consent of the account holders. In such circumstances, account holders should at least be given the option of going somewhere else if they do not want to move with the bulk of the CTF accounts. The Minister may say that they can exercise a choice in any case, but I presume that they would be able to exercise it only once the move had happened.

It is possible to envisage companies going bust, being taken over or changing the nature of their business. They may decide that, because of the charge cap set by the Minister, CTF accounts are not giving the sort of return that they had hoped for and that they will close down that part of their business. The amendment merely tries to ensure that when they do so, they seek the agreement of the responsible person. It would be an important consumer protection.

Ruth Kelly (Labour, Bolton West)

I sympathise with the point made by the hon. Gentleman; we want to ensure that the responsible person is contacted, and that they are able to provide consent in every conceivable circumstance. However, in certain circumstances, and in order to avoid disadvantaging the child, we may want to provide for transfers to occur without the responsible person's authority. For example, in the case mentioned by the hon. Gentleman of providers ceasing to conduct CTF business, we cannot force them to continue that business indefinitely; that cannot happen in a market economy.

If CTF accounts are to be transferred to a new provider and there is no responsible person, it is important that we see to it that the accounts are continued with that new provider. We would not want a child to be detrimentally affected by such changes. Such circumstances would of course be exceptional. Indeed, we discussed earlier the need for a duty of care and management of accounts by the Inland Revenue. I suggest to the hon. Gentleman that this is precisely the sort of case in which we would like the Revenue to operate such a duty to ensure that children without a responsible parent are not disadvantaged by transfers.

George Osborne (Conservative, Tatton)

The Minister is making a drafting point. The amendment may not be as broadly drawn as it should be; perhaps it should state that no transfer may take place without the consent of the responsible person or, where no such responsible person exists, without the consent of the Inland Revenue. The principle is that a CTF provider should not be allowed to sell off its funds, or to merge, without the

consent of those responsible people who manage the funds on behalf of their children.

Ruth Kelly (Labour, Bolton West)

I do not suppose that the hon. Gentleman is trying to argue that a holder of a CTF account should have a veto over a firm's strategic development plans, but it is important that the party responsible for the fund has the option to move elsewhere. As the hon. Gentleman pointed out, it is at all times open to the responsible parent to transfer the account to a different provider, and I see no reason for additional safeguards. For that reason, I suggest that he withdraw the amendment.

George Osborne (Conservative, Tatton)

I shall have to take what the Minister says on trust, and hope that sufficient other safeguards will be in place to protect consumers in such circumstances. I do not suggest that a single child

trust fund could hold up a great financial merger. I merely suggest that before accounts were transferred, their owners' consent would have to be sought. If consent is not given, account holders should be given the option of transferring to another provider. I assume and hope that a responsible financial provider would keep its CTF account holders fully appraised of what it was doing. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 7 ordered to stand part of the Bill.

Further consideration adjourned.—[Jim Fitzpatrick.]

Adjourned accordingly at twenty minutes past Eleven o'clock till this day at half-past Two o'clock.

Standing Committee A

Child Trust Funds Bill

Clause 8 - Initial contribution by Inland Revenue

George Osborne (Conservative, Tatton)

I beg to move amendment No. 122, in

page 4, line 30, leave out 'such amount' and insert

'an amount no less than £250'.

Sir David Amess (Conservative, Southend West)

With this it will be convenient to discuss the following amendments:

No. 165, in

page 4, line 34, at end insert—

'(1A) The amount of the initial contribution prescribed by regulations under subsection (1) shall be—

(a) no lower than £250 for babies born on or after 1st April 2005,

(b) no less than 107 per cent. of the amount determined for the purposes of paragraph (a) for babies born between 1st April 2004 and 31st March 2005,

(c) no less than 114 per cent. of the amount determined for the purposes of paragraph (a) for babies born between 1st April 2003 and 31st March 2004, and

(d) no less than 121 per cent. of the amount determined for the purposes of paragraph (a) for babies born between 1st September 2002 and 31st March 2003.'.

No. 123, in

clause 9, page 5, line 2, leave out 'such amount' and insert

'an amount no less than £250'.

No. 152, in

clause 9, page 6, line 7, at end add—

'(11) The supplementary contribution shall be fixed at an amount of not less than 100 per cent. of the initial contribution amount.'.

No. 127, in

clause 10, page 6, line 14, leave out from 'of' to end of line and insert

'£50, or £100 for a child to whom section 9 applies'.

No. 128, in

clause 10, page 6, line 16, leave out from 'attaining' to end of line and insert 'the age of seven'.

No. 129, in

clause 10, page 6, line 16, leave out from 'attaining' to end of line and insert

'the ages of 5, 11 and 16'.

No. 153, in

clause 10, page 6, line 16, leave out from 'attaining' to end of line 18 and insert

'the ages of 7, 11 and 15, or

(b) one-off payments are to be made to disburse the proceeds from Government asset sales.'.

No. 167, in

clause 10, page 6, line 23, at end add—

'(4) The amounts prescribed by, or determined in accordance with, regulations under subsection (1) shall be fixed at—

(a) no less than £250 for each contribution in respect of a child to whom section 9 does not apply, and

(b) in respect of children to whom section 9 applies, no less than 200 per cent. of the amount of any contribution in respect of a child to whom section 9 does not apply.'.

George Osborne (Conservative, Tatton)

Welcome to the Chair, Mr. Amess. I am sure you have been waiting with eager anticipation for the return of this Committee over the past seven days—I see you nodding vigorously. I also welcome half of my army, who are joining me in battle for part of the afternoon.

The amendments tabled in my name—my Liberal Democrat colleague will speak to his amendments—are intended to do two things. I freely admit that some are contradictory, but they are probing and designed to write into the Bill what the Government say they will achieve by regulation. They will therefore allow us to debate about the amounts that the Government propose for initial supplementary contributions.

Amendment No. 127 is designed to write into the Bill what I suspect the Government will want to achieve by regulation. It would set the further contribution, which is payable at age seven at £50 or, for poorer families, £100. The Government have not said what the amounts will be, but they have said that the initial contribution will be £250 and the supplementary contribution £250. I want to press the Minister on how and why she came up with those figures. What was the rationale behind them?

The figure payable at age seven is more interesting. The Government have not said what it will be. The explanatory notes say:

''The Government has published its proposal that the first of these payments will be when eligible children turn seven. The first payments will be due in 2009 and the amounts will be published nearer the time.''

When the Minister answered a written question of mine on 4 December, she again made the position clear:

''Estimates are not available for the cost of any further Government contributions at age 7 as the value of these has yet to be decided.''—[Official Report, 4 December 2003; Vol. 415, c. 138W.]

One would assume that that was a prudent course of action for the Government to take; obviously seven years is some way off, and it would be wrong to anticipate what the sums will be—perhaps that is what the Government will say.

However, not everyone in the Government is as careful as the Minister. For example, there is someone called Mr. Gavin Kelly. I have never met him, but he is apparently a member of the Prime Minister's strategy unit. I closely followed a summit held by the Institute for Public Policy Research at 10 Downing street. I read its minutes and talked about it on Second Reading because I discovered that child trust funds were known as

''the third way within the third way''

in new Labour circles, which was an exciting discovery for me. On close reading of the minutes, I found that when Mr. Gavin Kelly made his contribution to the exciting seminar—the Financial Secretary will remember this because she was part of the audience—he said:

''The question was whether the figures which had been chosen by the government (of £500 for children from low income families at birth and £250 of those from wealthier families and £100 and £50 respectively as top ups) were appropriate. There was no science behind these figures, they simply felt intuitively correct.''

Ruth Kelly (Labour, Bolton West)

May I check whether the hon. Gentleman is reassured that the person he is talking about, Mr. Gavin Kelly, was a member of the Prime Minister's strategy unit at the time that he was making those comments?

George Osborne (Conservative, Tatton)

I am not as familiar as I used to be with the members of the Prime Minister's strategy unit.

David Cameron (Conservative, Witney)

Some of them are here.

George Osborne (Conservative, Tatton)

Some of them are here—or used to be here.

However, the document produced by the IPPR, and we know that that organisation has a hotline to Government, names

''Gavin Kelly (Prime Minister's Strategy Unit)''.

So, if the Financial Secretary is telling me that Mr. Kelly was not a member of the unit at the time that he made the statement, the long and short of it is that he is remarkably well informed. He seems to think that the top-ups at the age of seven will be £50 for everyone, and £100 for less well-off families.

Perhaps the Minister will say whether Mr. Gavin Kelly is right, or perhaps he knows things that the Minister does not. As we know from other developments in this Government, most important decisions are taken at Downing street, so Mr. Gavin Kelly may have his finger on the pulse. I thought that I would try to amend the Bill, using his figures, so that we could have a debate about it, and the Financial Secretary could agree or disagree with the Prime Minister's strategy unit.

Amendment No. 129 deals with the age at which further contributions will be made, which the Bill says will be seven. My amendment suggests that further contributions could be made at a range of ages—five, 11 and 16—rather than there being just a one-off payment at seven. I am not proposing that it would be the same amount; obviously, the amounts would be smaller so that we would not burden the taxpayer with extra expenditure.

Of course, I have chosen the ages five, 11 and 16 because those were the Government's initial choices in their document, ''Delivering savings and assets: The modernisation of Britain's tax and benefit system, Number nine'', which was published in November 2001. It had green writing on the front of it, so I

suppose that it was a Green Paper rather than a White Paper. The authors stated:

''The Government also believes that there is a case for further top-up endowments to keep interest in the accounts active. It proposes that these would be generated centrally on the relevant dates at ages five, eleven and sixteen.''

I wanted to press the Government about why they changed their mind to having a single contribution at seven rather than three contributions made at five, 11 and 16. As far as I am aware, that change was made with no explanation. Surely, it would be a good idea, in the Government's words, to

''keep interest in the accounts active''

with three separate payments?

One of the objectives of child trust funds is to get people engaged and interested in them, and that would be more likely to be achieved if the payments were made on three separate occasions. It is possible to argue that seven is too young an age for a child to take an active interest in a child trust fund. Perhaps seven is the age at which children will first become aware that they have such a trust fund, but at 11 and 16 they are much more likely to take an active interest.

Are the Government saying that between the ages of seven and 18—a period of 11 years—there will be no Government involvement with such children, and no small payment to stimulate their interest? When the Government came forward with the idea and included it in the Green Paper, they proposed three separate payments—at five, 11 and 16. Now, in the Bill, they have changed that to one payment at age seven. I wanted to probe the Minister about that, and, indeed, about Mr. Gavin Kelly's revelation.

David Laws (Liberal Democrat, Yeovil)

I would like to talk about my party's amendments, Nos. 165, 152, 153 and 167. They have a similar intent to those proposed by the hon. Member for Tatton (Mr. Osborne), who is essentially trying to flush out what is behind the rather spartan outlines of the policy in the Bill, particularly given that we still await the regulation, which is supposed to detail much of that policy.

Amendment No. 165 is designed to help the Government clarify what payments will be made when the first contributions go into the child trust funds, just before the likely date of the general election in April 2005. The Government are delaying the scheme's implementation, in the sense that payments will not be made for individuals born from 1 September 2002 onwards until that April date. How much compensation will the Government give those people? They will not have been able to invest the £250 or £500 that they are supposed to receive for the years from 1 September 2002 onwards.

The Government are confident about the returns available to investors in the child trust fund; the Minister has told us that equity market returns are good over a long period and that annual nominal returns of about 7 per cent. can be expected. The Government left off the footnote to the table published in their consultative document; the 7 per cent. figure takes into account a 1 per cent. charge. In other words, the Government have in mind an 8 per cent. annual nominal return. That is extremely

attractive if it can be delivered. I can only assume that the Government intend to compensate those who will not receive their money until April 2005 for the waiting period, possibly starting as far back as 1 September 2002. Presumably the Government intend to use the 7 per cent. rate, or 8 per cent. rate including the charge, referred to in their consultative document.

Amendment No. 165 seeks to clarify how much will be paid into the funds of children born between particular dates. I have done that crudely, but I would be happy to rework it on a basis that would reflect the different returns that would be available for children born at different stages of the year.

Will the Minister give full and proper compensation to those who do not receive their money until April 2005, or will she short-change them, either by paying only the flat rate, or by paying the flat rate uprated by some other as yet unknown rate, which I fear is what the Government have in mind? Although the Government say that people ought to have returns of 7 per cent. or 8 per cent., the fear is that they will pay only the inflation rate in uprating the amount from September 2002 onwards. I hope that the Minister will throw some light on that and persuade us that she will not be stingy, particularly on the verge of what is likely to be a general election date.

If I understand matters correctly, Mr. Amess, we shall deal with amendment No. 151 in a separate group, which brings me to amendment No. 152. That amendment seeks to clarify what is likely to appear in the regulations at some stage, we hope, before Third Reading. It indicates that the supplementary contribution should be fixed at not less than 100 per cent. of the initial contribution. In other words, rather than relying on regulations to determine the extent of the supplementary contribution for people on lower incomes, I merely suggest that the Government's commitment to ensuring that such people get a significantly higher initial endowment should be on the face of the Bill.

Amendment No. 153 has two purposes, one of which, referred to by the hon. Member for Tatton a moment ago, invites the Government to consider whether and when further contributions could be made to the child trust fund. The Government have it in mind to make such contributions, potentially at the age of seven and at ages beyond that. However, during the Treasury Committee hearings the Minister seemed to want to keep her options. We would have hoped that by now there would be a clear sense from the Government about whether they intend to make a series of payments into the child trust fund for a number of years or whether people can expect only one-off payments.

Andrew Love (Labour/Co-operative, Edmonton)

In the context of his party's opposition to the child trust fund, does the hon. Gentleman support extending it?

David Laws (Liberal Democrat, Yeovil)

The hon. Gentleman knows that my party is opposed to the Bill, but we are trying not only to improve its quality, but to flush out a little information from the Government about what they have in mind by keeping from both Opposition Members and Labour Back Benchers all the

fundamental details contained in the regulations. No doubt the hon. Gentleman shares my worry that, even by this stage of our deliberations, we do not have the regulations.

George Osborne (Conservative, Tatton)

The hon. Member for Edmonton (Mr. Love) has hit on to a good theme. Would a Liberal Democrat Government pay the further contributions if, God forbid, there were such a body after the next election?

David Laws (Liberal Democrat, Yeovil)

In the very likely event of my party coming to power in 2005 or 2006, we will honour all of the contributions that have been made up to the date of the general election, but we will not make payments into a child trust fund beyond that time.

Amendment No. 153 has a double purpose. Not only would it invite the Minister to give us more detail about when the future contributions will be made to the child trust account, but it would prompt her to tell us whether the Government want the scheme—referred to in the third way or new Labour circles as representing asset-based welfare—to be extended by including, for example, in child trust fund payments one-off payments that may be received into the Exchequer from asset sales, for example.

Is it the Government's view that a series of payments will be made into the accounts in future in a relatively arbitrary way or will they meet specific timelines decided by the Minister? Is it in their mind that the scheme could develop, as some advocates of asset-based welfare have suggested, in a more flexible and ambitious way so that the proceeds of the Government's asset sales might be dispersed to a younger generation? Will they at some stage take up some of the arguments that have been made by some people on the centre left, or however the IPPR is defined, which are that we should reform the inheritance tax system and seek through that route to put other payments into child trust fund accounts? How ambitious will the scheme be?

Amendment No. 167 relates to clause 10, which deals with further contributions by the Inland Revenue. It seeks clarification of what they will be and details of the relationship between the contribution that will be made to people on higher incomes compared with people who will be receiving contributions and who are considered to be on lower incomes. In other words, will the uprating by a factor of 100 per cent. of the payments that are made to low-income families be a principle that the Government will continue when they consider further contributions by the Inland Revenue in respect of children who have reached later ages?

Andrew Robathan (Conservative, Blaby)

As this is my first proper contribution to our proceedings, may I say how pleased I am to serve under your chairmanship, Mr. Amess. I apologise to you and to the Committee for not being in Committee throughout all our sittings. However, I suspect that what I have said in the past 10 seconds has made more of a contribution than that of some members of the Committee who do not seem to be taking an active part in our proceedings.

On Second Reading, I referred to the Bill as a stunt—a gimmick—and something that would be delivered to the doorsteps of many hundreds of thousands of people just before the general election. It would be difficult to refuse a cheque and difficult for people to say, ''Gosh, how ghastly of the Government to give me this.''

The amendments reach the core of the Bill. The amendments tabled by my hon. Friend the Member for Tatton as well as those tabled by the hon. Member for Yeovil (Mr. Laws) put the Government on the spot. We are asking them the exact intention of the Bill. What is the point of the trust fund? I believe that it is a misguided use of taxpayers' money. The amendments will tease out from the Government what will make it meaningful.

It will not have escaped the notice of all members of the Committee that the Government have an arbitrary target that 50 per cent. of young people should go to university. That is fair enough, but at the same time—it will not have escaped the notice of Members of the Committee—today we hear that tuition fees will be forced through in a couple of weeks' time. Not only will 75 per cent of universities charge the full top up rate of £3,000 a year, but after a few years, with inflation and whatever, it is not fanciful to imagine that the fees per year will be something like £10,000 for each student.

The question that the amendments seek to tease out an answer to is: what is the point of the fund? By the Government's admission, it is unlikely that a child who receives the initial contribution will get more than £1,000. The figure quoted is £700 to £800. It does not take the brains of an archbishop, nor even the maths of a Labour Government, to work out that if it is less than £1,000 and fees per year are as much as £10,000, any young person aged 18 who starts receiving the trust fund next year will not have much to contribute towards their university fees.

The crux of the matter is: what is the fund's purpose? If 50 per cent of young people are going to university, how much will the fund contribute towards the fees about to be pushed through? And what is the point of the whole thing if it will be just a small amount of money that will sit in the fund and not develop? For all her excellent speeches, the Minister has yet to answer that question.

Ruth Kelly (Labour, Bolton West)

I enjoyed those contributions immensely. The hon. Member for Tatton has been very honest about his amendments. I welcome the degree of candour that he has shown. I also welcome the opportunity to comment on the value of the initial endowments; perhaps this will deal with the point raised by the hon. Member for Blaby (Mr. Robathan) who, against the view of his Front Bench, thinks that this is a misguided use of taxpayers' money.

Andrew Robathan (Conservative, Blaby)

I am a Back Bencher.

Ruth Kelly (Labour, Bolton West)

I just make the point that his Front Bench is expressing a different view. We have evidence from the national child development survey that holding assets has an independent positive outcome

on health, labour market and educational attainment. The value of the asset at the age of 18 needs to be of the order of only £300 to £600. Anyone is welcome to scrutinise that research; they may question it or believe that more research needs to be carried out. That is fair enough and I am sure that a lot of examination will go into such issues in the future. The fact is that one piece of research suggests clearly that an asset at the age of 18 of around the value of between £300 and £600 has a significant impact.

Hilton Dawson (Labour, Lancaster and Wyre)

I am trying to understand the hon. Gentleman's logic. Surely someone in this position who is considering university and who has only a small amount in the trust fund might also be facing the welcome prospect of a substantial grant from the Government and a bursary from the higher education institution. Those figures added together would provide a substantial incentive, particularly for someone from the lowest socio-economic groups that the Government are particularly trying to target towards higher education.

Ruth Kelly (Labour, Bolton West)

My hon. Friend makes an excellent point. Of course many views will be put forward, but the debate on top-up fees is one for another place and not for this Committee.

Andrew Robathan (Conservative, Blaby)

This is not a debate on top-up fees. This is a debate on the value and the purpose of the fund. The hon. Member for Lancaster and Wyre (Mr. Dawson) says that he does not understand the logic. The logic is simple. If in 18 years' time a young person born today goes to Oxford, which I believe the Minister attended, as did I—and other members of the Committee went to Oxford or Cambridge—facing fees for three years of £30,000, what value does the Minister think that that young person will place on a fund that might be worth £700? All she has come up with so far is one piece of research that says that it is going to be marvellous. I think that most people will do the addition themselves.

Ruth Kelly (Labour, Bolton West)

I intended to develop my argument about the value of these funds at the age of 18. When the hon. Member for Tatton was making his point about why we chose £250 and £500, I consulted the proposals document on child trust funds, which we have just issued, and reconsidered the illustrative projections for future fund growth. I am sure that he will have noted, as other Members will, that even without additional savings, the more limited endowment of £250 will achieve a figure of £456 on that projection, which puts it firmly within the £300 to £600 bracket. The larger contribution of £500 from the Exchequer, which should benefit 40 per cent. of children, would grow to over £900, and perhaps higher if the charges are not included.

David Laws (Liberal Democrat, Yeovil)

What assumptions is the Minister using in that calculation for the first three years of people's returns from child trust funds—for example, for somebody born on 1 September 2002?

Ruth Kelly (Labour, Bolton West)

I intend to address the hon. Gentleman's point in the course of the development of my argument. If he would be a little bit more patient, I will come to his point in due course.

The figures are not arbitrary and they are not insignificant, but, of course, we could use various nominal interest rates and assume different charging regimes that would produce different figures. The sums are not trivial, however. We have pledged further contributions at the age of seven that will enhance those funds still further. In addition, people will have the additional benefit of contributions from family and friends. They will see the value of those extra contributions grow as well.

I gave evidence earlier to the Treasury Committee and I said that £5 a month added to the fund could produce £2,500, and £10 a month could produce £4,397 on those projections, even without taking into account the additional endowment at the age of seven.

David Laws (Liberal Democrat, Yeovil)

I am encouraged by the Minister's reference to people saving as little as £5 a month. Previously, we sought clarification of whether the Government would allow minimum contributions of £5 a month. Is she saying that the Government has now approved that?

Ruth Kelly (Labour, Bolton West)

I am merely referring to the table that is in the proposals document. We will have an opportunity to debate the minimum contribution later in the proceedings, and I am sure that the hon. Gentleman will make his point.

The hon. Member for Tatton asked the Government to commit themselves to a level of payment at the age of seven. The payments will not be made until 2009. It is premature to ask us what those payments will be so far in advance; it is more appropriate for Ministers to make a decision nearer the time. They can take into account the ideal value of any endowment and, of course, the financial context. It would not be wise to commit ourselves to a level now.

The hon. Gentleman referred to the statement made by Mr. Gavin Kelly. I cannot confirm whether he was working for the strategy unit; it is an empirical matter and we should check it. He moved to the strategy unit from the IPPR where he worked to develop the policy, and he was closely involved in feeding ideas to the Government. However, the figures to which he referred were those expressed in the 2001 document on savings and assets, to which he also referred for the purpose of illustration so that people could consider the policy, comment on it and determine whether it was a good thing.

We changed from those illustrative projections that used the ages of five, 11 and 16 to the age of seven partly because, after many rounds of review and consultation, of which the Opposition are aware, we decided that the age of five was too young to make a substantial difference to the financial education of a child, and that it would be more helpful to the raising of a child's overall level of financial awareness if they were at least seven. By that age, one might expect a child to be receiving pocket money, taking some sort of interest in the financial world, and—although perhaps at a slightly later age than that—to look at a statement and make sense of it. However, certainly five seemed too young to us.

Andrew Robathan (Conservative, Blaby)

The Minister has been very eloquent, but I think that her children are younger than seven. My son is just seven, as it happens, and I assure her that he has absolutely no interest in money except in having enough to buy a Beyblade, which is the latest craze. I fear that that goes for all seven-year-olds.

Ruth Kelly (Labour, Bolton West)

My son is six and a half, and he has at least five Beyblades, but he is also very interested in pocket money. Of course, every child is different. We have to be aware that there are children of around seven who are beginning to take an interest in such things, and this is an opportunity for us to trigger that latent interest.

The fact that we have not committed ourselves to future endowments at later ages does not preclude Ministers from, in time, deciding that that would be desirable. It strikes me as sensible to get the policy off the ground, monitor its development, and see how it is working without tying the hands of future Governments.

David Laws (Liberal Democrat, Yeovil)

On a point of principle, can the Minister tell us whether the timing of the additional payments is designed to incentivise children with respect to the management of and interest in the accounts, or has it been determined simply to keep the parents heated up, as it were?

Ruth Kelly (Labour, Bolton West)

One of the joys of the policy is that it serves a dual purpose. It stimulates children's interest in their financial situations, broadening their horizons and opening opportunities for them, but is also a tool for delivering financial education and raising the level of such education among parents. Indeed, the Financial Services Authority was recently considering financial education from first principles, as it were, and created the new financial capabilities steering group, which has just had its inaugural meeting. That identified the child trust fund account as a powerful tool for developing the financial literacy of the parents, too. The policy has a dual purpose, and I am sure that it will serve both ends, but I would not like to be over restrictive and say now what decisions future Governments will make on the level and timing of any future endowment.

The hon. Member for Yeovil queried the assumption of a 7 per cent. nominal rate of growth. I assure him that that is the rate recommended by the FSA in its ''conduct of business'' handbook as a fairly cautious estimate of future growth. We are aware that children born after the qualifying date of 1 September 2002 but before April 2005, when the first payments are to be made, will lose out on the potential growth of the fund over that time. I intend to make up the difference in the regulations, and I can announce that the value of the endowments will reflect a 7 per cent. growth of the fund in nominal terms for each cohort or financial year in that period, but the exact figures will be laid down in regulations.

The hon. Gentleman also asked about one-off payments from future assets sales. I am aware that there are people in the field who argue that because the policy involves capital redistribution, it should be

funded to some extent from capital proceeds. There is a respectable argument behind such a policy. Again, I would not like to tie the hands of future Chancellors and Governments. It is perfectly reasonable not to commit ourselves at this stage as to how that money might be found. Not only might one argue that the financial climate is uncertain, but any proceeds from assets would be highly uncertain in future.

This is an evolving policy. I am sure that we will learn lessons in the next 15 or 18 years, and I do not think that it would be wise for the Government to commit themselves over that period.

George Osborne (Conservative, Tatton)

We have had a good debate. I enjoyed the contribution from my hon. Friend the Member for Blaby. I was disappointed that he had not been here for some of our earlier proceedings, because he could have made similarly illuminating contributions. I think that he is unduly pessimistic about top-up fees. As he would know if he had read the front page of The Times, some members of the Committee feature in the rebel memos. If they get their act together, people may be able to spend their child trust funds on things other than tuition fees. However, we shall leave that to Government Members.

Harry Barnes (Labour, North East Derbyshire)

The proposal can have nothing to do with the top-up fee provision, as up-front top-up fees are to be removed. It could have something to do with student loans generally, but a number of different arguments would have to be produced in relation to that.

Sir David Amess (Conservative, Southend West)

Order. Interesting as this is, I think that we have heard quite enough about top-up fees. I ask the hon. Member for Tatton to return to responding to the Minister's speech.

George Osborne (Conservative, Tatton)

Thank you, Mr. Amess. I am tempted to say that I cannot believe that the hon. Gentleman has been bought off by the up-front argument, but I shall not.

I shall return to the Kelly affair, if we may call it that, and whether Mr. Gavin Kelly was a member of the strategy unit when he revealed to the assembled luminaries at No. 10 Downing street the likely figure for the further payments. The Minister questions whether Mr. Gavin Kelly was a member of the strategy unit. Perhaps she could write to me, or I will table a Question to the Prime Minister and find out. All I know is that the minutes prepared by the IPPR, and presumably it knows who works for it and who does not, describe him as somebody who works for the Prime Minister's strategy unit.

Having questioned the poor man's credentials, the Minister then said that Mr. Kelly was merely referring to a figure that had already been put in the Green Paper. In my quick reading of the Green Paper—I should say ''re-reading'', as of course I took it with me on holiday in preparation for the Committee I cannot find any reference to figures. All I can find is a sentence that says:

''The value of endowments, including the progressive element for lower-income families and the value of top-ups, will not be addressed further at this stage of the consultation.''

Therefore, it is not in the document. The Minister gives me a quizzical look. She presumably wrote that, or got someone to write it on her behalf. If she can point to the £50 or £100 figure in any Government document, other than in Mr. Kelly's remarks at the summit, I should be grateful.

The Minister also talked generally about the impressive research that showed that if a person had a few hundred pounds worth of assets, that makes a big difference to their life. I do not question that. However, Mr. Kelly, when commenting on why the Government came up with the figures, said:

''There was no science behind these figures, they simply felt intuitively correct.''

That was his explanation. Indeed, at the IPPR summit other people suggested other figures. For example, the shadow Australian Foreign Secretary—I am not sure what he was doing there—said:

''It would look better if the original endowment for those on low incomes was more than £1,000.''

Therefore, there was a debate about the figures. The Minister has not given me a proper answer as to why she settled on £250 and £500, nor has she said whether there is any real science behind those figures or whether they simply feel ''intuitively correct''. I am happy to accept that as an answer. If they feel intuitively correct, that is as good a reason as any, but that is not what she said.

The Minister gave us a good explanation for the Government's decision to make the top-up payments at the age of seven rather than five, which I accept. She also did not rule out further payments, saying that those were matters that a future Government might address. However, the size of the top-up at seven will depend on whether the Government think that they are likely also to be making additional contributions at 11 and 16, so the decision cannot be put off indefinitely. I suspect that, once this shiny new policy has been implemented and is working, future Chancellors, be they Conservative, Labour or indeed Liberal Democrat, will have their own shiny new initiatives to dream up and subject Committees to, instead of revisiting old policies and adding bolt-ons. I suspect that the clear indications in all the explanatory notes and the White Paper that the payment will be made only at age seven, and the fact that seven is the only year that has been identified as a time when a further contribution would be made, mean that that is probably how things will stay with the child trust bond proposal.

As I say, I am not entirely convinced by all the research that the Minister deployed. If the figures have been dreamt up because they feel intuitively correct, I am happy to live with that explanation, but it would be good to hear her say that. I remain puzzled about where the £50 and £100 figures for the further top-up came from, but since I suspect that she is not minded to get to her feet again, I will have to wait for another occasion to hear her answer. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

David Laws (Liberal Democrat, Yeovil)

I beg to move amendment No. 151, in

page 4, line 36, at end add—

'(3) The initial contribution payable for children in care shall be set at four times the prevailing standard initial contribution amount.'.

Sir David Amess (Conservative, Southend West)

With this it will be convenient to discuss the following:

Amendment No. 43, in

clause 11, page 6, line 31, after '10', insert

'or [additional contributions by Inland Revenue for children in care]'.

Amendment No. 80, in

clause 19, page 10, line 27, leave out 'and'.

Amendment No. 82, in

clause 19, page 10, line 31, at end insert

'and

(d) that the Inland Revenue was required under regulations under section [additional contributions by Inland Revenue for children in care] to make a payment in respect of the child but either the payment had not been made or, if it had, the amount of the payment had not been credited to the child trust fund held by the child.'.

Amendment No. 86, in

clause 20, page 11, line 3, after '10', insert

', [additional contributions by Inland Revenue for children in care]'.

Amendment No. 87, in

clause 20, page 11, line 9, after '10', insert

', or [additional contributions by Inland Revenue for children in care]'.

Amendment No. 88, in

clause 20, page 11, line 32, at end insert

'[additional contributions by Inland Revenue for children in care](2)'.

Amendment No. 92, in

clause 22, page 13, line 3, after '10', insert

', or [additional contributions by Inland Revenue for children in care]'.

New clause 2—Additional contributions by Inland Revenue for children in care—

'(1) If this section applies to a child the Inland Revenue must inform the account provider with whom a child trust fund is held by the child that this section applies to the child.

(2) If the account provider makes a claim to the Inland Revenue in accordance with regulations, the Inland Revenue must pay to the account provider such amount as is prescribed by regulations.

(3) The amount prescribed by regulations under subsection (2) shall be expressed as a percentage of the current rate of child benefit.

(4) On receipt of the payment the account provider must credit the child trust fund with the amount of the payment.

(5) This section applies to a child if—

(a) a child trust fund is held by the child, and

(b) the child was first an eligible child by virtue of section 2(1)(b).'.

David Laws (Liberal Democrat, Yeovil)

Buoyed by the acceptance of the principle of amendment No. 165, I hope that we can get the Government to give us some information about what underlies amendment No. 151, and to consider whether, in regulations or elsewhere, they should move towards the principle behind that amendment.

The Minister will recall giving evidence to the Treasury Committee on child trust funds. In exchanges with the hon. Member for Newcastle upon Tyne, Central (Mr. Cousins), she said:

''It is my view, and one with which you may disagree, that children in care are a particularly vulnerable group who need more than any other group . . . arguably, to have a substantial asset behind them at the age of 18.''

She touched on the issue of children in care in this morning's debate and made some comments suggesting that the Treasury has done some work on assessing the economic position of children in care and whether the majority would have family members of one type or another who might be expected to make some contribution towards the child trust fund.

The amendment proposes:

''The initial contribution payable for children in care . . . be set at four times the prevailing standard initial contribution amount.''

In other words, it proposes that there should be one basic initial contribution amount for all children, and a second top-up element that should apply to children in families below the income threshold of around £13,500, set in relation to the child tax credit amount. It suggests that the Government ought to consider whether there is reason to make an additional contribution into the accounts of children in care, whether up front, or over time—I would be quite willing if the Minister suggested the latter.

The issue is whether that cohort of children is much less likely than other children, including those from low-income families, to have a significant contribution made not only by the state, but by family and friends. My assumption—perhaps the Minister can shed some light on the matter from the research that she appeared to allude to earlier—is that that category of children would be particularly prone to beginning their lives without any significant financial assets, and that they might be much more at risk than any other group that we could easily categorise of not having additional contributions made by parents or other relatives. It is the Government's intention, and the principle of the Bill, to use the level of contributions and the incentives to lean on the basic inequalities in society that would otherwise mean that low-income families saving for their children—families that could not afford to contribute—would end up with much lower final amounts than wealthier families. I hope that the Minister will consider that principle.

David Cameron (Conservative, Witney)

Has the hon. Gentleman given any thought to the concept of paying into the trust fund accounts of children in care a sum in lieu of the child benefit, rather than making a four times commitment up front? Would not that be a neater way of doing it, particularly for those children who might start in care and go back home, or be fostered or adopted?

David Laws (Liberal Democrat, Yeovil)

The hon. Gentleman makes a good point. There are two issues. First, is it reasonable to consider this category of children as being particularly prone to ending up with a smaller financial asset compared with other children, including those from low-income backgrounds, where we might expect others to contribute to their fund? Secondly, if that is a problem, how should the Government address it? Should they make a larger up-front contribution or contemplate paying a stream of revenue into the account from another source? One would have to

consider the benefits of that in light of the Government's apparent intention that the owner of the CTF account should effectively play no direct role in managing the account until the child reaches 18. As a consequence of having a stream of money coming in—rather than paying one amount of money up front—there would not necessarily be any benefit from the hon. Gentleman's proposal to incentivise those young people to be more active in managing the account. However, I welcome his suggestion, and the Government could consider this mechanism among a number of alternatives.

I hope that the Minister is able to shed some light on whether it is reasonable to assume that children in care would be more vulnerable in terms of the final asset that they secure and, if that is so, whether the Government are considering introducing any measures to deal with the potential inequality that would arise.

George Osborne (Conservative, Tatton)

A number of my amendments are grouped with the one tabled by my Liberal Democrat colleague. They address the same issue of children in care. I should like to argue and persuade the hon. Gentleman that my amendments go further than his proposal because they implement a constructive idea put forward by my hon. Friend the Member for Witney (Mr. Cameron) on Second Reading and raised by him again a few moments ago. Whereas the Liberal Democrats propose that children in care would get an initial voucher of, say, £1,000, my hon. Friend's idea is not just to restrict the additional payment to those children to a supplement, but to make an ongoing commitment to them while they are in care by paying a proportion of the money that would have been paid in child benefit, had they not been in care, into their child trust fund.

No one would deny that, sadly, children in care have among the poorest life chances of any people in our community. On researching this subject for today's sitting, I was astonished by those life chances; for example, only 53 per cent. of children leaving care have at least one GCSE or GNVQ, compared with 95 per cent. of all children. The Office for National Statistics says that educational attainment is an important indicator of a child's life chances, so it is particularly depressing that only 8 per cent. of children in care achieve five GCSE grades between A and C, for example, compared with 50 per cent. of all children.

Some 24 per cent. of children leaving care are unemployed in the September after they leave school, compared with just 6 per cent. of all school leavers; 10 per cent. of looked after children aged 10 or over in care were cautioned or convicted last year, which is three times the rate for children their age; and 49 per cent. of children in care end up in prison at some point. The life chances of those children are poor, and the latest Government figures show that we are talking about a sizeable number of people. On 31 March 2003, the last date for which the Government were able to give me figures, 60,800 children were looked after by local authorities in England alone. I was not given the figures for the rest of the United Kingdom.

The Bill goes to considerable lengths—and I give the Minister credit for this—to ensure that child trust funds will be set up for those children. A great effort has been made to ensure that the Inland Revenue, working with local authorities, will set up child trust funds and that they will receive the initial supplemented contribution of £500, or £250 on top of the general initial contribution.

The hon. Member for Yeovil made the point that, apart from the Government's own further contribution, it is likely that no one will make any additional savings into the child trust fund of a child in care. I am not saying that that is always the case; there might be children for whom parents will make contributions, but if a child has been put in care it is likely that the family will not make regular additional contributions. I do not have any evidence to suggest that that is the case, but it seems intuitively correct.

When such children reach the age of 18, they will have a fund worth about £1,000 according to the Government's own figures, assuming, to make the point made repeatedly by the Liberal Democrats, that their healthy estimates of how those funds will grow are correct. I am not denying that £1,000 is useful—it is very useful—and I am not denying that it will make a difference to a child at 18, but it is not as useful as it could be. Children who spend a long time in care will have none of the parental help that many children enjoy in finding accommodation, getting driving lessons, buying a car or even buying the correct clothes for a job interview.

My amendment would use this Bill to help those desperately disadvantaged children. New clause 2, which is at the heart of this group of amendments, would give the Treasury the power to put some of the money that it forgoes in child benefit into the child trust funds of children in care. I asked the Government for help in trying to work out how much that might cost, and sadly the Paymaster General was extremely unhelpful, despite repeated attempts to find out how much it cost by simply asking what amount of child benefit was saved as a result of children being in local authority care during the past 12 months. When I asked the Chancellor what the annual cost would be of providing child benefit to children in local authority care, the Paymaster General, replying on his behalf, said:

''The amount of Child Benefit that would be paid in respect of children in local authority care would depend on the rate or rates payable. The total cost to public funds of making these payments would depend on what other changes were made to the financing of the care.''—[Official Report, 8 December 2003; Vol. 415, c. 330W.]

There was no attempt by the Treasury to engage with me and tell me what the provision of child benefit might cost if certain assumptions were made.

Thankfully, the House of Commons Library has been a lot more helpful than the Treasury, and I asked it to examine the cost. The cost of providing all child benefit payments that are currently forgone for every one of the 60,000 children in care is quite a sum: £33 million. That figure assumes that the full amount of child benefit is paid into the child trust funds. My amendments merely state that it should be a proportion of the child benefit; we could discuss

what that proportion should be. The figure also assumes that every one of those children is in care permanently throughout the period of a year. We know that children go in and out of care, so the actual figure would not be quite as high.

The Bill gives us a chance to do something for people with the lowest life chances in society, and give them something of the nest egg that other children will get as a result of the Bill. A few thousand pounds at the age of 18 may make a real difference to their ability to find accommodation and the confidence to get a job. Many of them do not have that ability or confidence at the moment.

I am glad to say that when the idea was raised on Second Reading it was looked on favourably not just by my hon. Friend the Member for Witney, but by the hon. Member for Lancaster and Wyre. The hon. Gentleman said, when intervening on the hon. Member for Witney:

''I commend the hon. Gentleman for that first-class suggestion.''—[Official Report, 15 December 2003; Vol. 415, c. 1374.]

When the Minister was pressed on the point on Second Reading by my hon. Friend the Member for Castle Point (Bob Spink), she said

''The hon. Gentleman makes an important point.''

We always know that disappointment is about to follow when a Minister says that. She continued:

''We are working closely with children's charities and local authorities to think about the way in which the role of local authorities might develop in future. Certain local authorities are enthusiastic about the potential the policy offers them, for example, to make contributions on behalf of the children in their care. That will evolve after the policy has been put in place.''—[Official Report, 15 December 2003; Vol. 415, c. 1341.]

I do not deny that it is a good idea to allow local authorities to make contributions, and the Bill allows for that. However, I am suggesting that the Treasury itself might want to make contributions. After all, it does not have to pay child benefit on behalf of those people, so there is money that could be put into the child trust fund. It would be good if a child in care, with proper education about how to manage their fund and so forth, were able to leave care with a bit of a nest egg. Many other children take that for granted: they get some financial support from what their parents end up having to fork out for them.

David Laws (Liberal Democrat, Yeovil)

I am following the hon. Gentleman's argument with interest. Can he clarify two aspects of his proposal? First, is the idea that there should be an annual payment of the amount of child benefit that is selected, or should it be paid in on a more regular basis? Secondly, is he assuming not that there will be a general entitlement to child benefit of which a proportion will go into the child trust fund but that a proportion of the existing child benefit amount will be chosen, arbitrarily or not, and that and only that will go into the child trust fund, and there will be no further child benefit entitlement?

George Osborne (Conservative, Tatton)

I have only sketched the skeleton of my scheme. I am not even beginning to pretend that I have all the details worked out. However, I had ideas about how this would work. Children go in and out of care—it is rare for a child to be permanently in care—and when a child is in care the child benefit payments

to the parents are stopped. I suggest that they should go into the child trust fund weekly or monthly—however the payments work administratively—and that the sum should be a proportion of the current child benefit. The benefit for a subsequent child, not the first child, is £10.75 a week. I suggest that 50, 70 or 80 per cent. of that sum, or whatever proportion is determined to be right and affordable, be paid in. That would be a regular ongoing contribution.

I am not suggesting that the proposal for an initial larger voucher contribution is not a good one. However, a relatively small number of children are in care at birth. The figures that I got from the Government show that only 390 children aged nought to three months are in local authority care. The average age at which children come in and out of care is much older than that. The voucher proposal would help those 390 children, but it would not help the 60,000 or so children who go into care later in childhood.

All I ask is that the Government keep an open mind about my plan. It is not enough for the Treasury to say, ''This is something that some local authorities might do.'' I suggest that the Government should do it, and that it should be driven centrally from the Treasury. It struck me as a neat idea that as the Government are not paying child benefit on behalf of these children, they might consider making payments into the child trust fund instead.

Hilton Dawson (Labour, Lancaster and Wyre)

It is a pleasure to take part in this debate. I commend the Opposition Members who have spoken so eloquently and with such purpose on this issue.

I should have mentioned on Second Reading when I responded to what the hon. Member for Witney said that it was not the first time that I had heard this suggestion. I have not heard it from the Government or any other Labour Members. I first heard it from a young woman called Kubarat Tijani, and at the time she mentioned it she was a young person in care. She came up with what the hon. Member for Tatton called quite stunning logic, when she asked, ''If we're not getting the child benefit when we're in care, who's it going to? Shouldn't it come to young people in care?''

That young woman has gone on to take a degree and now has a professional occupation. It is important when we are talking about young people in care not to get hung up on the more desperate statistics about their circumstances, but to recognise that they have been through experiences of abuse, neglect, dislocation and disruption in their lives that would have floored any of us and probably would have placed any of us in the worst of predicaments. It is a tremendous tribute to the resilience and abilities of young people in care that so many of them come through.

Next Wednesday, 21 January, my hon. Friend the Minister is talking to the all-party group on children and young people in care on the issue of child trust funds. I guarantee that she will be questioned incisively about the Government's proposals in that respect for children in care. That meeting is open to all Members and is a monthly occasion in the House. If Members

came to the meeting they would come across some young people who are highly intelligent; some who have been through devastating experiences; some who are achieving; some who are in good jobs and higher education; some who are just getting on with their lives. Occasionally they will meet the odd young person who has written a book and who is raising himself or herself to considerable prominence.

The strength of the suggestion about child benefit and substantial assets going to children and young people in care is not that it will compensate them for the awful circumstances of their lives, and only to some extent will it to support young people who are coming out to face the world with low levels of educational qualifications and with emotional disturbances that may make life difficult for them; it is that it will emphasise to young people in care that they have their whole lives ahead of them, that they are young people of ability and that they have a real chance to make good in their lives, and that an asset such as this can help them. Certainly it can help every young person, but it can help such young people in particular.

It is an excellent idea to put child benefit in the hands of young people in care. Frankly I would pay the whole lot; I would pay whatever child benefit was due to them on a weekly basis into their account. One proviso would be that the local authority—whoever was looking after them, whether it were a residential care worker or a foster carer—would be required to work with them, in the same way that the Government are expecting parents to support their own children, in providing financial education. It is vital that the local authority ensures that people directly caring for young people work effectively with them to understand and manage the trust fund, to think about what it might be used for in the future and to make contributions from their own assets to that trust fund.

I would not leave the decision making for the amounts to go into that trust fund in the hands of local authorities at all. Frankly, I have good reason not to trust local authorities in general with the care of young people. Some local authorities treat children in care properly and well, but some, despite legislation and resources, treat them extremely badly. Evidence for that is the Children (Leaving Care) Act 2000, which the Government wisely introduced. It puts a statutory duty on local authorities to support young people up to the age of 21 or, if they are in higher education, up to the age of 24. Some local authorities give grants to young people of £5,000 when they leave care to go into higher education, but some provide them with a bin bag in which to put their things. I shall not dwell on those discrepancies too much.

Essentially, young people in care definitely need a substantial asset. There is good evidence to suppose that they could use it extremely well. No less and no more than any other child or young person, young people in care need the support of the people who are caring for them to understand and make the most of the asset, but we should ensure that it goes directly to them and is not mediated by a local authority. Also,

that substantial asset should not be allowed to undermine the other duties that local authorities owe to young people in care. Hon. Members may have children who have a trust fund. As parents, they will not abrogate all their other responsibilities towards that child simply because it reaches the age of 18, and local authorities should be required not to do so either.

We have heard some good suggestions. I believe that they can be built on, and I hope that my hon. Friend the Minister will be able to respond positively to the debate today and to others as the Bill unfolds.

David Cameron (Conservative, Witney)

My hon. Friend the Member for Tatton and the hon. Member for Lancaster and Wyre have put the case very clearly, so I have only a little to add. I hope that the Minister will carefully consider whether it is right to do something special for children in care, and, if so, how we do it.

It is highly unlikely that children in care will get any top-ups to their child trust fund. As my hon. Friend the Member for Tatton said, their need is likely to be great, if one considers the outcomes for children in care. If the Bill is about a savings culture for all, which I believe it is, we must ensure that some children are not left behind. Children in care are the ones who are likely to be left behind if we do not do something.

As I said on Second Reading, the state is, in effect, in loco parentis for children in care. As such, it makes sense for it to act as a parent by adding to the child trust fund through child benefit or by another means. It is right to do something special for children in care. Clearly, that hurdle has been crossed.

If it is right to do something, how do we do it? There is a problem with the Liberal Democrats' suggestion of a four times initial sum. If we take the simple example of two children, one born into care who stays in care until the age of 18 and one who goes into care at the age of two and stays in care until 18, one will end up with a much larger sum than the other. That would not necessarily be right. It seems to make more sense, bearing in mind the in loco parentis point, to do it via child benefit. Therefore, I favour my hon. Friend's amendments rather than those of the Liberal Democrats. I hope that the Minister will respond positively and constructively to that concept, which is good.

Ruth Kelly (Labour, Bolton West)

I, too, commend hon. Members on both sides for their contributions. This is a serious matter, and it reflects well on the Committee that there has been a serious debate on it. I thank my hon. Friend the Member for Lancaster and Wyre, who speaks passionately on the subject and who cares deeply about it. I have already spoken to him about his proposal. I do not for one minute dispute the fact that as a society we need to deal adequately with children in care and ensure that we maximise their opportunities as adults as far as possible. To date, we do not have a proud record in that regard. As a Government, we will consider and we are considering that agenda, and we have already taken steps in the right direction.

As for the child trust fund policy, the first point is that special arrangements have been included in the Bill to ensure that children in care receive a child trust fund. I was also mindful of maximising potential

benefits under the policy as it stands for children in care during their lives. We have had a debate on the subject already so I will not rehearse the arguments, but we must make sure that the Inland Revenue account is most likely to maximise the value of an endowment at the age of 18 by ensuring that it is a stakeholder account, which is largely equity-based in the early years. That is likely to give children in care a higher value of asset at the age of 18.

Secondly, we must ensure that children in care, who do not have a parent responsible for them who is claiming child benefit, receive the maximum entitlement to the endowment immediately. After birth and again at the age of seven, and at the time of any future top-ups, there would be no delay in them receiving a further state top-up; they would automatically be eligible for the higher rate without that being linked to any claim for child tax credit. On both counts, children in care without a parent exercising parental responsible will be helped by this policy.

Hon. Members make interesting suggestions about how we can do even more for children in care. It is tempting to say that child benefit, which is not claimed for children in care, should be paid by the state as a supplementary payment into a child's account. I understand the attractiveness of such a policy, but I point out that the purpose of child benefit is to support a family looking after a child rather than the child itself; it relates to the financial circumstances of a family. Payment is not made in the form of child benefit, but in recognition of the financial call of the child to local authorities through the personal social services' standard spending assessment. To suggest that surplus money that could be used is sitting in the Exchequer's coffers does not go to the heart of the argument.

David Laws (Liberal Democrat, Yeovil)

The Minister may be delivering her comments back to front in the sense that she is dealing with the mechanics of the proposals before the principle. Can she tell us whether, in all seriousness, she considers children in care to be particularly disadvantaged and in need of additional support, or is she saying that we might be wrong in suggesting that that group would necessarily be more disadvantaged than other people on low incomes? Perhaps the Government have some other concern about advantaging that group in the way that we have described. Will the Minister deal with the point raised by the hon. Member for Witney that there is an issue of principle as well as of practicality? Does this pass the principle test?

Ruth Kelly (Labour, Bolton West)

Again, hon. Members are quick to jump to their feet before my arguments have been developed. I absolutely accept that we have a special responsibility towards children in care. That has been the approach of this Government, and it will continue to be. The social exclusion unit examines all such issues, as do the responsible Departments in conjunction with the Treasury. The issue for this Committee is whether the child trust fund is the best way of supporting those children.

I have been asked whether I can make an announcement today, but I do not think that that

would be right. I would not rule out any development in this area in future. As I have made it clear throughout the Committee stage and on Second Reading, this is an evolving policy, and it will develop into all sorts of areas. The most important issue for us is to get the policy up and running, see how it works in practice and monitor its development. We have at least until 15 or 16 years from now, when the first policies mature, to decide in what areas we want policy to go. I have already made it clear to the House that we have been in discussions with children's charities and local authorities on what they would like for the future of the policy.

Although I have already prioritised certain measures to make sure that children in care benefit to maximum effect from the policy, it would be premature to write that policy at the moment. However, I absolutely accept the principle that they are a disadvantaged group of children and that we should work to maximise their opportunities.

David Laws (Liberal Democrat, Yeovil)

We have had a good debate on the issue, and have attempted to come to terms with complicated subjects, particularly in order to propose a solution to some of the concerns that hon. Members have expressed. I must say that I am a little disappointed in the Minister's response; I hoped that she might go a bit further in suggesting that the Government might bring forward proposals, even if they do not accept the amendments on the principle of the issues that have been discussed today.

The Minister said that there were three reasons why she was not inclined to proceed with the amendments. The first concerned whether the proposals in the amendment were the right ones. The second was that we had time to make the changes. The third was that she questioned whether the child trust fund was the right vehicle to assist children in care. I accept that the issue of practicalities is a serious one, and I am not sure whether either of the main amendments touching on the issue is the right one to achieve what we want. However, I am concerned about the other two reasons for leaving the matter aside for now.

The Minister said that we had time to revisit the policy. In one sense we do; we have not even seen the regulations yet. We know that the group of children who will be affected by the policy will not receive the money from their accounts until 2020, or something like that. There is a sense that we will have time later to introduce new proposals. However, there is a real risk that if we do not do so now while debating the Bill and making law on the issue, we will not get the opportunity to return to the matter later. The particularly vulnerable group that we are talking about, which represents a small proportion of the population, would then be overlooked.

The second issue is whether the child trust fund is the right vehicle for proposing such changes. Obviously, there is a much wider debate to be had about how the Government deliver assistance to people on lower incomes, and even about whether the child trust fund is the right way to do that. I will not get into that debate now. However, I think that the

fund is the right vehicle for the Government to address their concerns. If they want everyone to have an asset at the age of 18 and are creating the child trust fund as a consequence and if they want people to save using that fund, it must surely cause them concern that one group of young children who are vulnerable and likely to have very small quantities of assets might be disadvantaged in the way that hon. Members have described. I am not sure what other vehicle the Minister can use to achieve larger assets for those young people at 18 if she does not use the route proposed today.

I pressed the Minister on the principle of whether the Government favour taking additional measures to assist children in care. The Minister gave the fairly clear answer that the Government consider that group of children to be particularly vulnerable, even in relation to the group of children in households with incomes lower than the child tax credit amount, which are very low-income households. I had wondered whether she believed that the particular group of young people that we were considering was not as vulnerable as we were suggesting. However, given that she did not advance such an argument, I assume that she accepts that the group is financially vulnerable.

The Minister did not say that there was an unfairness in our proposals in that people who were taken into care for reasons other than that of blame attributed to their families might end up being financially advantaged compared with children who were law abiding and came from similar income backgrounds.

Hilton Dawson (Labour, Lancaster and Wyre)

The hon. Gentleman is making a strong argument. Does he accept that the vast majority of children who go into care do so as a result of the action of others? The distinction between children in care and other groups of young people is that, at the age of 18 or very close to it, they have independence thrust on them in a way that other young adults do not. They do not have the backing of a family that so many other children have. Such young people need an asset, something that is theirs to help them through such a difficult phase.

David Laws (Liberal Democrat, Yeovil)

I am grateful to the hon. Gentleman, who obviously has much interest and expertise in these matters. I agree with him. I was merely trying to explore whether such a concern was holding back the Government. We all know that it is possible for individual cases of perceived injustice—even if it were only one case in 60,000—that appear in the media to have a wider effect in discrediting a particular policy. If such concerns are not holding back the Minister, we are left with the practicality of the proposals.

I accept the points made by the hon. Members for Tatton and for Witney that our amendment is deficient in that it deals only with young people who were already in care at an early age. As the hon. Member for Tatton said, many young children will go into care much later and the worry is that they will not receive the contributions that the Government hope that other families will make for their children. That is an important deficiency in our amendment. It would

need to be complemented by a measure that would make contributions for children who are not covered at birth and that made sure that the trust funds had the savings effect that the Government desire.

I anticipate the worries of the Government about the amendment tabled by the hon. Member for Tatton because of the principles that determine the payment of child benefit. He is asking whether it is right to be seen to be making a payment that is linked to child benefit, even though the purposes of child benefit are designed to meet the needs of children differently and are not necessarily supposed to cover the costs that might be borne by a different entity for children in care. I also anticipate some of the concerns about administrative costs.

Andrew Love (Labour/Co-operative, Edmonton)

I have listened carefully to the hon. Gentleman's argument. I interpret his comments as being in support of the amendment tabled by the hon. Member for Tatton. On Second Reading, the thrust of the Liberal Democrat opposition to the Bill was that the money could be spent better in other ways. Is there not a contradiction in such an argument? If so, how will the hon. Gentleman vote if the hon. Member for Tatton presses his amendment to a Division?

David Laws (Liberal Democrat, Yeovil)

I do not want to repeat my speeches, although I will if the hon. Gentleman wants me to. We advanced a genuine and sincerely felt argument that the greatest form of inequality in society appears in the early years. Our priority is to continue the Government's work in relation to Sure Start and children's centres and to ensure that such support is there in the early years. I am not talking about the most apparently deprived constituencies, but places throughout the country. Deprivation is not as neatly and tidily packaged as the indicators that the Government rely on to role out the Sure Start schemes assume.

Such a proposal would deal with the challenges that face many young people in the early years of their life. It is more important to direct the money in a way that makes sure that people have the opportunities at that age, so that they can deploy those skills and talents as adults, rather than giving them a packet of money at the age of 18, after they have already been disadvantaged by having to face other hurdles. I have explained our thinking, and I am merely trying to improve the Bill as far as possible within the principles set out by the Government.

I accept that our amendment would need to be complemented by the sort of measure proposed by the hon. Member for Tatton. I am not sure whether linking it to child benefit per se is right, nor am I sure whether the Minister may be shying away from the administrative costs. The principle for an additional payment into the accounts of children in care has been explained today. The purpose of the regular payment that the hon. Member for Tatton suggests has been widely supported, so I am disappointed that the Financial Secretary has not said that she may be able to introduce proposals in the short term. I do not know whether it will be possible for me to withdraw amendment No. 151 and still vote for the amendment tabled by the hon. Member for Tatton if he presses it to a Division. That is how I wish to proceed if the

Minister is unable to respond to the widespread desire for such matters to proceed.

George Osborne (Conservative, Tatton)

This has been the best debate that we have enjoyed in Committee. That is probably because people other than the principal speakers have taken part, thus making it livelier than other debates and perhaps of a higher quality. I go beyond what my Liberal Democrat colleague said. I am not just a little disappointed—I am very disappointed—that the Minister has not at least held open the possibility of revisiting the proposal.

We heard a powerful speech by the hon. Member for Lancaster and Wyre and, on behalf of the Committee, I congratulate the young lady to whom he referred. Perhaps he will send her a copy of the Hansard report of our proceedings, so she can see that she provoked such a great debate. I accept his argument about paying the full amount of child benefit, which I calculate for second and other children to be about £559 a year. We are talking about a fairly substantial sum. However, it is still only half what many parents would put into their children's child trust funds each year, because the annual limit is £1,200.

The hon. Gentleman also made an important point about local authorities. If we could enact such a proposal, they could play an important part in helping children spend the money wisely and making sure that it gives them a better start in life than they have at present.

Hilton Dawson (Labour, Lancaster and Wyre)

The hon. Gentleman makes an excellent point. Does not the fact of putting £500 plus each year into a child's account make it highly likely that children will want to contribute even more from their own resources when they have the ability to do so within the £1,200 threshold? Could that not be an acutely important element in children's financial education and their whole outlook on the future?

George Osborne (Conservative, Tatton)

I agree with all what the hon. Gentleman has just said. I went out of my way in my opening remarks to congratulate the Government on the measures that they have taken to help children in care and to make sure that they are not left behind by the proposal. They have gone to lengths to make sure that a child trust fund is set for up for such children. However, the Minister did not deal with either of the points put by my hon. Friend the Member for Witney, which were whether it was right in principle that the children should receive more and whether we should establish for children in care an asset to help them to find accommodation or buy a car when they leave care. Most children are helped to do that by their parents after the age of 18. As we all know, parents do not stop paying for their children when they leave home.

The Minister did not say whether she thought that helping children in care in a special way, beyond what is set out in the Bill, was a good idea in principle. Furthermore, she did not really address the other point in the way that my hon. Friend the Member for Witney put it, which was about the practical elements of the matter. She rested her argument on the point that child benefit is not designed for that purpose.

Sitting suspended for a Division in the House.

On resuming—

Sir David Amess (Conservative, Southend West)

I call Mr. Osborne.

Andrew Robathan (Conservative, Blaby)

Hear, hear. A fine man.

George Osborne (Conservative, Tatton)

I thank my hon. Friend for his support.

I was summing up the discussion on children in care. I said that the Minister had not addressed the first point raised by my hon. Friend the Member for Witney—whether it is a good thing in principle that we give children in care more. Nor had the Minister addressed his second point, which was whether giving such children at the age of 18 substantial assets, which they are unlikely to have otherwise, is the right way to help them.

The Minister said that child benefit is used for a different purpose—to help parents bring up their children—and that children in care cost lots of money anyway, which I thought was beside the point. Of course parents use child benefit to pay for the costs, incurred on a weekly basis, of raising their children. However, I suspect that a lot of parents might decide to put the child benefit into their child's trust fund; I suspect that the financial providers will try to get people to do so. So a parent may in any case pay child benefit into the trust fund.

The Minister is technically correct in saying that child benefit is not for such contributions. However, it is a simple idea. If those children were not in care, the Government would pay money to their parents. The Government are not paying that money, so why not take it, or a proportion of it, and put it into those children's funds? That could be done regularly, on a weekly basis. That was my idea in relation to child benefit. If the Minister says that that is not correct, that the Treasury would object and that it does not make Whitehall sense, she could do some such thing in another way. The idea is just a device: why not link the trust fund to child benefit, which is something that we can all understand?

I was more than a little disappointed by what the Minister said. She used every phrase in Sir Humphrey's phrasebook: ''I do not rule out any developments; the policy is an evolving one; it may develop in all sorts of areas; we need to get it up and running first''—classic ways of saying, ''No, we are not going to do it.'' The Bill is still in its early stages; it has not yet gone to the House of Lords, and we have not yet got to Report.

All I wanted the Minister to say was that Members on both sides of the Committee had brought up an interesting idea, which she was prepared to consider, whether she later said it could not be done for all sorts of reasons, or that it could work and was a good idea. Unfortunately, she was unable to say such things, which is a shame. If she maintains her position and does not at least open up the possibility that she will consider the idea, give us some costings and do a back-of-an-envelope job that we can all consider, I am

afraid that I will have to press the matter to a Division. I am reliably informed, by people who know more about such things than I do, that we will have to wait until we reach clause 11 for that vote.

Hilton Dawson (Labour, Lancaster and Wyre)

I appreciate all the hon. Gentleman is doing to get further discussion and consideration of the clause. I have said that there will be a meeting of the all-party group for children and young people in care next Wednesday. The Financial Secretary will be there. That would be a perfect opportunity for a further discussion—perhaps led by young people in care and those who work with them—without the necessity of engaging in a divisive vote at this stage on a necessary flawed motion.

George Osborne (Conservative, Tatton)

I was a Whip for part of this year, and I understand the hon. Gentleman's problem. Given that he has been supportive, I am sympathetic towards him. Perhaps the Minister could help him and me by getting to her feet and saying that she is prepared to consider the matter and return to it, in which case I would not press the amendment to a vote.

The hon. Gentleman's all-party group would be an excellent place to raise the matter and press the Minister. I have known Ministers who would spend more than £30 million to get themselves out of a difficult meeting, so perhaps the Financial Secretary will reconsider and ensure that she has a nice, easy time on Wednesday.

Ruth Kelly (Labour, Bolton West)

The hon. Gentleman has asked us to confirm the costs. As he referred to costs, I shall take this opportunity to say that the £30 million refers only to those children in care who have no one to claim child benefit on their behalf. I believe he was talking about a much wider pool of children in care—perhaps he will correct me if I am wrong—and certainly the hon. Member for Yeovil was. The £30 million is the annual cost in year 16 of the policy, which gives us a figure on which to work.

I am not against the matter in principle and there are interesting possibilities. I said that I am not in a position today to say that that is a policy we will pursue.

George Osborne (Conservative, Tatton)

Is that something to which the Minister could return on Report? The £30 million is a figure provided by the Library. In fact, it is probably less than that because £30 million is a simple calculation: the number of children in care times the amount of child benefit for a second child. The figure is probably less because those 60,000 children are not in care for the full 52 weeks of the year. If the Treasury has some good costings, as the Minister indicated, she could bring those forward.

Hilton Dawson (Labour, Lancaster and Wyre)

Perhaps I can help the hon. Gentleman. If children are moving in and out of care, there is a period of around four weeks when they come into care and parents are still able to receive child benefit. Presumably it would not be payable in those circumstances.

George Osborne (Conservative, Tatton)

Indeed; the hon. Gentleman makes a good point.

I have not seen any proper costings and if the Minister will indicate, perhaps by nodding—[Laughter.] I am trying to save the blushes of the hon. Member for Lancaster and Wyre. All the Minister needs to do is nod and have a 10-minute debate on the matter at some future time, and we shall not embarrass the hon. Gentleman. If she is not prepared to do that, perhaps she will reconsider before we come to the vote.

David Laws (Liberal Democrat, Yeovil)

I cannot help feeling that the Financial Secretary probably needs some time alone with the hon. Member for Lancaster and Wyre who will no doubt persuade her that she should be making a move in the direction that he and other hon. Members suggested. The proposal that we will put to the Committee now is, if not for a meeting with the Financial Secretary, at least for some notes to drift backwards and forwards across the Table between her and the hon. Member for Tatton. On the basis of what the hon. Gentleman has said, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 8 ordered to stand part of the Bill.

Clause 9 - Supplementary contribution by

George Osborne (Conservative, Tatton)

I beg to move amendment No. 179, in

clause 9, page 5, line 3, at end insert—

'(2A) Regulations under subsection (2) may prescribe a supplementary contribution of nil.'.

Sir David Amess (Conservative, Southend West)

With this it will be convenient to discuss amendment No. 125, in

clause 9, page 5, line 13, leave out from 'date' to end of line 17.

George Osborne (Conservative, Tatton)

I shall deal first with amendment No. 125, which is the less important of the two and would omit subsection (5)(b). The clause establishes the eligibility for the supplementary contribution, which will be linked to receipt of child tax credit. That is spelt out in subsection (5)(a) which states that the condition is

''that a person was, or persons were, entitled to child tax credit in respect of the child for the child benefit commencement date''.

I do not understand the point of the second condition and amendment No. 125 is a probing amendment. The second condition seems to be that the household does not exceed the income threshold for child tax credit, or that a member of the household was receiving either income support or income-based jobseeker's allowance. Perhaps the Minister could explain why that is necessary; perhaps I am missing something obvious. If the household income does not exceed the income threshold for child tax credit, surely the household is in receipt of that benefit, thus satisfying the condition in subsection 5(a).

Amendment No. 179 is more fundamental. Although I do not propose to press it to a vote, I tabled it in an attempt to debate means-testing and the means-tested supplementary contribution. My amendment says that the supplementary contribution could be zero. The Minister boasts that one of the

great virtues of child trust funds is that this is both a universal and progressive policy. She calls it progressive universalism, which will definitely go in my lexicon of new Labour phrases.

Andrew Love (Labour/Co-operative, Edmonton)

It is good, isn't it?

George Osborne (Conservative, Tatton)

Yes. It could go the other way round and become universal progressivism. Whatever it means, it is contradictory and we have a means-tested welfare benefit.

The advantages of a means-tested supplementary contribution are obvious—no doubt the Minister will put those with greater force and passion than I. A strong argument could be made for directing a little bit extra into the child trust funds of the third of children from the poorer families who are receiving child tax credit. That sum is £250 at birth, and perhaps an extra £50 at seven years old. We debated that earlier. However, even on the Government's estimates, that supplement will not add up to a huge amount over the course of a child trust fund. It is clear, if one considers table 3.1 of the White Paper, that better-off children receiving a £250 initial contribution will have £456 at the end of their 18 years, whereas after the same period, with the £500 supplementary contribution, a child will have £911. There is a £455 difference. I am not saying that that is not a tidy sum of money, but it is likely to be completely swamped by the difference between accounts where parents and relatives have contributed to the funds and those where they have not.

Even if a relative or a family is putting £10 a month in a child trust fund, it will be worth £3,941, which is far more than the £456 or the £911. Indeed, if parents contribute the maximum amount, which many will, the child will have £35,000 when they are 18. The supplementary contribution will not make a huge difference or level the playing field. As I argued on Second Reading, that is likely to mean that this measure will increase wealth inequality in our society. Although I do not have a philosophical objection to that, perhaps many Labour MPs do. They should be under no illusion: as a result of this policy, children from better-off families will have much larger sums at 18 than those from less well-off families. The means-tested supplementary contribution would have to be much greater than £250 to overcome that.

David Laws (Liberal Democrat, Yeovil)

Did the hon. Gentleman say that he has no objection to Government policies that increase the inequality of wealth in society?

George Osborne (Conservative, Tatton)

Yes; nor have the Government, otherwise they would not have introduced them.

In return for the questionable benefits of the supplementary contribution, there are all the disadvantages of means-testing, which are familiar to everyone. First, there are the anomalies. The child from a family whose income is £13,230 receives the voucher for £250, whereas the child from a family with an income of £13,231—£1 above the child tax credit—receives zero. Such anomalies are inherent in means-testing. This is not a means-tested benefit with a taper of any kind, but a straightforward policy with a single cut-off point. There is the confusion and intrusion that arise from the means-testing web, which again we are

all familiar with as constituency MPs. Indeed, there are added complications, because, according to the Treasury document, the supplementary contribution will be paid only when someone's child tax credit award is finalised at the end of the tax year in which the child is born. I would argue that it is an intrinsic problem with tax credits, but it is certainly an intrinsic problem with linking the award to a tax credit.

The Treasury document makes it clear that

''A CTC award can only be finalised after the end of the relevant tax year when the parent(s) can provide evidence of their income in that year. The additional endowment will be paid once the CTC award has been finalised. For most households the position will be finalised in the months immediately following the end of the tax year but for some this could be up to 18 months after the child first becomes eligible for a CTF account; for example because the parents are self employed and it takes longer for them to confirm their income in a particular tax year.''

In other words, if a child is born on 7 April, the parents will have to wait for up to a year for the supplementary contribution and, I assume, will lose the interest that they could have earned on that contribution over the year. The Minister said in an earlier debate that a month was quite important in the scheme of this policy; yet this device will deprive people of the benefits of a supplementary contribution for up to a year. I wonder whether table 3.1 takes that into account and whether the £911 is over 18 years or over 17 years, as it may be in some cases.

Then there is the philosophical objection to means-testing, which I shall not explore at great length. Nevertheless, we shall be exposing a third of children to means-testing at birth and telling them that they are poorer than the two-thirds of children who do not receive the supplementary contribution. In case Labour Members think that that is a Tory point, it was a point made to me by the Child Poverty Action Group and other parts of the poverty lobby. They said that when child trust funds are discussed in classrooms everyone will see whose parents are rich and whose are poor, whose parents got the supplementary contribution and whose did not, whose parents are making additional contributions into their child trust fund and whose are not. Certainly the CPAG was concerned that child trust funds could add to the stigma of poverty, and means-testing makes that worse, for limited financial gains.

A back-of-the-envelope sum says that if all children got an equal sum of money—in other words, if there was no supplementary contribution—and the pot of money stayed the same, every child would get a voucher for above £333. Therefore, the supplementary payout that we are talking about is not £250 but £166 more than if there was no supplementary contribution, so it is even less of a benefit than we are led to believe. The point of the amendment is to question whether a means-tested society that will now literally extend from cradle to grave is a price worth paying for an extra payment of £166.

Ruth Kelly (Labour, Bolton West)

The hon. Gentleman made a number of points in his contribution, some of which—dare I say it?—argue contradictory cases. First, he argues that the additional endowment to poorer children will not

be sufficient to make up for a lack of parental contribution. On the other hand, he argues that it is not right to give them the additional contribution, because the children could be stigmatised as a result. Let me break it down into the different segments.

George Osborne (Conservative, Tatton)

Before the Minister attempts to deconstruct my argument, I should tell her that it entirely follows. Given that it is a limited benefit, the Government are paying a high price for it because of the stigma associated with means-testing. If the means-tested supplement were much larger, the Government would have a stronger case.

Ruth Kelly (Labour, Bolton West)

Obviously the hon. Gentleman will have to wait and see what the level of supplementary contributions is in due course, but we have already said that the endowments at the age of seven will be means-tested.

It falls to me to say that I have discovered the table to which I believe my friend Gavin Kelly was referring when he spoke at the seminar that the hon. Member for Tatton is so keen on quoting. There is a table in the document entitled ''Savings and Assets for All'' that demonstrates the impact of a £250 endowment and a £500 endowment at birth, plus supplementary top-ups of £50 and £100 over the course of the development of that policy. If the hon. Gentleman so wishes, I can provide him with the page references, and I am sure that he will be able to find it during the course of my contribution.

In response to the hon. Gentleman's argument that somehow the endowment will be swamped by additional parental contributions, I have never suggested that there would not be some parents who chose to put in a full £1,200 a year contribution on behalf of their children; but I would argue that the majority of parents would not do so. That is because there are already very significant tax breaks in the system that are there for children. Parents can gift children money, and provided that the income is not greater than £100 a year, they will not be taxed. There are tax breaks among ISAs and in other areas, and there is no evidence that parents are systematically knocking up against the limits of those tax-advantage vehicles on behalf of their children.

There is no reason to suspect that a large proportion of parents will take advantage of the £1,200 tax advantage in the child trust fund to make maximum contributions on their children's behalf. Of course, a small minority of parents might choose to do so.

George Osborne (Conservative, Tatton)

The Minister has accused me of a contradictory argument; she is trying to knock down my argument by saying that her policy will not be a great success and that parents will not be putting in lots of money to their child trust funds. On the figures that I gave, even if someone makes a contribution of £10 a month it soon racks up—I have not got the exact figure in front of me—to a child trust fund of £4,000. If they make a contribution up to £1,200, and I am surprised that she does not want to see more people

putting in more money, that sum builds up to about £35,000 at the age of 18.

Ruth Kelly (Labour, Bolton West)

I am surprised that the hon. Gentleman is assuming in the development of his argument that the majority of parents will make that sort of contribution. On behalf of the Government, I would not suggest that somehow it would not be a success if the majority of parents fail to make the full contribution each year on behalf of their child.

As a core aspect of the policy, we would like to see a savings habit develop. A very small contribution might develop a savings habit, contribute towards the build-up of an asset that the child can draw down at the age of 18 and encourage an increase in financial awareness and education. I do not foresee most parents choosing to take advantage of the full tax benefit. It is not my intention to any degree whatever.

Michael Weir (Scottish National Party, Angus)

Is there not a contradiction there? The Minister previously argued that the child trust fund is a vehicle for grandparents in particular also to contribute to their grandchildren and that the big benefit of the child trust fund over other funds is that it cannot be accessed until the age of 16 in Scotland or 18. That is the important difference, and because of that she is being contradictory to an extent. If the contributions are to be paid in specifically because the child cannot access that fund, it is a big incentive, particularly for grandparents.

Ruth Kelly (Labour, Bolton West)

My argument has been that even a modest contribution to a child's trust fund, if made on a regular basis, would have a significant impact on the value of the asset that the child can draw down at the age of 18. The examples in our document illustrate that £5 a month with no additional top-ups—if they are to be envisaged—for a child from a poorer background would amount to over £2,600. It is not the case that for this policy to be successful every child has to be in a family that can take full advantage of those tax breaks. I do not dispute that there will always be some families who would like to, and are prepared to, make contributions.

By far the main cost of this policy for the Government is not the value of the tax break, but the value of the endowment. For children from poorer families, we are explicitly recognising that they are less likely to come from families that will be in a financial position to make substantial contributions to the fund. As I have said before, we intend to make a further means-tested top-up at the age of seven to compensate again for the fact that parents are less likely to be in a position to make additional top-ups.

As for how children will react in the classroom, it is highly unlikely that teachers will use statements from individual children to illustrate the workings of the policy. That would probably be a breach of financial privacy. I am sure that financial education will be taught in a generic fashion using a model of the child trust fund or using the concepts that are implicit in the fund, so that people better understand their own statement in the privacy of the home.

If children were to compare the value of their child trust fund, it would be far more likely that they would feel stigmatised about the fact that the total of the

fund did not match that of other children than about the fact that they received a higher level of Government endowment. They would need to be sophisticated to be able to differentiate the difference between the two, and I am sure that they would be interested in the total value of the funds that have accumulated, as opposed to the breakdown of where the contributions came from.

David Laws (Liberal Democrat, Yeovil)

Is the Minister saying that children will have to wait for this stigma effect until later on their lives, when they will see the effects of not having had the second-tier contributions?

Ruth Kelly (Labour, Bolton West)

No, that is a red herring. People are interested in seeing the value of their fund build up. Their financial education will increase, and they will become aware of the opportunities that such an asset provides for their future. I very much hope that, as well as family and friends making payments, they will be encouraged and incentivised to make payments on their own behalf.

The hon. Member for Tatton raised a point about the link with child tax credit. The reason why child tax credit has been chosen is that there is no additional means test involved in linking the fund with that. There will be an automatic link between qualifying for the child tax credit and the additional endowment being paid in. No additional paperwork will be required from parents. It would be much more complicated to think of a different system for administering the higher level of the top-up.

The hon. Gentleman also asked a specific question about the income threshold in the child tax credit. I apologise if I have misinterpreted his point, but to benefit from the higher top-up—the full endowment—children need to be in families who are in receipt of the full child tax credit, and who qualify under the income threshold of £13,230. If they meet that income threshold, children will also be entitled to qualify for other benefits such as free school meals and so on.

George Osborne (Conservative, Tatton)

Before the Minister finishes her remarks, will she address my point that, since it could take a year, or 18 months in some cases, for a child tax credit award to be finalised, many children might not receive their supplementary contribution until they are one or one and a half years old? Does she accept that as a result they might have forgone gains that that money would have otherwise accrued in their child trust fund?

Ruth Kelly (Labour, Bolton West)

Children's families will be assessed individually at different times during the tax year for child tax credit, and they will receive the endowment at different points. I accept that there is no easy way of compensating them for the fact that theoretically they could have received that entitlement sooner. The fact that they are receiving a higher endowment is, in itself, recognition of their financial need. I would argue that our policy of progressive universalism, which the hon. Gentleman mocks, targets money on those families that need it most. In fact, our current estimate is that 40 per cent. of all children will benefit from the higher endowment. That is a point that is worth fighting for, and I urge the hon. Gentleman to withdraw the amendment.

George Osborne (Conservative, Tatton)

I am not sure that the Minister fully convinced me that the supplement payable to poorer families more than compensates the stigma associated with the means test.

David Laws (Liberal Democrat, Yeovil)

Do the Conservatives propose that there should be no means-tested top-up, or that the top-up should be bigger than the Government proposes?

George Osborne (Conservative, Tatton)

The Conservative party, unlike the Liberal Democrat party, has accepted the Bill in its entirety. As I said when I spoke to the amendment, I am merely probing the Government. The difference between the hon. Gentleman and me is that our party might actually be in Government, so we have to be slightly more careful about what we say in Committee.

I made it clear at the beginning that this was a probing amendment to enable us to have this debate. I was glad for the clarifications about the child tax credit and how it will work. As the Minister said, some children may not receive the supplementary contribution for up to a year and a half after they are born, so it is a bit of a lottery as to when, during a year, a child is born. That affects the size of the child trust fund at the end of 18 years, but there we go. I did not quite get an answer; perhaps I will table a written question to learn whether the £911 assumes 18 full years of payments. I suspect that it does so to inflate the figure, and that the amount would drop below £900 in reality. However, having made those points, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

George Osborne (Conservative, Tatton)

I beg to move amendment No. 173, in

page 5, line 9, after '(5)', insert

'or the condition in subsection (9)'.

Sir David Amess (Conservative, Southend West)

With this it will be convenient to discuss the following amendments:

No. 174, in

page 5, line 10, leave out first 'That' and insert

'The condition in this subsection'.

No. 175, in

page 5, line 10, after second 'that', insert 'the child benefit commencement date fell on or after 6th April 2003 and'.

No. 176, in

page 5, line 41, leave out subsection (9) and insert—

'(9) The condition in this subsection is that—

(a) the child benefit commencement date fell before 6th April 2003,

(b) a person was, or persons were, entitled to a benefit specified in subsection (9A) in respect of the child on any date in the tax year beginning with 6th April 2002, and

(c) that either the specified income of the person or persons for that tax year did not exceed the specified income threshold or the person, or either of the persons, was entitled to a specified social security benefit for that date.

(9A) Those benefits are—

(a) income support,

(b) income-based jobseeker's allowance,

(c) children's tax credit,

(d) working families' tax credit, and

(e) disabled person's tax credit.

(9B) In subsection (9)(c) ''the specified income'', ''the specified income threshold'' and ''a specified social security benefit'' have the meanings given by regulations.

(9C) In making regulations under subsection (9B) the Treasury shall, as far as practicable, secure that the terms in that subsection are interpreted so as to provide that the condition in subsection (9) shall be satisfied in relation to levels of income, income threshold and entitlement similar to those enabling the condition in subsection (5) to be satisfied, taking account of any change in the value of money.'.

George Osborne (Conservative, Tatton)

We are still on the clause that tries to establish eligibility for the supplementary contribution. My amendments Nos. 173, 174, 175 and particularly 176 are an attempt to tackle another of the anomalies thrown up by the system.

As we know, every child born after 31 August 2002 will get a child trust fund, and those in receipt of the child tax credit will get the supplementary contribution. However, of course, the child tax credit was introduced only on 5 April 2003—everyone in the House remembers that because the Government made such a hash of the introduction of tax credits in 2003. There is the question of how the funds will work for children born between 1 September 2002 and 5 April 2003, and how they will be assessed for the supplementary contribution.

According to the Bill, that will be determined by the family's entitlement to child tax credit in 2003–04. That is spelled out in the explanatory notes. In other words, it does not matter whether the family's circumstances have changed—whether they are better of in 2003–04 than in 2002–03 or, indeed, worse off. I confess to the Committee that this is a guess, but I suspect that many families are likely to be better off in the year after the birth of a child than in the year of the birth, because they will not have lost the income that will come from maternity leave. That means that fewer of the group of children born between 1 September 2002 and 5 April 2003 will get supplementary contributions than if the income had been assessed in the year that they were born.

Amendment No. 176 proposes a different test for the group of children born between 1 September 2002 and 6 April 2003. It suggests that those children will get a supplementary contribution if, during the year that they were born—that is, 2002–03—their families were in receipt of either

''income support . . . income-based jobseeker's allowance . . . children's tax credit . . . working families' tax credit''

or ''disabled person's tax credit'' and their income did not exceed an amount specified by regulation. We could take that amount as £13,230. It seems fairer to judge these children, like all other children, by their family's income in the year in which they were born. As I said, I am guessing—perhaps this was not intended by the Government—but I suspect that the measure may actually deprive children who otherwise would have received the supplementary contribution, as the family's income in the year a child is born tends to be lower than its income in the year after the child is born.

Ruth Kelly (Labour, Bolton West)

The hon. Gentleman refers to the transitional group of children born between September

2002 and April 2005. The Bill is designed to provide that as many children as possible qualify for the supplementary top-up and that they are not excluded simply because child tax credit was introduced after child trust fund eligibility began in September 2002.

Children in families who claim child tax credits in 2003–04 will be treated as qualifying when child benefit was first paid for the child in 2002–03. If child tax credit could not be claimed but the parents were claiming other benefits such as jobseeker's allowance, the Bill ensures that the relevant benefits are used as a proxy for child tax credit. In other words, officials have developed this system to ensure that as few children as possible miss out on the higher rate of endowment. In fact, it could be considered to err on the side of generosity, in that, as the hon. Gentleman would imagine, there may be some children in families who might not have received the additional endowment if child tax credit existed from September 2002 but who will receive it under our proposal.

Of course, it is possible to make the other argument. The hon. Gentleman said that the income might rise, whereas in fact it often falls. We may dispute that. It is not easy in any particular circumstance to predict what will happen to the income of a family after the birth of a child, but, in trying to draw up the proposals, I was determined that as few children as possible would miss out and that the maximum number of children would benefit from the higher rate of endowment.

If the child was born before April 2003 and the family receives child tax credit in the tax year 2003–04, we will assume that they would have done so in the six months from September 2002. I emphasise that families who fall into the transitional category do not have to provide any additional paperwork to the Inland Revenue. The calculations will be made for them, and they will benefit from the higher rate of endowment. I believe that the proposals act to the benefit of children and, as such, they should be supported by the Committee.

George Osborne (Conservative, Tatton)

I am not entirely convinced by the Minister's arguments. As I said, I am happy to be convinced by hard evidence. I suspect that the income of a family tends to be less in the year in which a child is born, because they often forgo the mother's full income, at least for part of the year. However, the Minister assures me that that is not the case. It would be interesting to see some hard evidence. If my position, based entirely on anecdotal experience, is right and people's income actually is lower in the year in which the child is born, the cohort of children born between 1 September 2002 and April 2003 will lose out under the device set up by the Government.

However, the Minister says that she errs on the side of generosity; that would be a first for the Treasury. I suppose that we will only have the proof of the pudding in the eating. Since I do not have hard evidence to deploy to knock down her arguments, but have only a hunch or ''intuition''—to use Mr. Kelly's phrase—I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 9 ordered to stand part of the Bill.

Clause 10 - Further contributions by Inland Revenue

George Osborne (Conservative, Tatton)

I beg to move amendment No. 180, in

page 6, line 18, leave out paragraph (b) and insert—

'(b) the children performing voluntary work for charities of a kind specified by regulations.'.

We come to the clause that covers further contributions by the Inland Revenue. The matter is a little confusing, because we held the main debate on the subject earlier at which time we discussed the contributions at the ages of seven, 11 or 16 of either £50 or £100. My amendment is an attempt to broaden the scope of the Bill by saying that children should be given a further contribution if they performed voluntary work for charities of the sort specified by Government regulations. It is a good idea. At present, the clause is general. It says that the circumstances in which a further contribution can be made are either when a child reaches a certain age or

''such other circumstances as may be so prescribed.''

What are those circumstances? My amendment is an attempt to tease them out by saying that the circumstances could be those in which a child is performing voluntary work for a charity. We could use child trust funds as an incentive, by providing a small contribution to someone's child trust fund to involve the child in volunteering, working for a charity and so on. I think modestly that that is an excellent idea.

I notice that the Minister hinted that she was thinking along such lines, when she appeared before the Select Committee. When asked a patsy question by the hon. Member for Wallasey (Angela Eagle), she said:

''as the Child Trust Fund develops we may think about how to broaden its appeal and increase its potential and spread assets more widely. Indeed, we have left the regulations quite flexible so we can introduce a top-up at the age of 7: we could introduce further tops-ups along the way if we thought that was desirable. Other people—academics and think tanks and so forth—have suggested that we may be able to combine the Child Trust Fund with our credits for voluntary work, for example.''

I fall into the category not of academics or think tanks, but of ''so forth'' by tabling the amendment because I want to know what the Minister was thinking, how far developed were the ideas and why she has left herself the option in clause 10 of

''other circumstances as may be so prescribed.''

Is it because she was thinking of giving some kind of credit in return for voluntary work for charities? I want to know what the hon. Lady is thinking.

David Laws (Liberal Democrat, Yeovil)

I want to speak briefly about the amendment. It is not an excellent idea. It is well-meaning tinkering, but it is unnecessary.

George Osborne (Conservative, Tatton)

I should have thought that the hon. Gentleman would have loved it then.

David Laws (Liberal Democrat, Yeovil)

I should have thought that the hon. Member for Tatton would not table such an amendment. It seems out of spirit with the traditions followed by the Conservative party such as simplicity and focusing public expenditure where it is most

needed. The amendment would be administratively complicated. There is no clarity that the public expenditure involved would have a significant gain, both in terms of its incentive effect and in comparison with other uses. Its worst aspect is that it is attempting to link a payment for something that is supposed to be voluntary work. I question what signal the hon. Gentleman is trying to send out about voluntary work. Presumably he believes it to be a good thing because people do not need to be paid for it and there is an element of voluntary choice. However, under the amendment, he is linking it to a payment that will be made to an account that would have the benefit of neither making the work truly voluntary nor even of giving a payment that would be a genuine incentive because, in many cases, people will not receive it for five or 10 years. The amendment is not helpful, and I hope that I have persuaded the Minister, if she were minded to go down such a route, to resist strongly.

Ruth Kelly (Labour, Bolton West)

It is always good to have a real debate in Committee. As the child trust fund develops there will be conflicting arguments about how it could be used in future. As far as I am aware, we are the first country that intends to introduce a nationwide policy of this sort. I welcome the fact that there is active debate about how it could be developed, and I am pleased that the hon. Member for Tatton is quoting my evidence to the Treasury Committee back at me so often.

There have been gatherings of people who are interested in the policy and who have tried to think through how it might apply more widely in future. One idea is to use the policy to promote voluntary activity among young people. However, I put it to the Committee that the young people that we are talking about will not be doing voluntary work for some time yet. It would be premature to commit to such a policy while we assess the merits of arguments, such as that of the hon. Member for Yeovil, about whether it would really encourage the voluntary spirit or whether it would act against it.

If we were to encourage credits to be given for voluntary work, there would be no need for the Revenue to be involved; the proposal made by the hon. Member for Tatton is unnecessarily restrictive. If charitable organisations want to arrange for credits to be given to children who participate in voluntary work, nothing in the regulations prevents them from doing that.

With the child trust funds, we have set out a foundation on which we shall build, and I look forward to further debate on the subject, but, for the reasons that I have set out, I urge the hon. Gentleman to withdraw his amendment.

George Osborne (Conservative, Tatton)

I am fascinated to discover that there have been gatherings of people who are interested in the Bill. I have never been invited; I have been left out. I suppose, looking round the Room, that we could not call this a gathering of people who are interested in the Bill; we have a small proportion of people who are interested in the Bill.

The Minister said that she was keeping open the possibility of some kind of Government scheme, which would be the effect of my amendment. I agree that the Bill gives her the power to do that, because of the general catch-all phrase,

''other circumstances as may be so prescribed.''

She is quite right to say that charities, and anyone else, could give credits under the scheme. We will have to await developments.

I am sorry that the hon. Member for Yeovil was not enamoured of my tinkering. However, I did get a priceless quote out of him. He referred to the Tory traditions of ''simplicity and focusing public expenditure where it is most needed''. I am going to bottle that and send it to the central office Liberal Democrat unit.

David Laws (Liberal Democrat, Yeovil)

Will the hon. Gentleman confirm that I was complaining that, judging by his role in these proceedings and the Conservative party's support for this dreadful Bill, those great traditions have been lost?

George Osborne (Conservative, Tatton)

If I am guilty of that, the hon. Gentleman should note that I am about to withdraw the amendment, but I will stick with the quote. I will let the Committee into a little secret. The hon. Gentleman is the Member whom we think most likely to defect to us, but we might have to wait until we have red boxes and ministerial cars to tempt him over.

Mr. Laws rose—

George Osborne (Conservative, Tatton)

I suppose that I have to give way so that the hon. Gentleman can state on the record that he will never defect to us.

David Laws (Liberal Democrat, Yeovil)

The hon. Gentleman is discussing a prospect even more distant than that of people receiving the proceeds of child trust funds in 2020.

George Osborne (Conservative, Tatton)

That is what we in politics call a non-denial denial. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

David Laws (Liberal Democrat, Yeovil)

I beg to move amendment No. 168, in

clause 10, page 6, line 23, at end add—

'(4) The amounts prescribed by, or determined in accordance with, regulations under subsection (1) shall be announced by the Chancellor of the Exchequer at least 2 years before the date of the first payment of the amount concerned.'.

It has been fascinating to hear about the other amendments to this clause. Given the tendencies towards well-meaning tinkering that the hon. Gentleman has displayed, we may well be looking to send membership application forms out to him in time.

Amendment No. 168 requires the Government to provide us with information about intentions that are not in the Bill or in regulations. The Chancellor seems to be holding for himself the power to determine the timing of the further contributions that will be made by the Exchequer. Why should that be left to the Chancellor to determine? Why will the Minister not accept the amendment, which simply suggests that the amounts and the timing of the payments should be

announced by the Chancellor at least two years before the payments are made?

The purpose of the amendment is twofold. First, there is a real concern about what will motivate the timing of the payments. We know so far of only two payments that will be made under these provisions, and they are to be made in 2005 and 2009. Even the Minister has the good grace to smile, because she obviously sees the direction in which my comments are going. All hon. Members know that the link between 2005 and 2009—particularly, I suspect, in the mind of the Chancellor—is that they are the most likely dates for the next two general election campaigns.

We can already envisage the run-up to the 2005 campaign: large numbers of cheques going out to people throughout the country because of the Bill, with a 7 per cent. supplement on the eve of future general elections. The Chancellor is farsighted, and he may already be thinking ahead to the days when he will have passed responsibility for the Exchequer to someone who is currently a more junior Minister—perhaps even the Financial Secretary herself—and anticipating his time to come as Prime Minister. He is looking towards the 2009 election, when he has arranged for the second payment to be made to children at the age of seven, and anticipates a further set of cheques going out on the eve of that election.

Perhaps we can anticipate now the timing of future payments to children under the Bill, because presumably they will occur four years on from 2009, and so on. They will happen to be announced in each Budget statement on the verge of a general election. I can see Labour Members imagining that and sharpening their pencils to get their election addresses ready for future elections, in which they will boast about the success of this policy. Surely it is inappropriate for such a great Government initiative to be managed in that way and for such key decisions to be announced on the eve of general elections. That seems to be the pattern emerging from the Bill. Surely we should insulate those decisions.

Harry Barnes (Labour, North East Derbyshire)

Will the proposal not be inhibitive? If there are positive economic developments in a particular year the Chancellor may feel that the potential exists for an announcement in the Budget that a considerable contribution will be made to child trust funds. If that has to be done two years in advance, it might not fit in with how the economy develops year by year.

David Laws (Liberal Democrat, Yeovil)

The hon. Gentleman is obviously anticipating the Budget problems that the Chancellor is having and his difficulty in funding some measures. If we are trying to engender in people a spirit of the long term, and a commitment to savings and reliability, we surely should be able to budget two years ahead for the payments that will be made. I am not suggesting that the Chancellor should announce today the payments for the next 18 years or that he should specify the levels of funding at ages seven, 11, 15 and so forth. I am suggesting that the payments should not be left to the last minute as part of Budget statements made on the eve of general elections. That seems to be the pattern in the Bill.

I return to my response to the hon. Gentleman's comments. If we want the child trust fund process to educate people about the importance of saving, predictability, planning for the future, security and stability, we want them to have some knowledge of the payments that are to be made into their accounts, and the way in which the Government are to respond. We do not want Governments to make up those amounts as they go along, on the eve of general elections or in response to short-term financial pressures. We want a bit of certainty, and some insulation from the electoral process. I hope that the Financial Secretary will take the opportunity that I am giving her to stop the child trust fund being used—or abused—in this way in the future.

Ruth Kelly (Labour, Bolton West)

For the record, I totally repudiate the hon. Gentleman's comments. The child trust fund is a manifesto commitment, and it is right that it should be instituted before the next general election as we have pledged.

The Committee has debated at length whether seven is a more appropriate age than five to receive the first top-up payment, and it has been accepted that it is the more appropriate age for the next endowment to be received.

As for whether we should announce two years in advance the value of the endowment that is likely to be paid, I agree with my hon. Friend the Member for North-East Derbyshire (Mr. Barnes) that that is overly restrictive. If we were to do that, we would have to set a cautious level and we might, when the time arrives, wish to have more flexibility for future generations. That is why the child trust fund is, in general, formulated to provide flexibility for future decisions.

Those matters will not necessarily be determined by me. I may or may not be in this job at that time, but it is not right for me to make a commitment about something that would more appropriately be decided in the run-up to the payment in 2009, particularly as that will be after the next election. For those reasons, I ask the hon. Member for Yeovil to withdraw the amendment.

David Laws (Liberal Democrat, Yeovil)

I am not entirely convinced by the Minister's explanations. All I am asking her to do is make an announcement two years in advance. The Government are producing many proposals, not least on top-up fees, on which there is a contrast between their position now and that in their manifesto, and on which measures will be introduced after the next general election.

I will not press the amendment to a Division, but we will return to the specific issue of child trust funds and the timing of elections when we debate other amendments. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 10 ordered to stand part of the Bill.

Clause 11 - Recouping Inland Revenue contributions

George Osborne (Conservative, Tatton)

I beg to move amendment No. 130, in

clause 11, page 6, line 29, at end insert

'provided that a person is shown to have acted fraudulently or negligently'.

The Financial Secretary is being unduly pessimistic about her career chances if she believes that she will still be in the post in 2009. These things are not in her gift, but I predict that she will be shadow Chancellor of the Exchequer.

Clause 11 deals with recouping Inland Revenue contributions, and amendment No. 130 is a probing amendment. The clause gives the Inland Revenue a general power to make regulations to recoup money from child trust funds. The explanatory notes state:

''This clause gives the Treasury power to make regulations requiring persons of a description specified in the regulations to repay to the Inland Revenue sums paid into accounts by the Inland Revenue''.

The clause does not specify under what circumstances that power will be given, and it does not give people much protection from the taxman. My amendment merely states that the Inland Revenue may recoup funds only where a person has acted ''fraudulently or negligently''. Those words are used elsewhere in the Bill.

If the Minister is not minded to agree to my amendment, which, given her record over the last few amendments, may well be the case, perhaps she will say that where the Inland Revenue has made a genuine mistake that is its fault, people will at least be allowed to keep the investment gains that they have made on the money put in by the Inland Revenue. It would be harsh if the Inland Revenue could suddenly claw back the gains that someone had made because, for instance, it had incorrectly credited them. This amendment would keep the Inland Revenue on its toes. However, it is intended to allow for a discussion about the wide-ranging powers that this clause gives to the Inland Revenue.

Ruth Kelly (Labour, Bolton West)

The hon. Gentleman is correct to say that we envisage in the main recovering child trust fund contributions only where fraud or negligence is involved: for example, where a child trust fund has been opened for an ineligible child; a child tax credit claim giving rise to a supplementary contribution is discovered to be excessive; or indeed where more than one CTF account has been opened for an eligible child.

Although we are making every effort to minimise any risk in the design of the IT system—I have debated this matter with the hon. Gentleman before—errors are always possible, and payments could be made in error even though no negligence or fraud was involved. If that were to happen, it would of course be right for the Inland Revenue to try to recover any excessive payments. Not to do so would be unfair to others and an improper use of Government money.

The amendment, by restricting recovery to situations of fraud or negligence, would prevent us from doing that. Clearly the Inland Revenue will have to make a judgment as to whether it recoups the value of the mistaken awards or whether it tries to recover any interest on those amounts. I take it that the Inland Revenue would recover the gains on the amounts as

well as the actual amounts. The main point is that it would be an unfair use of taxpayers' money were it not try to recover excessive payments, and on those grounds I urge the hon. Gentleman to withdraw his amendment.

George Osborne (Conservative, Tatton)

For a second there I thought that the Minister was straying into generosity, but she received a note from a mysterious source and suddenly she was hard-nosed again. She said that people in such cases would not even be able to keep any gains from such an error made by the Inland Revenue. All I was trying to do with the amendment, as a humble legislator, was to restrain the over-mighty Executive. However, the over-mighty Executive have the majority in the Committee, so I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Amendment proposed: No. 43, in

clause 11, page 6, line 31, after '10', insert

'or [additional contributions by Inland Revenue for children in care]'.—[Mr. Osborne.]

Question put, That the amendment be made.

The Committee proceeded to a Division.

Mr. Laws: On a point of order, Mr. Amess. Will you clarify for the benefit of all members of the Committee that we are now returning to the issue of

children in care, which we debated earlier, and that the question is effectively whether we should support the proposal of the hon. Member for Tatton that child benefit should be paid into the accounts of children in care?

The Chairman: The hon. Gentleman has described the position perfectly.

The Committee having divided: Ayes 4, Noes 10.