Child Trust Funds Bill

House of Commons, 3 February 2004.

New Clause 1 — Early Withdrawal, etc, for Disabled Children

David Cameron (Conservative, Witney)

I beg to move, That the clause be read a Second time.

Sylvia Heal (Deputy Speaker, Halesowen and Rowley Regis)

With this it will be convenient to discuss the following: New clause 2—Early withdrawal in case of terminal illness—

'(1) If this section applies to a child, the responsible person may withdraw funds from the child's account in accordance with the provisions of subsections (4) and (5).

(2) 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)(a), and

(c) it is certified by a consulting physician in accordance with regulations under subsection (3) that the child has a terminal illness.

(3) Regulations may prescribe the requirements for the issue of a certificate for the purposes of subsection (2)(c).

(4) A responsible person may, having given a certificate to the relevant account provider, apply to withdraw amounts from the fund, including the whole amount of the fund.

(5) On receipt of the certificate and application, the account provider must—

(a) release the amount requested to be withdrawn, and

(b) inform the Inland Revenue in accordance with regulations.

(6) The responsible person shall, wherever practicable, consult the child about the expenditure of amounts withdrawn in accordance with the provisions of this section.

(7) In this section—

"attending physician" means the physician who has primary responsibility for the care of the child and the treatment of the child's illness;

"consulting physician" means a consultant physician practising in the National Health Service who is qualified by speciality to make a professional diagnosis and prognosis regarding the child's illness and who is independent of the attending physician;

"physician" means a registered medical practitioner; and

"terminal illness" means an illness which, in the opinion of the consulting physician, is inevitably progressive, the effects of which cannot be reversed by treatment (although treatment may be successful in relieving symptoms temporarily) and which will be likely to result in the child's death before his eighteenth birthday.'.

Amendment No. 3, in page 2, line 44 [Clause 3], leave out 'as' and insert

'in accordance with the provisions of section [early withdrawal, etc.,for disabled children] or as otherwise'.

Amendment No. 4, in page 2, line 44 [Clause 3], leave out 'as' and insert

'in accordance with the provisions of section [early withdrawal in case of terminal illness] or as otherwise'.

Amendment No. 58, in page 3, line 17 [Clause 4], at end insert

'except under provisions made by regulations to allow for the assignment of the child trust fund investments of terminally ill children.'.

Amendment No. 15, in page 6, line 36 [Clause 12], leave out 'amount' and insert 'amounts'.

Amendment No. 16, in page 6, line 39 [Clause 12], at end insert—

'(2A) Regulations under subsection (2) shall prescribe—

(a) a standard maximum amount, and

(b) a higher maximum amount in respect of child trust fund accounts held by children to whom section [early withdrawal, etc., for disabled children] applies, which shall be expressed as a multiple of the standard maximum amount.'.

Amendment No. 19, in page 10, line 39 [Clause 20], after '3(4)(d)', insert

'or by section [early withdrawal, etc., for disabled children]'.

Amendment No. 20, in page 10, line 39 [Clause 20], after '3(4)(d)', insert

'or by section [early withdrawal in case of terminal illness]'.

Amendment No. 25, in page 13, line 13 [Clause 22], at end insert—

'(4A) A person who is required by the Inland Revenue to provide information under regulations under section [early withdrawal, etc., for disabled children] may appeal against the decision to impose the requirement.'.

David Cameron (Conservative, Witney)

I wish to speak to new clause 1 and amendments Nos. 15 and 16. As hon. Members who served on the Committee will recall, they involve two proposals. I believe that they are fundamentally linked, and I know that the Minister agrees with me. She was generous about the proposals in Committee and promised to consider them carefully and introduce them through regulations if she could. I hope that she will continue to back them today and in the future, because they provide a real chance to help families with disabled children.

The two proposals are as follows. The first, in amendment No. 16, would increase the amount that families and others could put into baby bonds in the case of a disabled child. The second, in new clause 1, would allow families to dip into the baby bond in specific and limited circumstances before the child reached the age of 18.

Before I start the argument in favour of the proposals, I should declare an interest beyond that which is in the register. My wife and I are fortunate to have a new baby, Nancy, who is just two weeks and one day old. I cannot say that she has already told me how much she is looking forward to her baby bond, but I am sure that she would if she could. I hope that the House will be patient with me today because we are still at that sleepless nights stage. Although one occasionally feels that one is going to nod off during someone else's speech, it is uncommon to nod off during one's own. Today, that is just possible. Nancy is clearly a very canny baby. She was meant to arrive after the Hutton inquiry, on which I was involved in helping the Leader of the Opposition. Clearly she knew something that I did not: that the report was not worth waiting for. I should have started my paternity leave straight away.

More relevantly to the debate, my wife and I also have a 22-month-old son, Ivan, who is severely disabled with epilepsy, cerebral palsy and a range of complications. He is unlikely ever to walk or talk and needs constant care. That has stimulated my interest in disability, an interest that has been backed up by people who have come to my surgeries in west Oxfordshire to bring their stories and experiences of bringing up disabled children, with all the difficulties, challenges and costs that that involves.

The first proposal would lift the cap on the amount that parents could put into a baby bond in the case of a disabled child. Amendment No. 16 refers to a "multiple" of the £1,200 limit proposed for all baby bonds. I hope that that multiple, which will be considered in regulations, will be generous. I cannot believe that there is much room for anyone to use child trust funds as a route of tax avoidance, so we should be as generous as possible with the multiple that people can put in.

Why do I think that it is a good idea to de-limit the amount that people can put into child trust funds? First, the scheme would be very simple. We know who the disabled are: we have disability living allowance and a list of disabled children. Barnardo's refers in its report, "Still Missing Out?", to a figure of 360,000 disabled children. The scheme would be a simple way of allowing parents and communities to help those children. It would not be very expensive for the Treasury and Inland Revenue because the funds do not provide a tax break for the donor who puts money in. They provide a small tax break for the recipient, because under the child trust fund scheme, no income tax is paid on the interest accrued by the fund.

The accounts would be incredibly easy to use. Child trust funds will be set up in any event for every child—Nancy, fortunately, is included—over the next few years, so friends, family and others who want to help but do not know how, could easily do so in future by putting money into the fund. Above all, the argument for de-limiting the amount that one could put in for disabled children is that it would be effective. Disability brings huge costs, and at the age of 18, the transition from childhood to adulthood is particularly expensive. In "Still missing out?" Barnado's says that the transition from childhood to adulthood is a difficult time for all teenagers, but can be particularly fraught for disabled young adults, both in terms of accessing appropriate adult services and in dealing with their fears and anxieties at a key life stage. The Minister made some good arguments in Committee and on Second Reading about the case for 18-year-olds having an asset or capital, and the argument for disabled children is, in my view, stronger still.

Steve Webb (Liberal Democrat, Northavon)

I am sure that the House agrees with the hon. Gentleman that we want to do all that we can to help disabled children, and we respect his first-hand knowledge of the subject. Does he accept that it is odd to make a specific concession for disabled children whose parents have a lot of spare cash to put into accounts? Do we not want to support all disabled children, and is the social security system not a better way of doing so than the tax and baby bond system?

David Cameron (Conservative, Witney)

The break would not just be for the middle classes and the better-off. Every child in the country will have a child trust fund, and it will be open to anybody to contribute to those funds. As I have said, in the case of disabled children, friends, family and the larger community want to help, and my proposal would create a clear way in which to do so. As for the least well-off, there is a genuine opportunity for the Government to contribute. The Government have already said that, in the case of children of parents who are on income support, they will put as twice as much into their child trust funds. In the case of disabled children, there is a similar opportunity for the Government, social services or anybody else to help in a specific way. I shall deal later with the role of social services, which clearly have the lead responsibility in helping families to look after disabled children.

My proposals recognise the fact that there is an awful lot that families want to do, and indeed do, themselves. Nine out of 10 disabled children are looked after at home, and their families already do an immense amount. My modest proposals would simply make that easier for them . There has been a warm welcome for my de-limiting amendment from the disability charities. I received a useful note from Mencap, Barnado's and the Disability Rights Commission among others, which said:

"We strongly endorse the proposed amendment, which will enable family and friends to contribute more into the Trust Fund when a child is disabled."

That reinforces the point that I made to the hon. Member for Northavon (Mr. Webb).

The note also says:

"disabled young people will face greater costs at transition: the Child Trust Fund could play an important role in giving them the best opportunities as they move to adult life."

That is a positive response.

As I told the hon. Gentleman, the amendment would not benefit only the better-off. It offers a good opportunity for other people who want to contribute and it is open to the Government to top funds up if appropriate. There was a slight misunderstanding about contributions from the wider community on the part of the disability charities, who said in their note:

"If this was to be the case, then there would be issues around accountability and, indeed, as to the desirability of charitable status being sought for the Trust Fund."

That slightly misses what I am trying to get at. All I am saying is that if someone wants to help a disabled child, they can put money into the trust fund. It will all be tax-free when the child receives it at 18. That will make a genuine difference to children at 18, particularly regarding housing, training, mobility and other issues. Amendment No. 16 is straightforward. It discriminates in favour of the disabled and provides a vehicle that all families can use. It is simple and effective, and I commend it to the House.

I accept that new clause 1 is more controversial, but it is even more important. I shall explain what it does and why it is right, before looking at potential objections. Very simply, it allows a family with a disabled child to dip into the fund before the child reaches the age of 18. However, it sets out clearly—my thanks to the Clerks, who helped me to draft it—that that can be done only for certain purposes. It explains that the Inland Revenue must be informed by the account provider when it is dipped into, and specifies that the child must be consulted whenever possible. The purposes for which people can dip into the fund are set out in the new clause, and include

"the purchase or hire of equipment . . . payment for nursing, night or child care . . . payment for respite care or temporary residential care; and . . . payment for specialist medical or palliative service".

Before I try to justify those payments individually, I shall explain the general principle of why it is right and a good idea to allow families with disabled children to dip into their—enlarged, I hope—child trust funds. Disabled children bring massive extra costs to their families. The Barnado's report "Still missing out?" found that on average it cost more than three times as much to bring up a disabled child as an able-bodied child. Families with disabled children are frequently in crisis. Mencap, in its excellent report "Breaking Point", found that eight out of 10 families with disabled children had reached the point where they were finding it extremely difficult to go on. When that happens, the alternative to the child being looked after at home is for it to go into care. We should try to do everything that we can to help families to look after those children at home. Families know best how to spend money on their children. As I said, nine out of 10 disabled children are looked after at home.

Hilton Dawson (Labour, Lancaster and Wyre)

I am sympathetic to the hon. Gentleman's purposes. One benefit of child trust funds is that they will reinforce young adults' sense of autonomy and responsibility at 18. Does he think that there is a danger, if the new clause applies to a broad range of children with disabilities, that their right to autonomy and responsibility will be infringed? Should that money not be theirs, rather than their families'?

David Cameron (Conservative, Witney)

The hon. Gentleman intervened on me once or twice in Committee, and has some good points to make. In response to his specific objection, families should not access the money initially provided by the Government and the interest that it accrues. However, I am trying to come up with something that will help families with disabled children. We should allow them to put more money in and take it out for specific purposes. On the whole, parents want to do what is best for their children, and parents who in many cases spend 24 hours a day looking after disabled children will not raid child trust funds, robbing their children of an opportunity to have that money at 18. They will use it as a safety valve, putting a lot of money in I hope, but occasionally taking it out when they are under huge pressure and there are things that they genuinely need, as I shall explain.

On a related matter, the support that families receive from the national health service and social services is rightly statutory support, mostly unrelated to the means to pay. It is a huge help, but all families with disabled children would agree that it is never enough, and is never going to be. I shall try to explain why. Some services are provided free at the point of use, including most nursing care, most equipment and all medical interventions. Worthwhile as those services are, the family will always want more. If they are looking after a disabled child 24 hours a day, they will get some help from social services, but there will always be times when they find it hard to cope and would like some more. My modest amendments provide one vehicle for families to access that extra help.

The disabled facilities grant is used to pay for modifications to the home such as installing a stair lift or a bath hoist, or changing its configuration to look after a disabled child. Such benefits tend to be means-tested. Families on modest incomes have to pay for such services, but if there was extra money in the child trust fund, they could access it for things for which they are currently means-tested. My proposal would help to provide services that are not means-tested but are by their nature limited, and also services that are means-tested and must be paid for even by those with relatively modest incomes.

Some say that health and social services departments could do all this, but provision for families with disabled children is patchy and likely to remain so. According to its excellent report, the Audit Commission

"found a lottery of provision. The services that disabled children, young people and their families are offered depend largely on where they live and how hard their parents are able to push."

The situation is unlikely to change overnight, and in many respects it may get worse before it gets better. More disabled children are surviving birth and more are living longer, thankfully, but the things that must be done to look after them, and the costs of that, are increasing.

Even if the situation did change overnight—even if Camelot suddenly arrived—provision would never keep up with demand, because families and individuals always want more. Even if a miracle occurred and every service needed by a disabled child was available, would it not still be better sometimes for parents to have control over the way in which services are provided?

My new clause refers to

"the purchase or hire of equipment".

Although the NHS provides most of the equipment, more may sometimes be needed. The child might spend one or two nights with a parent or grandparent, and on such occasions it would be useful to have an extra wheelchair or standing frame, but the NHS is unlikely to provide two. Then there is

"nursing, night or child care".

In most cases, social services departments struggle to provide the care that is needed, but people will always want more. Kensington social services are very generous to us: three nights a week a fantastic nurse is with us between 7.30 pm and 7.30 the following morning. Nevertheless, to sustain my life in this place and do my work, I must dip into my pocket and buy a bit more care. At night my child is often awake, and may have epileptic seizures. Three nights a week are not enough, so I have to buy more. The same will apply to many parents with disabled children.

Those in the disability sector tell me that "respite" is not a very politically correct word; we have to talk about "short breaks". Short breaks are essential to help families look after their children while keeping up the good work that they do, but the short breaks provided by social services are unlikely ever to be enough for all families in all circumstances. On occasion, people will need more.

In referring to

"specialist medical or palliative service"

I do not want to trespass on new clause 2, but, especially in the case of severely disabled children, an essential operation or form of care may not be available in this country. We often read in the newspapers of families having to go to America to secure an operation that will be very expensive, and trying to raise funds in their communities. What I propose would make that more straightforward.

How have charities responded to new clause 1? In general they have responded positively, but I will deal with some of the objections. Macintyre Care wrote to me

"Your specific points are well made and will improve the Bill, if taken up".

Contact a Family wrote:

"We agree that the proposals will offer significant advantages to some parents."

It said that life-threatening illnesses

"and the many others which may lead to early death are the main reason that we would support access to the Child Trust Funds prior to age 18."

The Chiltern Centre for Disabled Children, in the constituency of my hon. Friend the Member for Henley (Mr. Johnson), wrote:

"We fully endorse the changes proposed—as you can imagine, we could not be more aware of the additional cost burden on these families, and the difficulty they have in finding and funding the equipment and services they need."

As for the objections, there are three. The first two come from Mencap, Barnardo's and the Disability Rights Commission. They are concerned about the "early draw-down" of money. They say:

"we are concerned that any flexibilities within access to (or payments into) the Child Trust Fund for disabled children should not result in young disabled people receiving a much reduced sum at age 18 because of early withdrawals."

The second point is, effectively, the one made by the hon. Member for Northavon (Mr. Webb) that social services departments and the NHS might be encouraged to do less if they thought that families would do more.

I discussed the third objection with the Minister this morning. It goes something like this: "If you want a trust fund for disabled children that you can dip into, do not use the child trust funds. There are existing trust funds that can be set up for children that would provide many of the same tax advantages." To argue that there are other trust funds out there, and financial vehicles for children, is really to argue against the whole concept of the Bill. More to the point, the great thing about the child trust funds is that they will be set up for all children. The other funds are extremely complicated. The beauty of my proposal is that because every child will have a fund, my modest amendments in respect of disabled children will provide the ideal vehicle for the investment of more money, while also providing a safety valve to allow some money out.

Michael Weir (Scottish National Party, Angus)

Does not the structure of the child trust funds pose a slight danger? In Committee, we heard much about why they should be equity-based. Is an equity-based fund the right vehicle for money that can be put in and taken out at regular or irregular intervals? The argument about disabled children is sensible, but should there not be a more hybrid fund to allow such withdrawals?

David Cameron (Conservative, Witney)

I understand that child trust funds are relatively flexible, and can contain cash, equities or bonds. Unless the relevant amendment was won in Committee, which I do not think it was, I believe that all contributions to the funds must be in cash, but can then be used for different purposes.

I am not suggesting that families of disabled children should dive into the funds on a weekly basis. I see them as a safety valve. When those families are close to breaking point—when they really need extra help because what they are getting from social services and the NHS is not enough—the funds will be there. I hope that they will be able to gain access to cash, but if necessary they can sell shares. The shares would attract no capital gains tax, and the dividend income would attract no income tax.

It has been suggested that allowing families to dip into the funds might cause disabled children to receive a smaller trust at 18. There are two answers to that. As I think that I said earlier, I am not suggesting that families should be able to spend the initial Government contribution and the interest accruing on it. I am sure that we could protect that in regulations. I think that the objection misses the point. No two children are likely to receive the same amount; in fact, disabled children are likely to have more because families, communities and friends will contribute more. I believe that parents will behave responsibly, and will only dip in and spend the money when they really have to. Indeed, they will only be able to do that if there is more money in the fund because people have contributed. As I said, my change would tailor child trust funds to the needs of disabled children and their families.

The final objection is that my proposals would encourage local authorities and the NHS to do less and that they would turn round to families with disabled children and say, "Sorry, you cannot have the services because you have got this lovely child trust fund so we won't give you night care or respite care and you can pay for your own equipment." I do not believe that that would happen because social services departments and the NHS have statutory responsibilities. Parents will always want more and child trust funds provide them with the means to get some more. On means-tested services, a child's wealth should clearly never count in a means test—I believe that that is the case—and only the parents' means should be examined. It would be better if measures such as the disabilities facilities grant were not means-tested at all.

Finally, the Financial Secretary made one other point when we discussed the matter outside this House: if families with disabled children were allowed to dip in to the child trust fund, would it put up the cost of administering the fund and would that make life difficult? I have considered that point and do not believe that it is a real objection. People will dip in only if more money has been put into the fund for them to dip in to. If more money were put into the fund, the charges would probably be sustainable because there would be more money in the fund from which to draw a percentage administrative charge.

The more I examine the amendments that I discussed on Second Reading and moved in Committee, the more I think that they have great merit. They have the beauty of simplicity: here is something that we can do that will help families with disabled children to build up a bigger baby bond for their disabled children, who will have great needs throughout their lives. When the need is there—in extremis and as a safety valve—parents should be able to dip in to the fund to make a real difference to the life of their child. I hope that the Financial Secretary will go on being as generous as she has been in entertaining these proposals and examining how we can implement them through regulations or in other ways. This is a real chance to do something positive for families with disabled children, and I am delighted to commend new clause 1 and amendments Nos. 15 and 16 to the House.

Michael Weir (Scottish National Party, Angus)

I had some reservations when the hon. Member for Witney (Mr. Cameron) first raised this question on Second Reading. Like him, I have a disabled child, although not one who will qualify for a baby bond. I have been largely persuaded by his argument today, which has a lot of merit.

One problem will arise as disabled children move towards the age of 18. As we get older, we worry what will happen to our children once we are not about—disabled children survive to an older age than they might have done in earlier times. Some thought must be given to what happens to baby bonds once disabled children turn 18. Many children will never be in a position to manage money on their own. We must examine how we can address the needs of disabled children after they are 18, especially when their parents are no longer able to cope or are no longer around.

The hon. Gentleman said that new clause 1 was more controversial than amendment No. 16, but he has persuaded me of his argument. As he rightly says, throughout life disabled children often need special care or special items. Whether we like it or not, NHS provision of specific items is to some extent a postcode lottery. It is also possible for the NHS and the parent to disagree about what the child requires. The parent will often be able to get equipment or care only if they can fund it or if they can persuade a local charity to help. Up and down the country, many local charities specifically deal with children in such circumstances, but many parents would rather not go through that process. New clause 1 has a lot of merit, and I am prepared to support it.

As I mentioned in my intervention, my one worry about new clause 1 is the structure of child trust funds. We debated the issue in Committee, where I argued that child trust funds should permit an account similar to that offered by a building society. The Financial Secretary gave a good explanation of why that is not possible, and at great length discussed with the hon. Member for Yeovil (Mr. Laws) her preference for an equity-based investment because of its growth over an 18-year period. Our discussion of the economy went back as far as William of Orange, which was before the Union, so that does not apply to Scotland. The point is that over any given 18-year period, growth is better in an equity-based investment than in other types of investment.

My concern is that if new clause 2 permits regular—or perhaps irregular—withdrawals, we should be careful to ensure that regulations allow an investment that is suited to such regular withdrawals. According to the Financial Secretary's presentation of child trust funds, most of the companies or societies that will design them view them as long-term, 18-year investments with what she called "lifestyling" towards the end of the term. If new clause 2 is added to the Bill, different criteria will be required for disabled children. We must ensure that a child trust fund has, as far as we can determine it, potential for reasonable growth in the short-term, which obviously depends on many other factors, but can also be dipped in to, as the hon. Member for Witney put it, from time to time. It is to be hoped that dipping would not occur regularly, but it must be possible. I would hate trust funds to be set up for disabled children that lock in the money for 18 years to get reasonable returns but prevent the very objective that the hon. Gentleman seeks to achieve.

I am inclined to support new clause 1, but I say to the Financial Secretary that we must carefully examine the regulations to allow a different type of child trust fund for disabled children. New clause 1 states that the Inland Revenue and the account provider must be informed that the section would apply to them, but perhaps we should go further and ensure that before advice is given on the type of trust fund the objective of the fund is made clear and an appropriate vehicle is available.

George Osborne (Conservative, Tatton)

I have little to add to what my hon. Friend the Member for Witney said so eloquently about new clause 1 and amendment No. 16, which appear in my name and those of my right hon. and hon. Friends but are wholly inspired by him. Indeed, readers of his weekly internet column in The Guardian will know that he hopes that the provision will be called "Cameron's law" when it is enacted. That would imitate what happens in the United States Congress, where significant legislation is named after the legislators who introduced it. We are not quite there yet, but I hope that my remarks will help him.

My hon. Friend reminds us that some hon. Members have a direct interest in the Bill. Like him, the Financial Secretary and I have children under one year old who will benefit from child trust funds. He speaks from personal experience of the emotional and financial strain on families with severely disabled children. He is a personal friend as well as an hon. Friend of mine, and I can attest to the fact that he and his wife Sam are extremely loving and caring parents for their son, Ivan. They have been put under enormous pressure and strain and they have coped with it admirably. He is a personal testament to the unsung heroes in many families who deal with very disabled children.

My hon. Friend reminded us of Mencap's "Breaking Point" campaign, which was very effective. It found that eight out of 10 parents with disabled children are close to breaking point. Indeed, today, in Committee and on Second Reading he has pointed to the gaps in society's provision of respite care—I suppose that I should use the term "short breaks" instead—equipment and support for parents with disabled children, and to the challenges facing severely disabled children who try to lead an independent life once they reach 18.

My hon. Friend's amendments seek to help. They would, as he says, allow families to build up a pot of money to help children achieve as independent a life as possible, and to provide a home for the money given by charities, relatives and other family members. They would also allow for early withdrawal, to enable the provision of specialist equipment and of care in special circumstances. We had several debates in Committee on whether early withdrawal from the child trust fund should be allowed in general terms. Here, of course, he is talking about a specific case and about specific needs that the child trust fund could meet.

I shall anticipate some of the objections that might be raised, the first of which is that such a provision could be open to abuse: that it could be used as some form of tax avoidance scheme. Frankly, that is a highly unlikely, fairly low-risk possibility. In any case, there are limited tax advantages to child trust funds. There are many other tax loopholes that the Inland Revenue could spend its time investigating. I cannot see that such a provision would be widely abused.

The second objection that might be levelled is that parents would withdraw the money and spend it on themselves: that they would abuse the rights that we would be giving them. Again, that is highly unlikely. We are talking about parents who have taken it upon themselves to look after their children, rather than throwing in the towel and saying that they cannot cope. Moreover, they are the kind of parents who will have built up a significant child trust fund, so they are unlikely to abuse it at a later point. However, we would be willing to look at restrictions that the Minister might want to place on the number of early withdrawals, or on the proportion of the fund that could be withdrawn at a particular time. Indeed, as my hon. Friend said, we could consider protection of the initial Government contribution, so that it could not be withdrawn early.

The third objection that might be raised is that it would be difficult to police how the money is being used, even if it is being spent on the child. My hon. Friend's new clause sets out some of the uses to which that money could be put, but if the Minister feels that such a provision would be impossible to police I suggest that she simply trust that the parents would make good use of the money in such circumstances. In the light of that and of the restrictions to which I have referred, perhaps that would constitute a sufficient safeguard.

I remind the House that my hon. Friend received generous support from other Members when we discussed this issue in Committee, including from the hon. Member for Yeovil (Mr. Laws), who spoke for the Liberal Democrats, and from the hon. Member for Angus (Mr. Weir), who has just spoken eloquently in support of what my hon. Friend seeks to achieve. Indeed, my hon. Friend also enjoyed the support of the hon. Member for Lancaster and Wyre (Mr. Dawson). He was the most vocal Labour Member in Committee—two contributed regularly; all the others were silent—and he made a number of good contributions, including in respect of these new clauses and amendments. He said that my hon. Friend's

"proposal fits with the future model of social care that the Government want: it fits with a model in which more users of services are given the ability to determine their own services through direct payments."

He continued:

"There was some agitation on the Labour Benches because Members were genuinely taken by the strength of the hon. Gentleman's argument and the good idea that he has expressed. I hope that the Minister will be able to respond positively to the suggestion that has been made."

Of course, the Minister did just that, and my hon. Friend and I were slightly taken aback by the enthusiastic support that she offered. We had always been led to believe that one achieves absolutely zero in Committee when in opposition, so we were absolutely delighted when she said that she found his amendments

"forceful, interesting and creative. He highlights an opportunity that could be provided by the child trust fund and employs the sort of creativity that I would like to see applied to the fund as it develops over the coming years."

She was

"struck by the force of his arguments",

and said:

"I would like to go away and consider the proposal, and to see whether we could work up a scheme to deal with such a category of person. I am advised that we could do that through regulation . . . if it is possible . . . I would introduce a further regulation, perhaps a few weeks later, to deal with the issue."—[Official Report, Standing Committee A, 15 January 2004; c. 167–172.]

So the Minister was quite specific, and I know that, privately, she is very sympathetic to my hon. Friend's suggestion. Indeed, she has gone to considerable lengths to look at the technicalities and practicalities involved. I suspect that some of her officials in the Inland Revenue are presenting her with all manner of practical problems and objections. I urge her to override them, to exercise her ministerial discretion and to get the job done.

New clause 2 deals with the tragic cases of children with terminal illnesses. It would allow the parents—the shorthand term for a "responsible person", which is the phrase used throughout the Bill—of a terminally ill child to withdraw anything up to the full amount from the child trust fund. In such circumstances, parents would require a certificate from a consultant, attesting that the child had a terminal illness. That consultant would have to be practising in the NHS, and be

"qualified by speciality to make a professional diagnosis and prognosis regarding the child's illness".

My attempted definition of terminal illness—arriving at it was not a particularly pleasant way to spend yesterday afternoon—is:

"an illness which, in the opinion of the consulting physician, is inevitably progressive, the effects of which cannot be reversed by treatment (although treatment may be successful in relieving symptoms temporarily) and which will be likely to result in the child's death before his eighteenth birthday."

The purpose of the new clause will be obvious to the House. The funds in the child trust fund of a terminally ill child could be used to bring a little happiness and relief in a desperate situation. They could be used, for example, to pay for a special holiday or treat, or for palliative treatment or special care if, for some reason, the NHS was not providing it. Everyone will doubtless agree that it would be a cruel situation if a family who could not afford such things, except through the money in the child trust fund, could access that money only on the death of the child. There would rightly be great public concern at such a situation, and one can imagine cases grabbing the public's attention in a fairly lurid way. That would undermine much of the good in the child trust fund proposal.

The Government did look at this issue, but according to the White Paper they decided that they could not tackle it—for what I would regard as fairly bureaucratic reasons. The White Paper states:

"Where a child develops a terminal illness, parents may want access to CTF funds"—

child trust fund funds—

"to pay for medical treatment or a special holiday. Although entirely understandable, particularly where parents have made contributions to the fund, the Government is concerned that this would be very difficult to administer fairly and with sensitivity.

It is also possible that some people would make fraudulent claims to access the money in the CTF account.

In view of the difficulties and risks involved, the Government does not intend to allow access to CTF accounts in these circumstances."

I suggest to the Minister that the prospect of fraud is extremely limited, not least because, if she adopted something like the safeguards set out in my new clause, a certificate from a consulting physician would be required, which would also help to provide sensitive and fair administration of the system. The alternative to the occasional case of fraud is far worse: a dying child who is deprived of the use of their money because of some pedantic concern.

In Committee, the Minister was pretty positive on this issue; indeed, she was pretty positive about virtually everything that we said in Committee. She said that she was

"struck by the arguments about terminal illness, which the Committee has already debated, and I shall consider whether parents of terminally ill children should have . . . access to the fund."—[Official Report, Standing Committee A, 15 January 2004; c. 172.]

I know that she is sympathetic, but I would be grateful for further assurance that she is prepared to move forward on the issue and perhaps introduce regulations this year. We want to avoid the parents of a dying child being unable to access the pot of money or spend it to good purpose while the child is alive, and having to wait for the child to die before they can access the funds.

David Laws (Liberal Democrat, Yeovil)

We have had a good airing of the issues surrounding new clauses 1 and 2 and their associated amendments today, and we discussed the same issues in Committee, so I can keep my comments relatively short. The hon. Member for Tatton (Mr. Osborne) highlighted the two issues in the provisions: first, early access for parents of children with terminal illness; and secondly, the circumstances described by the hon. Member for Witney (Mr. Cameron)—early withdrawal and the terms under which parents or responsible adults of disabled children can put moneys into the child trust fund accounts.

In common with the hon. Member for Tatton, I hope that the Minister will confirm today that the Government will introduce regulations to deal with the problems facing parents of terminally ill children. I understand the Government's earlier comments and their concerns about the difficulty of implementing a particular scheme, but the hon. Member for Tatton has dealt with the point in stressing that we are talking about only a relatively small number of children. His new clause 2 is very good—something of a Rolls-Royce of its type, with excellent drafting on the involvement of medical practitioners. It contrasts powerfully, I am afraid, with my own amendment No. 58, which looks merely at the reassignment of child trust fund accounts for this particular category of children. I happily support new clause 2, and I hope that no Division will be necessary. I know that the Minister spoke with understanding and sympathy in Committee and I hope that she can give us the undertakings that we seek on that matter today.

The Minister has more difficult issues to deal with in respect of new clause 1 and the associated amendments tabled by the hon. Member for Witney. I set out our views in Committee and I have considerable sympathy and understanding for the hon. Gentleman and, indeed, all individuals who have care of disabled children. That is why I have an instinctive sympathy with his new clause. I also have sympathy with it in speaking for a political party that is sceptical about the whole value of the child trust fund accounts and believes, as the hon. Member for Witney put it, in giving more power to parents rather than to the state.

As I said in Committee, I wonder whether new clause 1 cuts away at the basis for a child trust fund account, which is essentially to lock away a pot of money from birth to the age of 18 and prevent its use even where the parent might decide that the money could be used more effectively during the childhood period than at the age of 18. One could also imagine urgent circumstances in which parents whose children are not disabled might wish to draw early on the child trust fund account. That applies not just in the tragic and extreme case of terminally ill children—other aspects of deprivation could lead a parent to decide that the moneys could be better utilised rather than being tied up in the child trust fund account up to the age of 18. The key issue is whether the parent might want to put moneys into the fund account in the first place or, as mentioned by the hon. Member for Witney, choose to use a different account to accumulate funds—a more accessible account, but with similar tax advantages.

I hope that the hon. Member for Witney understands that I have complete sympathy with the purpose of his new clause and that I hope that the Minister will give ground on it, not least because it underlines some of the weaknesses of the child trust fund account in denying access to people and children who could use some of the moneys in a far more effective way.

Ruth Kelly (Labour, Bolton West)

I am sure that the whole House would wish to congratulate the hon. Member for Witney (Mr. Cameron) on his new arrival. We should also pay tribute to him for the way in which he spoke about his first son and how he brought his personal experience to bear on circumstances in which many parents find themselves. I am sure that, in listening to his arguments, we all feel that he made a persuasive and powerful case on their behalf.

The hon. Member for Witney argued that parents of disabled children should be allowed to access child trust funds before the child reaches the age of 18—in the best interests of the child. He also argued that the annual limit on contributions should be higher than the currently proposed £1,200 limit. I have given much thought to his proposal and I understand his arguments. I shall not repeat the arguments in favour, because the whole House has heard them set out very persuasively and they will be available for all to read in Hansard. People who follow the events of the House can read them there.

I am not going to argue that support for disabled children has increased markedly since 1997—in financial and non-financial aspects—even though it has. The hon. Gentleman brings a different argument to bear, which has wider implications than the provision that the Government have made on this matter. However, I want to expose the House to some of the Government's thinking on the subject.

The first major question that we have to answer is whether the child trust fund is the most appropriate vehicle for well-wishers, friends and the local community to invest money on behalf of a child. Is there an argument for the £1,200 limit to increase so that well-wishers and relatives can add further contributions beyond that already proposed? Having looked into those questions, I concluded that there is no real tax advantage to be gained, because contributions to children's savings accounts by anyone other than a child's parents are not affected by the income tax settlements legislation. In other words, the child can incur interest on an account in excess of £100 a year if the gift of that money, or that endowment, is provided by relatives and friends rather than the child's parents.

If the purpose of increasing the limit is for others to contribute to the child trust fund, there is no inherent reason why the child trust fund route is appropriate because the tax advantages are already in the system. It would be possible to open an instant access account for well-wishers and others to invest on behalf of the child. Indeed, an endowment of £65,000 could be built up without triggering the income tax threshold of the child, so a fairly substantial sum could be built up by well-wishers and relatives in that way. It would be possible for disabled children to have twin accounts—a child trust fund account with the initial Government endowment building up so that the child has an asset at the age of 18, and a parallel account built up so that parents can have instant access to the money whenever they judge it the most appropriate moment to use it.

Given that there are other vehicles that also have tax advantages, should the aims of the child trust fund be skewed or distorted to the potentially very good end of giving the parents of disabled children access to the account? I have considered at least three questions that have a bearing on this matter. First, will disabled children feel disadvantaged if parents decide to access the account before their children reach 18 years of age? This question is relevant to the comment of my hon. Friend the Member for Lancaster and Wyre (Mr. Dawson), who said that children at 18 need to develop autonomy and responsibility, and that they should have a financial asset to back them up.

The question is also relevant to the Barnardo's argument, raised by the hon. Member for Witney, that disabled children aged 18 face greater transitional costs. Those costs need to be met, and parental access to the account before children reached 18 could raise questions about whether the account had been run down. Would children feel disadvantaged if parents were able to access the accounts? The hon. Gentleman argues that more money might be invested in the child trust fund to start with, but that is open to debate.

Secondly, would the growth of the initial endowment be diminished by possible early or frequent withdrawals? If that happened, the endowment built up over time would be lower.Thirdly, would stakeholder child trust fund accounts still be the appropriate vehicle for disabled children? That question was touched on by the hon. Member for Angus (Mr. Weir). Stakeholder accounts are primarily equity based, and lifestyling requirements mean that they move from riskier assets in a child's early years to safer ones later on. Would those factors be appropriate in an account with the potential for early access? I think that the answer is probably not, but I can reassure the hon. Gentleman that it would be possible for parents of disabled children to choose a non-stakeholder, cash-based account instead.

Michael Weir (Scottish National Party, Angus)

A parent may want to access an account fairly quickly. Stakeholder accounts are based on equities and depend on the state of the market at any given time, so it might not be feasible or reasonable to access them. Would it not make more sense to have the money in a more easily accessed account from the beginning?

Ruth Kelly (Labour, Bolton West)

Of course, parents could choose a cash-based account at the outset, but there is nothing to stop them transferring the fund from an equity-based account to a cash-based account. The regulations make it clear that no exit penalty would be attracted, and I would like to think that the process would cause little delay. I hope that the hon. Gentleman is reassured on that point.

The next set of questions has to do with proportionality. Would the administrative burden on providers and the Inland Revenue be proportionate to the policy objective, given that other vehicles exist for achieving that objective? The initial proposal from the hon. Member for Witney was that receipts could be provided by the families of disabled children. They would be checked, and it would be for the Inland Revenue to determine whether it would be in the best interests of the child to part with the money.

The proposal would involve a significant administrative burden. Moreover, it is at least arguable that that burden would not be proportionate to the policy objective. However, I have undertaken to consider whether there might be less labour-intensive ways to achieve the same goals, and whether restrictions or safeguards could be built in, along the lines suggested by the hon. Member for Tatton (Mr. Osborne). Such possibilities raise different sets of questions.

Finally, what is the constituency of support for this sort of change? Is there a demand—among disabled people, the parents of disabled children and disability groups—for the proposal? In Committee, I promised to consult disability groups on the matter. The hon. Member for Witney read some of the responses that he has received from disability groups. The response has been somewhat mixed, and it is not clear that the proposal has a strong basis of support.However, I undertake to consider the arguments further and to have a more in-depth consultation with disability groups. If a consensus emerges for the changes that have been proposed, I shall undertake to consider them seriously to see whether a sensible change can be implemented that would satisfy all concerned.

I am afraid that I cannot give the hon. Member for Witney a greater assurance than that at this stage, but I certainly agree to meet him over the coming weeks. I want to continue to engage him in the work on taking this agenda forward. I hope that we can persuade him of the rightness of the changes that we propose to make.

David Ruffley (Conservative, Bury St Edmunds)

Will the Minister clarify the resource implications for the Exchequer if the amendments were to be accepted in due course? She has not touched on that matter so far. Secondly, new clause 2 relates to the terminally ill —

Ruth Kelly (Labour, Bolton West)

indicated assent.

David Ruffley (Conservative, Bury St Edmunds)

The Minister is nodding, so I am sure that she is about to deal with the question that I want to ask. However, I shall put my question on the record anyway. It seems that the Inland Revenue has concerns about when discretion might be exercised in cases where terminally ill children with only 12 months to live, as certified by a medical practitioner, need to draw money from the child trust fund. My understanding is that life insurance policies already pay out for adults in similar circumstances, where medical certification is available. Will the Minister clarify that matter? The Inland Revenue seems to be talking about a problem already covered, for adults, by existing products.

Ruth Kelly (Labour, Bolton West)

It is not clear that there would be significant resource implications for the Exchequer from the system offering tax advantages in addition to what is already available, but the Inland Revenue would face a significant additional administrative burden, in that it would have to set up the system and run it. The burden on providers would also be greater. We do not know how serious that administrative burden is likely to be, and I am not able to tell the House today what our best estimate is. However, I pledge to keep the hon. Gentleman informed of progress on this matter. I hope that we can work towards a sensible system, as he desires.

On terminal illness, I am persuaded of the case for change for the parents of terminally ill children. However, I cannot give hon. Members the assurance that they seek in respect of the exact details of such a scheme. I have considered the proposal put forward by the hon. Member for Tatton, but at first sight there seem to be some difficulties with it. A certificate from an NHS doctor may be the best way to tackle the matter, but less burdensome ways to achieve the same goal may be found. Again, I pledge that we will continue to examine the matter thoroughly. If there is a reasonable way to achieve the goal, we will introduce regulations to that effect.

I hope that I have given the House sufficient guarantees that we are looking at these matters seriously. If I think that we can deal with them in a proportionate and appropriate way, we will do so.

David Cameron (Conservative, Witney)

I am grateful for the Minister's undertaking to look at these matters carefully and to see what progress can be made. She is right to listen to the lobby groups, and I am listening to them too. Inevitably, they focus on the statutory services provided by social services and the NHS. I shall ask them to talk as much as they can to their Members of Parliament, with a view to enlightening them and ordinary members of the public about the suggestions that I have made.

The Minister asked whether the child trust fund was the right vehicle. I think that it is because, like Everest, it is there. That is the main point: all children will have the fund. Other accounts may be worth while, but not everyone will have them or know how to get them. The child trust funds will be available for everyone, so other factors become somewhat secondary. I am keen to work with the Minister to get my proposals on to the statute book, as I think that would be a good thing. In the meantime, I am happy to withdraw new clause 1. I beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn.

New Clause 3 — Opening by Responsible Person Without Voucher

George Osborne (Conservative, Tatton)

I beg to move, That the clause be read a Second time.

Sylvia Heal (Deputy Speaker, Halesowen and Rowley Regis)

With this it will be convenient to discuss the following: New clause 8—Uprating of Inland Revenue contributions in line with inflation—

'(1) The amount of Inland Revenue contributions under sections 8 to 10 other than—

(a) original contributions, or

(b) initial contributions the amount of which is determined in accordance with the provisions of section [determination of initial contributions for children born before 1st April 2005],

shall be determined in accordance with the provisions of this section.

(2) The amount of a contribution to which this section applies shall be increased from the previous applicable amount with effect from 1st April in every calendar year by such amount as the Treasury determines is required to maintain the value of the amount in real terms.'.

New clause 9—Determination of initial contributions for children born before 1st April 2005—

'(1) This section applies for the purpose of determining the amount of initial contributions for eligible children born during the period beginning with 1st September 2002 and ending with 31st March 2005.

(2) The amount of the initial contribution for eligible children born during the period beginning with 1st September 2004 and ending with 31st March 2005 shall be 107 per cent. of the amount prescribed by regulations under section 8(1A).

(3) The amount of the initial contribution for eligible children born during the period beginning with 1st September 2003 and ending with 31st August 2004 shall be 107 per cent. of the amount determined in accordance with the provisions of subsection (2).

(4) The amount of the initial contribution for eligible children born during the period beginning with 1st September 2002 and ending with 31st August 2003 shall be 107 per cent. of the amount determined in accordance with the provisions of subsection (3).'.

Amendment No. 1, in page 1, line 13 [Clause 2], leave out '2002' and insert '1988'.

Amendment No. 2, in page 2, line 26 [Clause 2], leave out subsection (7).

Amendment No. 8, in page 3, line 29 [Clause 5], at end insert

'and was born after 31st August 2002'.

Amendment No. 62, in page 4, line 31 [Clause 8], after 'regulations', insert

'under subsection (1A) or determined in accordance with the provisions of sections [uprating of Inland Revenue contributions in line with inflation] or [determination of initial contributions for children born before 1st April 2005]'.

Amendment No. 11, in page 4, line 34 [Clause 8], at end insert—

'(1A) Regulations under subsection (1) must prescribe an initial contribution of nil in respect of any child trust fund held by a child born on or before 31st August 2002.'.

Amendment No. 63, in page 4, line 34 [Clause 8], at end insert—

'(1A) Regulations under this subsection shall prescribe the amount of the initial contribution in respect of children born during the period beginning with 1st April 2005 and ending with 31st March 2006 ("the original contribution").'.

Amendment No. 64, in page 5 [Clause 9], leave out line 3 and insert

'determined in accordance with subsection (2A) or with the provisions of section [uprating of Inland Revenue contributions in line with inflation]'.

Amendment No. 12, in page 5, line 3 [Clause 9], at end insert—

'(2A) Regulations under subsection (2) may prescribe a supplementary contribution of nil or a lower rate of supplementary contribution in respect of any child trust fund held by a child born on or before 31st August 2002.'.

Amendment No. 65, in page 5, line 3 [Clause 9], at end insert—

'(2A) The original contribution payable under subsection (2) shall be twice the amount prescribed by regulations under section 8(1A) or determined in accordance with the provisions of section [determination of initial contributions for children born before 1st April 2005].'.

Amendment No. 66, in page 6, line 9 [Clause 10], leave out from 'Revenue' to first 'of' in line 10.

Amendment No. 67, in page 6, line 14 [Clause 10], leave out from 'by' to end of line and insert

'regulations under subsection (2) or determined in accordance with the provisions of section [uprating of Inland Revenue contributions in line with inflation]'.

Amendment No. 13, in page 6, line 14 [Clause 10], at end insert—

'(1A) Regulations under subsection (1) may prescribe a further contribution of nil in respect of any child trust fund held by a child born on or before 31st August 2002.'.

Amendment No. 68, in page 6, line 15 [Clause 10], leave out subsection (2) and insert—

'(2) Regulations under this subsection shall prescribe the initial amounts of contributions payable under subsection (1), which shall be expressed as amounts payable to children reaching a specified age during any period beginning with 1st April and ending with 31st March of the following calendar year ("the original contributions").'.

George Osborne (Conservative, Tatton)

I thank the Minister for her remarks about new clause 1 and her commitment to looking again at the terminal illness clause. I join my hon. Friend the Member for Witney (Mr. Cameron) in his remarks about considering the scheme for parents with disabled children.

New clauses 3, 8 and 9 and the consequential amendments would allow the responsible person to open a child trust fund for a child born before 1 September 2002 but without the initial Government contribution or any top-up at age seven—so my proposal should not add significantly to the burden on the taxpayer; I would not have secured the support of my right hon. and hon. Friends in the Treasury team otherwise.

Parents could set up a child trust fund account for an older child for savings of up to £1,200 a year, with a tax-free sum for the child when he or she turns 18. Amendments Nos. 8, 11, 12 and 13 make it clear that there would not be a Government contribution. In Committee, I restricted that arrangement to children born since 1992, who are not now teenagers. That arrangement drew some criticism—particularly from the hon. Member for Hastings and Rye (Mr. Foster), who commented:

"I support the principles that the hon. Member for Tatton displays in wishing to extend the benefits of this excellent scheme, which I wholly support. However, he is too modest in seeking . . . to extend it only to those born after 1992. If we want to benefit all children, we should extend it to all children. For that reason, I shall not support an amendment that simply creates a divide different from that which already exists."—[Official Report, Standing Committee A, 6 January 2004; c. 25.]

I was happy to heed the hon. Gentleman, so the proposed amendments broaden the scope of the scheme, opening it up to all children born after 1988. By the time the scheme is introduced, it will be open to all children under the age of 18. The hon. Member for Hastings and Rye is not in his place but I look forward to his support when he reads my comments in Hansard tomorrow.

The benefits of extending trust funds to all children are obvious. The Government want to encourage children to save, and parents to save for their children, which is wholly admirable—but why restrict that ambition to newborn children? Why not give parents the opportunity—not force them—to open trust funds for older children who were not lucky enough to be born when the scheme was up and running? That would help people such as the Minister and myself, who will have children who qualify and children who do not. We may find it difficult to explain, when our children reach 18, why one has a child trust fund and another does not.

The Minister and the hon. Member for Yeovil (Mr. Laws) have made the point that other savings vehicles are available, but as my hon. Friend the Member for Witney said, that argument could be deployed against the entire concept of a child trust fund—the beauty of which is their simplicity and the fact that all children could have one. Such funds allow parents to tell their children, "You're all getting the same, except the initial contribution." Parents with older children might be encouraged to save because that would piggyback on the Government's publicity campaign that the Financial Secretary is planning to coincide with the launch of child trust funds. My proposal would also remove the potential disincentive for parents such as myself, who may not want to single out one child for special treatment, and could be discouraged if they have some children who qualify and some who do not.

My proposal has widespread cross-party support, such as that of the Treasury Sub-Committee, whose excellent report concluded:

"We consider that the natural reaction of parents with children born on either side of the cut-off date will be to try to see that they are treated equally. This may mean that those parents with sufficient financial resources will make additional provision for children who do not qualify for a Child Trust Fund account. We believe they would be encouraged to do this if Child Trust Fund accounts, identical in all respects save the absence of a Government endowment, were available for their other children . . . In light of the evidence that the costs of the Treasury of the extra tax relief afforded by Child Trust Funds is negligible, we recommend that consideration be given to extending the availability of Child Trust Fund accounts but without Government endowments, to children before 1 September 2002."

Both Labour Members who spoke on Second Reading also supported my proposal. I must say that as this is Government flagship policy, the Labour Whips did poorly in fielding only two speakers—and half the Labour Members in the Chamber at the moment are Whips.

In Committee, the proposed change was supported by the hon. Member for Dumbarton (Mr. McFall), the Chairman of the Treasury Select Committee, and by the hon. Member for Hastings and Rye—and I have overcome his objection that my amendment was not ambitious enough. The initial objections of the Financial Secretary were difficult to understand—that is a polite way of putting it. They were not made on the grounds of cost because the hon. Lady had already told the Sub-Committee:

"We had to make a costing assumption for the purposes of the Red Book and we came up with the conclusion that the cost of the extra tax relief"—

for the entire scheme—

would be negligible."

The cost of extending the scheme to older children would also be negligible.

The Financial Secretary deployed a curious argument to do with the administrative burdens on financial providers. She said on Second Reading:

"We have looked at that"—

that is, the proposed extension of the scheme—

"extremely carefully, and I am disappointed to tell the House that the administrative burden on providers of allowing all children from previous cohorts to benefit from an identical tax-free vehicle is disproportionate to the benefits that would be offered."

The hon. Member for Hastings and Rye intervened to ask:

"Is that not a problem anyway? As time goes on, greater numbers will apply, so in 18 years' time people would have to deal with that volume of applications in any event."

The Financial Secretary had to concede that the hon. Gentleman was right and that

"a greater number of children will have such accounts over time, but providers have made it quite clear that the scheme needs to be phased in."—[Official Report, 15 December 2003; Vol. 415, c. 1394.]

I do not know which financial providers the Minister had spoken to, but all the financial providers and trade organisation representatives to whom I spoke were in favour of extending child trust funds to elder children.

The Minister's argument on Second Reading was comprehensively knocked down by the chief executive of Children's Mutual, David White, who wrote to all members of Standing Committee A:

"The Minister in her remarks at Second Reading argued that one reason for not extending the Child Trust Fund to ineligible children is that it would impose a burden on providers. We would be happy to work with the Government on how any administrative burden could be overcome, something we believe to be possible."

Thankfully, the Minister listened to the arguments advanced in Committee with the help of some of the more vocal Labour Members, and said:

"Having heard the strength of feeling on the matter, I am perfectly willing to talk to providers to see whether they think that there would be a gap that needed addressing."

She continued:

"I undertake to ask providers whether they believe that such unmet demand exists or is likely to exist so that we can review the situation in the future."—[Official Report, Standing Committee A, 6 January 2004; c. 30.]

The Minister was true to her word. I happened to bump into David White in the Commons about two days later. He said, "Thanks very much for what's going on in Committee, because the Inland Revenue has already been in touch with Children's Mutual, and no doubt others, and is working up a scheme." He confirms those comments in the briefing that his company has provided to all Members for this debate, which says:

"We are delighted that the Government has agreed to consider opening up the Child Trust Fund wrapper to families of children born before September 2002 and look forward to continuing discussions on this development."

I have tabled the new clause and the amendments so that we can discuss these matters now, on Report. I confess that they are much less elegant than the amendments that I tabled in Committee, but I was told that I had to come up with a different device so that we could discuss the same subject on Report. I have come up with a slightly less elegant version of what we did in Committee, but it is really only a device for getting some assurances from the Minister that discussions are ongoing, that she is talking to the providers, and that she is prepared to identify the regulatory changes that are needed, if any. She has indicated that none may be necessary. She may be right about that, but will she give me some specific assurances? That is the reason for all these amendments. If some regulatory changes are required, will she give an undertaking to make them?

David Laws (Liberal Democrat, Yeovil)

I shall not deal with the issues that have just been covered by the hon. Member for Tatton (Mr. Osborne). As we pointed out in Committee, we are not in favour of the Bill or the child trust fund accounts, so we do not seek their extension to any other cohorts of children.

I shall speak to new clauses 8 and 9 and amendments Nos. 63 to 68, which would lay down in a little more detail the basis on which the Inland Revenue contributions will be calculated over time. At present, most of those issues seem to be left entirely to the discretion of the Chancellor and the Treasury, so new clause 8 would index some of the contribution levels to the rate of inflation, while some of the amendments would fix the relationship between particular levels of contribution. For example, amendment No. 65 fixes the supplementary contribution at twice the initial contribution.

I seek clarification from the Financial Secretary on an issue on which I thought we had made some progress in Committee: in essence, how much compensation will be paid by the Treasury because people entitled to child trust fund accounts from 1 September 2002 onwards will not receive the moneys until April 2005? I was expecting to tease the Financial Secretary by indicating that I thought that she would offer compensation at the rate that she anticipated the accounts would yield—that is, the 7 per cent. that the Government said would be yielded over time, which is an 8 per cent. rate of growth minus a 1 per cent. assumed level of charge.

In Committee, to my surprise, the Financial Secretary said:

"The hon. Member for Yeovil queried the assumption of a 7 per cent. nominal rate of growth. I assure him that it 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."

However, she went on to say:

"I intend to make up for 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."—[Official Report, Standing Committee A, 13 January 2004; c. 120.]

As we have finally been given the regulations, we can see that paragraph 7, on page 7, which deals with Government contributions, indicates how they are to be uprated to account for the fact that people will not actually get their hands on the money until April 2005.

Perhaps it is just me—I do not know whether my brain is not working properly today—but those amounts seem lower than I would have expected from the application of a 7 per cent. yield, compared with the amounts that would be expected by children who would otherwise have received them from September 2002 onwards. I had assumed that the Minister would be generous—or, to put it another way, fair—in her calculation of the amounts, but the amounts set out in paragraph 7(ii) on page 7 of the regulations are somewhat mean in the application of the 7 per cent. yield, compared with the amounts that would be received by individuals in their child trust fund accounts.

For example, sub-paragraph (ii) indicates that children born between 6 April 2003 and 5 April 2004 would receive £268. That seems to reflect an uprating factor of roughly 7 per cent., so anyone born during that period will receive a 7 per cent. uprate. However, children born at the beginning of the period, who would not otherwise receive their money until April 2005, could forgo two years of yields at 7 per cent. I have been unable to work out the method of calculation under sub-paragraph (iii), which applies to children born between 6 April 2004 and the day preceding the appointed day—I assume that will be the end of March or the beginning of April 2005. The amount specified to be received by that cohort is only about £256, which seems to be a yield of only 2.5 per cent.

There seems to be a gap between what we might have expected those cohorts to receive, with the full application of the 7 per cent. yield, and the amount that they will actually receive. I seek clarification from the Minister about how those amounts were calculated. Does she consider that the calculation is fair, especially to people born at the beginning of the periods in question? For example, a child born on or just after 6 April 2003 might have expected to receive 7 per cent. compounded for two years. There appears to be a gap between what the Financial Secretary is delivering and the undertaking that was made in Committee, so it would be helpful to have clarification on that point.

Ruth Kelly (Labour, Bolton West)

We have already held a significant debate in Committee about whether siblings should qualify for a look-alike child trust fund without Government contributions. It is a shame, but I have to say that the hon. Member for Tatton (Mr. Osborne) rather misrepresented my position on Second Reading. In fact, I argued that if we allocated accounts to all siblings of children who qualify for a child trust fund account, there would be 10 million shell accounts, which would be an unwarranted burden for providers. They would not welcome that additional burden at this time.

However, I recognised in Committee, as I recognise now, that there could be—indeed, would be—many parents who wanted to open similar accounts for older children and add their own endowment to the fund on a voluntary basis. That is a completely different proposition, with a much reduced impact and burden on providers. I continued to argue in Committee that if there was a demand for such a product, there was no reason why the market should not provide—and, indeed, market—a look-alike product for older siblings when marketing the child trust fund for younger siblings. It would be open to providers to offer a similar account; they could offer a charge cap which matched that on their child trust fund product, or they could offer a lifestyling facility which matched that on the child trust fund. The main difference between the accounts would be their tax treatment.

I argued, however, that the child's income from savings would not be enough to incur tax in most cases. Children have the same personal allowance as adults—currently £4,615—and the parent is taxed only when a gift from a parent produces more than £100 gross income a year. I said that I was sure that the industry would provide a look-alike product without a Government endowment if there were sufficient demand in the marketplace for such a product. However, I did commit to consult providers on whether they thought that there would be a gap in the marketplace if the Government did not step in to offer a product identical to the child trust fund for older siblings.

The Inland Revenue and I have undertaken some informal consultations with those in the industry, which has confirmed that of course, an identical product would make life easier for them. However, they have also said that they would undoubtedly step into the market to provide a look-alike product on the day of the launch and that they would see that as opportunity to market a savings vehicle for older siblings, as well as the child trust fund to younger siblings.

If we were to offer an identical child trust fund product—without the Government endowment, of course—to older siblings, it could not be up and running by 2005, which is the launch date of the child trust fund. Given that providers think that the market seems to exist and that they intend to fill that gap, we should monitor the situation to find out whether, after the launch of child trust fund products, parents feel that their demands have not been properly met, or providers feel that they have not had the opportunity to fill a gap in the marketplace. That issue will have real resonance for parents, but it will be fulfilled and taken up by the marketplace.

George Osborne (Conservative, Tatton)

What regulatory changes does the Financial Secretary think would be required to provide an identical product? What is the main regulatory problem? What would have to be changed?

Ruth Kelly (Labour, Bolton West)

As the hon. Gentleman correctly identified, we have been working up proposals so that we would be able to meet any unfilled gap in the market, if such a gap were identified. However, he will know that we are still at a very early stage of any plan, and I will continue to consider whether any change in regulation is required. If we find evidence of a gap in the marketplace and regulation is required to fill it, that is clearly something that we would consider.

On new clause 8, the hon. Member for Yeovil (Mr. Laws) asked us to commit to raising the Government contributions in line with inflation. It is only fair to say that it is much more sensible for the Government to keep the structure and level of the endowments under review, in the light of the progress and future evaluations of the child trust fund. I know that he is sceptical about the merits of the child trust fund, but surely he would agree that it is sensible to take into account how it develops before committing ourselves to stating in the Bill how that endowment will be increased in the future. The regulation-making powers that we are taking will enable us to develop the child trust fund further to achieve policy objectives if the evaluation of the policy suggests that that is a good idea.

New clause 9 and the related amendments suggest what the retrospective payments to children born between September 2002 and April 2005 should be. As the hon. Gentleman suggested, those extra payments were set out in the draft regulations, published on 2 February 2004. All children born between September 2002 and April 2003 will receive £277, with those entitled to the higher amount getting an additional £266. Those born between April 2003 and April 2004 will get £268, with those entitled to the higher amount getting an additional £258, and those born between April 2004 and April 2005 will get £506. The hon. Gentleman suggests that that is somehow not generous and fair. In fact, I believe that it is both generous and fair. For example, those figures do not include any allowance for the administrative cost to the Government, whereas, as he rightly points out, the illustrative figures in the projections included an amount for the charge cap.

David Laws (Liberal Democrat, Yeovil)

I wonder whether the Financial Secretary is taking this opportunity to trim back on her earlier commitment. Will she acknowledge that anyone born between 6 April 2003 and 5 April 2004 will essentially get the same compensation as though they had been born on the latter date? People born at the beginning of the period, who should get a 14 per cent. uprating, will get only 7 per cent. Why are the Government short-changing people in that way?

Ruth Kelly (Labour, Bolton West)

I am sure that the hon. Gentleman will accept that we are not short-changing people. For the initial payment, we calculate growth at the middle of each band, so there will be some winners and, undoubtedly, some losers. However, for administrative simplicity, we have averaged over the bands. For the supplement, we took April at the end of each band, which is when the supplement would be given to the family in the usual course of events. Given that the child tax credit has to be claimed, the hon. Gentleman will understand that the second payment is normally made after the first payment. In no sense have we short-changed families. In fact, we have been both generous and fair—while, of course, ensuring value for money for the Government. The figures were calculated using a 7 per cent. nominal rate of return in accordance with FSA guidelines, as the hon. Gentleman suggests. Given that we have fulfilled his requirements, I ask him to reconsider his new clauses.

David Laws (Liberal Democrat, Yeovil)

I thank the Financial Secretary for giving way one more time. I remain dissatisfied about the way in which the Government will compensate people, but what does she expect to be the total cost of delivering all the amounts that it is now anticipated will be delivered in one go, in the 2004–05 fiscal year?

Ruth Kelly (Labour, Bolton West)

I do not have figures to hand on the total cost of the changes. I think that I gave them to the hon. Gentleman in Committee, but if I did not, I apologise. I will certainly write to him with those figures, but I can assure him that the amounts are fair, and no one is being short-changed. Given the hon. Gentleman's consideration of those factors, I hope that he will not press any of the new clauses to a Division.

George Osborne (Conservative, Tatton)

I pretty much welcome what the Minister said about new clause 3, although the hon. Member for Yeovil (Mr. Laws) made it pretty clear what he thinks of what she said about his new clauses. My brief experience of politics shows me that when there are winners and losers, the winners do not thank people, but the losers complain. We shall see what happens with people born between 1 September 2002 and the date of the implementation of child trust funds.

I turn to new clause 3, which I moved. I am sorry if I misrepresented what the Financial Secretary said on Second Reading, but that was an understandably easy mistake given that my thoughts were shared by the hon. Member for Hastings and Rye (Mr. Foster) and by Children's Mutual. I am sure that what she said was clear. She was right to point out that there are other savings vehicles—she regularly points that out—but as my hon. Friend the Member for Witney (Mr. Cameron) said at the start of our consideration on Report, that argument could be deployed against the entire Bill. She said that during her informal consultation, the providers said that an identical product would help them—I think that those were her words. She has given a commitment to monitor the situation so that if she finds a gap because of unmet demand that requires regulatory change, she will consider doing taking action.

Although I shall not press new clause 3 to a Division, I send a message from the Dispatch Box to financial providers. If they become aware of unmet demands, believe that it would significantly help their marketing if they were able offer child trust funds to older children, and think that would encourage savings and help the child trust fund scheme to work from its launch, I urge them to make representations not only to me, but to the Financial Secretary, so that she will get on with making any regulatory changes that might be necessary. With that, I beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn.

New Clause 4 — Reduction of Age of Majority in Respect of Child Trust Funds

George Osborne (Conservative, Tatton)

I beg to move, That the clause be read a Second time.

Alan Haselhurst (Deputy Speaker, Saffron Walden)

With this it will be convenient to discuss the following: New clause 5—Designation of responsible person by young parents—

'(1) This section applies to a person who has parental responsibility in relation to a child who is under the age of 18 or, in Scotland, 16 (person A).

(2) Person A may designate another person (person B) who is over the age of 17 or, in Scotland, 15 as the responsible person in relation to the child for whom person A has parental responsibility.

(3) Person B must inform the Inland Revenue that he has been designated as the responsible person in respect of the child.

(4) Regulations may prescribe—

(a) the required method of designation under subsection (2),

(b) any requirements relating to person B informing the Inland Revenue under subsection (3), and

(c) the circumstances in which person B shall cease to act as responsible person on or after the day on which person A reaches the age of 18 or, in Scotland, 16.'.

New clause 11—Early withdrawal by young person in full-time employment—

'(1) If this section applies to a child, that child may withdraw funds from his account in accordance with the provisions of subsections (4) and (5).

(2) This section applies to a child if—

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

(b) the child is over the age of 15, and

(c) the child is in full-time employment.

(3) Regulations may prescribe—

(a) the meaning of "full-time employment" for the purposes of this section, and

(b) the manner in which proof of full-time employment is to be provided for the account provider.

(4) A child to whom this section applies may apply to withdraw amounts from the fund, including the whole amount of the fund.

(5) On receipt of the proof of full-time employment prescribed by regulations under subsection (3)(b) and an application, the account provider must—

(a) release the amounts requested to be withdrawn, and

(b) inform the Inland Revenue in accordance with regulations.'.

Amendment No. 76, in page 2, line 44 [Clause 3], leave out 'as' and insert

'in accordance with the provisions of section [early withdrawal by young person in full-time employment] or as otherwise'.

Government amendments Nos. 33 and 34.

Amendment No. 5, in page 3, line 3 [Clause 3], after second 'person', insert

'so designated in accordance with the provisions of section [designation of responsible person by young parents] or a person'.

Amendment No. 6, in page 3, line 8 [Clause 3], leave out '18, or in Scotland,'.

Amendment No. 7, in page 3, line 9 [Clause 3], leave out ', in Scotland,'.

Government amendment No. 35.

Amendment No. 9, in page 3, line 33 [Clause 5], leave out from 'or' to 'to' in line 34 and insert 'where subsection (2A) applies'.

Amendment No. 10, in page 3, line 34 [Clause 5], at end insert—

'(2A) This subsection applies in the case of a child—

(a) who is such an eligible child because of section 2(3), or

(b) in respect of whom a person has informed the Inland Revenue that he is the responsible person in accordance with the provisions of section [designation of responsible person by young parents](3).'.

Government amendments Nos. 40 and 42.

Amendment No. 77, in page 10, line 39 [Clause 20], after '3(4)(d)', insert

'or by section [early withdrawal by young person in full-time employment]'.

Government amendment No. 49.

Amendment No. 28, in page 16, line 15 [Clause 30], after 'Act', insert

'except section [reduction of age of majority in respect of child trust funds]'.

Amendment No. 29, in page 16, line 16 [Clause 30], at end insert—

'(2) Section [reduction of age of majority in respect of child trust funds] extends to Northern Ireland, but does not extend to Scotland.'.

George Osborne (Conservative, Tatton)

I wish to speak to new clauses 4 and 5 and their consequential amendments, and I am sure that the hon. Member for Yeovil (Mr. Laws) will speak to new clause 11.

New clause 4 would give children aged 16 and 17 the power to manage their own child trust fund accounts, although it would not give them the power to make withdrawals from them. In effect, it would extend to children aged 16 and 17 in England, Wales and Northern Ireland the same rights that the Bill gives to 16 and 17-year-olds in Scotland, owing to a quirk of Scottish law.

The Bill's current drafting gives rise to all sorts of anomalies that we discussed in Committee. If people lived just over the border in England and opened a child trust fund account in a local village bank in Scotland, could the child manage it at the age of 16 or 18? If I walked into a branch of the Royal Bank of Scotland and opened an account for my daughter, could she manage that at the age of 16 or 18? If people born in Edinburgh moved to London on their 16th birthday—or at any other point—how would that affect the management of their child trust funds? When I read the Bill, I thought that the provisions would be a recipe for chaos and administrative complexity and that the situation would force providers to keep track of their Scottish and English customers.

Michael Weir (Scottish National Party, Angus)

I am interested in what the hon. Gentleman is saying, but is it not something of a red herring? The situation already exists because the age of majority in Scotland has been 16 for as long as anyone can remember. Financial institutions already face the problem with existing policies and investments, but it does not seem to have caused a difficulty until now.

George Osborne (Conservative, Tatton)

The hon. Gentleman makes a fair point, but the Government have caved in by accepting my proposal, so they obviously think that there is merit in what I am suggesting.

I repeat a point that I made in Committee that goes beyond the technical aspects of the situation. It would be wrong to deprive 16 and 17-year-olds in England, Wales and Northern Ireland of the chance to manage their accounts. Surely one of the objectives of child trust funds is to improve financial education for our children, and one of the best ways to do that would be to involve them directly in the management of their own accounts—that could be tied in with school lessons.

The potential for damage to accounts and poor investment would be limited. For a start, most of the accounts will be lifestyle accounts, so risk will be minimised by the time that children reach 16. Indeed, given that children will have attended classes at school in which they will have discussed the accounts, they may well be better informed and able to make better choices than their parents.

The Minister seemed convinced by the force of our arguments in Committee, but she was worried that we would undermine the foundations of contract law in the United Kingdom—that was certainly not my intention.

She said in Committee:

"this is not to do with anomalies between the general law in England and that in Scotland, but with whether, in England, we want children under 18—perhaps those over 16—to have some say in the management of their accounts. I put it to the Committee that there are real difficulties in changing contract law on that point. I certainly undertake to consider whether it is a simple issue, but I suspect that it is much more complicated than hon. Members appreciate. If the hon. Gentleman wishes, I shall come back to him on Report to give an update on the complexities of changing contract law."—[Official Report, Standing Committee A, 6 January 2004; c. 74.]

Thankfully, unless I have misunderstood, it seems to be not all that complex, because Government amendments Nos. 34 and 35 achieve exactly what I wanted and urged, and with considerably greater elegance than my amendment. Indeed, amendment No. 35 is a model of simplicity. It says:

"Where a contract is entered into by or on behalf of a child who is 16 or over in connection with a child trust fund—

(a) held by the child, or

(b) held by another child in relation to whom the child has parental responsibility,

the contract has effect as if the child had been 18 or over when it was entered into."

It is extraordinary how the entire basis of contract law can be changed by a single sentence saying that the situation is as it would be if the child were 18. I am delighted that the Minister has with such elegance been able to overcome that problem.

I wonder if the hon. Lady could clarify the situation of parents who are themselves 16 or 17 years old. The Bill as originally drafted had a cumbersome process by which the Inland Revenue would manage accounts for the children of 16- and 17-year-old parents. My new clause 5 was designed to allow parents under 18, or under 16 in Scotland, to designate an adult as the responsible person who could manage their child's account until the parents themselves became adult. I thought that they could designate, for example, a grandparent or another relative. It seemed sensible, and it would avoid having to involve the Inland Revenue, with all the administrative cost that that would entail.

I should be grateful if the Minister would confirm, first, that I have understood her amendments correctly and that she is giving 16 and 17-year-olds the power to manage their own accounts, and, secondly, that the effect of subsection (6)(b) of Government amendment No. 34 is that parents aged 16 and 17 will be able to manage their children's account. That deals with the thrust of my argument in both new clause 5 and new clause 4.

I have one final point on parents aged under 16. Is the Minister saying that their accounts will have to be administered by the Inland Revenue? Does she hold open the prospect of allowing a parent under the age of 16 to nominate a grandparent or other relative to manage the child's account for them, and in a sense not force the Inland Revenue to step in? It is a small point, but there are, sadly, a relatively significant number of children born to people who are under the age of 16, so the situation will arise on a weekly basis.

All in all, the Government seem to have listened to and accepted almost all the arguments that we advanced in Committee. I tabled the amendments merely to provoke a discussion; indeed, I tabled them before I had seen the Government amendments. I am delighted that the Government have listened. This was not a matter that any financial provider or institution put to me. When I was reading through the Bill, trying to dream up all kinds of amendments to keep the Committee busy, I came across it, and I am pleasantly surprised that the Government have recognised that there is a problem and that they are correcting it.

David Laws (Liberal Democrat, Yeovil)

I too welcome the Government new clauses and amendments in this group.

It would have been daft if the Government had stuck to their previous position in respect of the management of accounts, so that those over the age of 16 could not manage their own accounts, particularly if the Government are saying that one of the benefits of the child trust fund account is that it is supposed to encourage people to be more financially aware and take responsibility for monetary matters. Yet we were in the ridiculous situation whereby, even at the ages of 16 and 17, people would not be able to manage their own accounts, while, even more daftly, in Scotland people could. There would have been a complete anomaly across the borders within the United Kingdom, so I am relieved that the Financial Secretary has tabled a very elegant and unbelievably simple amendment to correct the problem.

New clause 11 and the associated amendments encourage the Government to go a little further than they may be willing to go. In their own amendments, the Government have given way to the case developed by the hon. Member for Tatton (Mr. Osborne), which we supported in Committee, for allowing children aged 16 and 17 to manage their own child trust fund accounts and, we hope, for allowing parents aged 16 and 17 to manage the child trust fund accounts of their children. It would be bizarre if that were not permitted under the Bill. Nevertheless, in respect of withdrawals, individuals aged 16 and 17 are treated as though they should have no responsibility and it should be a matter entirely for parents.

When we discussed these matters previously, I reminded the Committee of the existing entitlements under the law at the age of 16. People of that age can leave education, enter full-time employment, have sex, smoke, play the national lottery, join a trade union, apply for a passport, pay tax, pay national insurance and, with parental consent, join the armed forces, get married or leave home. We know that the Government are consulting on giving the vote to young people aged 16 and over. Under those circumstances, it seems bizarre that the Government are not considering allowing young people to access their child trust fund accounts at the age of 16, especially as one of the stated objectives of the account is to assist people starting off in employment.

As the Minister knows, many young people leave school at 16 and do not go on to take A-levels or enter higher education. Many of them start their employment at 16 or 17. As the Government said earlier that they would like people to draw down their child trust fund account to provide the up-front capital for training or for the equipment that they might need in their places of work, it would be sensible to allow young people going into full-time work at 16 or 17 to draw down their child trust fund accounts.

New clause 11 would allow young people who go into full-time work at the ages of 16 and 17 to draw down their child trust fund accounts so that they can use their moneys in the way that the Government intend—to help them as they start off in employment. It is a middle way between the extreme position that young people ought to be able to manage and access their child trust fund accounts at the age of 16, and the more moderate proposal tabled by the hon. Member for Tatton and accepted by the Government that would allow young people to manage their accounts but not access them at the age of 16.

We suggest that young people who go into full-time work should be treated in a different way and be able to access their child trust fund accounts, and that the help that the Government intend should be available for people when they go into work should be available for this category of young people, who could make good use of the moneys at such an age.

Ruth Kelly (Labour, Bolton West)

As the hon. Member for Tatton (Mr. Osborne) explained, the main purpose of new clause 4 and the connected amendments is to reduce the age at which young people can have full legal control over their child trust fund accounts from 18 to 16. In Committee, he set out a case for allowing 16 and 17-year-olds in England, Wales and Northern Ireland to manage their child trust fund accounts, as 16 and 17-year-olds in Scotland will be able to. I do not believe that this is a devolution issue. The hon. Member for Angus (Mr. Weir) made an appropriate and fair point.

This is not a problem for the Government, but I accept that it is an opportunity for us. As the hon. Members for Tatton and for Yeovil (Mr. Laws) pointed out, one aim of the child trust fund scheme is to improve people's financial education. In Committee, I accepted the argument that we should use the opportunity to consider whether children of 16 and 17 in England, Wales and Northern Ireland should also be able to manage their child trust fund accounts. The hon. Member for Tatton also argued that, following financial education classes, children of 16 and 17 could well be better placed to make informed decisions than their parents.

The hon. Gentleman was clear about his intention to restrict solely to child trust funds the change in the law allowing persons aged 16 and 17 in England, Wales and Northern Ireland to enter into contracts to buy or sell equities. I am persuaded by those arguments. Further to the points that he made, I can see that if young people take a responsible role in managing their accounts, that will encourage them to make better and more considered decisions about how to use those funds when they turn 18 and gain access to them. Lowering the age of majority for the child trust fund will help very young parents, who will be able to administer their own child's account once they are 16, not 18. However, new clause 4 and the related amendments are not drafted in the best way to achieve those objectives. I think that the hon. Member for Tatton would accept that the Government amendments will better allow 16 and 17-year-olds in England, Wales and Northern Ireland to manage their child trust fund accounts by making a simpler change to the Bill.

The Government amendments give children aged 16 in England, Wales and Northern Ireland the legal capacity to give instructions for the management of their child trust fund accounts. That does not alter the rule that there can be no withdrawals from the account until the age of 18. We do not want to give children wider capacity to engage in all sorts of investment contracts—nor, I believe, do the Opposition. The advantage of the amendment is that it does not require the alteration of any other statute, so the drafting is more direct.

I understand that the hon. Gentleman is concerned about the position of under-age parents and tabled new clause 5 to address the fact that parents under 18 would not be able to manage the child trust fund accounts of their children. Delegating parental responsibility would be a radical departure from general law, which provides that parental responsibility cannot, as a personal responsibility, be transferred. I hope that his concerns will be allayed by the Government amendments, which mean that parents over the age of 16 will be able to manage their children's accounts. Statistics show that the vast majority of under-age parents are between the ages of 16 and 18. However, it remains the case that, as I outlined in Committee, if a parent is under the age of 16, their child's account will be opened directly by the Inland Revenue and invested in a stakeholder product.

Government amendments Nos. 33 and 34 ensure that, at any one time, only one person can give instructions about managing a child trust fund account. Where the child is aged 16 or over, it will usually be the child—otherwise, it will be a responsible person such as a parent or someone else with parental responsibility. That is to prevent possible confusion where more than one person has parental responsibility.

On those grounds, I ask the hon. Member for Tatton to withdraw his new clause and associated amendments and to support the Government amendments.

The amendments tabled by the hon. Member for Yeovil would allow 16-year-olds entering full-time employment to access their funds. On Second Reading, he argued that there was no obvious reason why those 16-year-olds should have to wait two years before accessing the funds in their child trust fund accounts, and he argued that again today. I am afraid that, as he suspected, that is a step too far for the Government. We have heard persuasive arguments that children should have to wait until they are 21, or even 25, to gain access to the funds, so that they are mature enough to decide how to use them. I do not accept that. The age of 18 strikes an appropriate balance, because it recognises that a child has reached the age of maturity, but does not allow undue access before then.

David Laws (Liberal Democrat, Yeovil)

Does the Financial Secretary accept that young people who go into full-time work at the age of 16 assume enormous responsibilities, yet the Government's position is that they cannot exercise responsibility over the money in their child trust fund accounts and use it sensibly?

Ruth Kelly (Labour, Bolton West)

I would not argue that in any particular case, whether a child is entering full-time employment at 16 or full-time education, they may or may not be responsible enough to exercise and make reasonable judgments about their future. An appropriate balance must be struck for the majority of children between allowing them to have access to the funds to further their goals, and forcing them to wait until they are sufficiently mature to make those decisions in their best interests. I do not think that the particular category of children who enter full-time employment at the age of 16 should be singled out. We must decide what is the appropriate age of maturity at which such decisions can be sensibly made. A balance must be struck, and that balance should be struck at the age of 18. For those reasons, the hon. Gentleman should accept the Government's case.

George Osborne (Conservative, Tatton)

This is an extraordinary moment that I must savour. I doubt whether in my time in opposition, which will of course be short-lived, I will again be able to point to an area of the law that I helped to change in such an obvious way. As a result of the Government amendments and the arguments that I advanced, 16 and 17-year-olds will now have the power to manage their own child trust fund accounts. I hope that that teaches them about providing savings for themselves, and that it helps them when they learn about child trust fund management in their classrooms. I look forward to 16 and 17-year-olds around the country writing to me to thank me for this new right that I have secured for them, but I suspect that I may have to wait a long time for the first letter.

The Financial Secretary is right that the Government amendments are far simpler and more elegant than mine. I merely took her at her word when she said that the matter was complex, so I went off to think of some complex thing that I had to do. As it turns out, it is simple. I am genuinely delighted that the Financial Secretary has listened and responded—she is a model, and other Ministers should follow her example—and secured the agreement of senior members of the Government Whips Office. I beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn.

New Clause 6 — Additional Contributions by Inland Revenue for Children in Care

George Osborne (Conservative, Tatton)

I beg to move, That the clause be read a Second time.

Alan Haselhurst (Deputy Speaker, Saffron Walden)

With this, it will be convenient to discuss the following: New clause 10—Additional contributions by Inland Revenue for children in care (No. 2)—

'(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 in respect of each year during which this section applies to the child such amount as is determined in accordance with the provisions of subsection (3).

(3) That amount shall be twelve times the minimum amount prescribed by regulations for any subscription.

(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 is an eligible child by virtue of section 2(1)(b).'.

Amendment No. 69, in page 4, line 34 [Clause 8], at end insert—

'(1A) The amount prescribed under subsection (1) in respect of children to whom section [additional contributions by Inland Revenue for children in care (No. 2)] applies at the time the initial contribution falls to be made shall be four times the amount prescribed in respect of other children.'.

Amendment No. 14, in page 6, line 31 [Clause 11], after '10', insert

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

Amendment No. 70, in page 6, line 31 [Clause 11], after '10', insert

'or [additional contributions by Inland Revenue for children in care (No. 2)]'.

Amendment No. 17, in page 10, line 27 [Clause 19], leave out 'and'.

Amendment No. 18, in page 10, line 31 [Clause 19], at end insert

'and

'(d) that the Inland Revenue was required under regulations under section [additional contribution 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. 71, in page 10, line 31 [Clause 19], at end insert

'and

'(d) that the Inland Revenue was required under regulations under section [additional contributions by Inland Revenue for children in care (No. 2)] 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. 21, in page 11, line 3 [Clause 20], after '10', insert

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

Amendment No. 72, in page 11, line 3 [Clause 20], after '10', insert

', [additional contributions by Inland Revenue for children in care (No. 2)]'.

Amendment No. 22, in page 11, line 9 [Clause 20], after '10', insert

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

Amendment No. 73, in page 11, line 9 [Clause 20], after '10', insert

'or section [additional contributions by Inland Revenue for children in care (No. 2)]'.

Amendment No. 23, in page 11 [Clause 20], leave out line 33 and insert

'9(3) or [additional contributions by Inland Revenue for children in care]'.

Amendment No. 74, in page 11 [Clause 20], leave out line 33 and insert

'9(3) or [additional contributions by Inland Revenue for children in care (No. 2)]'.

Amendment No. 24, in page 13, line 3 [Clause 22], after '10', insert

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

Amendment No. 75, in page 13, line 3 [Clause 22], after '10', insert

'or [additional contributions by Inland Revenue for children in care (No. 2)]'.

George Osborne (Conservative, Tatton)

I suspect that I will not make as much progress with this new clause as I did with the previous one, but it is worth trying because the issue that I am trying to address is children in care. The issue was raised on Second Reading, and gave rise to one of our best debates in Committee, in which more than the usual number of Committee members participated. Unfortunately, it is one of the few areas in which the Financial Secretary has not been prepared publicly to indicate any significant change, although she was careful not to rule out change in the future. I hope that we can secure a firmer commitment from her today—we shall see.

As I said in Committee, the chances of children in care are among the poorest in our society. When I was preparing for this debate, I went through the statistics, which are indeed striking. Only 53 per cent. of the 6,400 young people who left care last year had at least one GCSE or GNVQ, compared with 95 per cent. of all children. Only 8 per cent. of children in care achieved at least five good GCSE grades, compared with 50 per cent. of all children. Only 56 per cent. of children leaving care remain in full-time education at year 11, compared with 72 per cent. of all school leavers.

The Office for National Statistics says, rightly and sensibly, that

"educational achievement is felt to be an important indicator of children's life chances".

Its words are sadly borne out by the example of children in care, whose poor educational achievement is such that 24 per cent. of those who leave care are unemployed by the September after they leave school, compared with 6 per cent. of all school leavers. In the past year, 10 per cent. of children aged 10 or over in care were cautioned or convicted—three times the rate for children of their age—and 49 per cent. of children in care end up in prison at some point.

The record is depressing and we should all feel some shame. The state assumes the ultimate responsibility for bringing up children in care, so it is depressing that we have such poor results. Many of the reasons for their poor life chances and educational attainments are beyond the scope of the Bill. They are to do with the children's background, the emotional disturbance and possible abuse that they may have suffered in their families, and their upbringing in local authority care. However, perhaps another reason is that they have so little stake in society.

It is undeniable that, at 18, almost all children in care lack anything like the sort of financial support on which most people can count from their families as they start work or seek higher education. The Bill goes to considerable lengths to give children in care some sort of start in life. I fully commend the Government for their efforts to ensure that those children get a child trust fund that is properly set up at the right time and that they receive the full £500 initial contribution. However, I am sure that the Financial Secretary agrees that, apart from the Government top-up contribution, not many people, if any, will make additional contributions to the child trust funds of children in care. I do not claim that there will not be instances of people making contributions, but I am sure that the generalisation is correct and that those children are unlikely to enjoy significant contributions to their child trust funds.

By the time that children in care reach the age of 18, they will have approximately £1,000 and perhaps a little more in their child trust fund. I do not claim that £1,000 is insignificant and I do not dispute the reports and statistics that the Financial Secretary deployed in Committee and when she appeared before the Treasury Sub-Committee. They showed that even £1,000 can make a significant difference to people's attitude to saving and is a substantial asset for people on low incomes. It is also a vast improvement on what many children in care currently have.

As the hon. Member for Lancaster and Wyre (Mr. Dawson) said, some local authorities give children a sum of money on leaving care, but others give them, as he memorably put it, no more than a bin bag in which to take their clothing. One of the great advantages of child trust funds is that, for the first time, all children in care will have a substantial asset by the time they reach 18.

We could do more, or at least look to do more. New clause 6 would require the Inland Revenue to make additional contributions, which would be pegged as a percentage of the average value of child trust fund subscriptions in the previous year. I suggest that partly because if child trust funds are a success and people use them, the contributions to children in care will also increase. If it is clear that many people are making contributions to their children, it is fair that children in care should not be left behind.

I freely concede that the other reason for pegging the contributions as a percentage of the average value of child trust fund subscriptions in the previous financial year is that I had to suggest a new device, different from the one that I tabled in Committee. That proposal would have put a proportion of child benefit—otherwise forgone for children in care—into a child trust fund. I believe that that probably has more elegance and merit than my current proposal, but I had to change it.

I accept that the new clause carries a financial cost, which depends on the size of the contribution. We cannot therefore include an accurate figure. If the proposal that I tabled in Committee were implemented and fully taken up—if all forgone child benefit were paid into the account of all 60,000 children in care for the relevant year—the cost, according to the Library, would be £33.5 million. However, the sum that we would pay in under the new clause could be far less than the £560 that the proposal that I tabled in Committee would entail. Children tend to move in and out of care, and would not necessarily receive the full amount during a year. Therefore, £33 million is at the top end of what the proposal might cost; I suspect that it would cost significantly less. I do not want to be seen to be profligate, so I have left the amount to be decided by future regulations and made it subject to affordability.

My proposal in Committee received general support, not least from the hon. Member for Lancaster and Wyre, who spoke with considerable experience and knowledge, and mentioned a lady who had brought the matter to his attention. He made the important point—perhaps he will seek to catch your eye today, Mr. Deputy Speaker—that local authorities will have an important duty to help to educate and work with children in care so that they are not simply handed a large lump sum at the age of 18, with none of the educational equipment needed to manage their account. He tabled an amendment that, unfortunately, could not be selected for technical reasons, but his point was well made.

Unfortunately, the Minister was not quite as enthusiastic as the hon. Member for Lancaster and Wyre. She said on Second Reading that local authorities might consider making contributions to child trust funds. That is certainly the case, but I was looking, as were other hon. Members, to central Government to do more themselves. In Committee, the Minister used a rather Whitehall argument to knock down my suggestion that we pay child benefit into the child trust funds of children in care, saying that child benefit was used to support a family looking after children, not given to the child itself. That was a Sir Humphrey answer, but it knocked down my amendment. Another advantage, therefore, of the change that I have made to the proposal in the new clause is that it would allow the Government to set an amount and pay that into the child trust funds of children in care. I have tried to deal with the Minister's objections.

When we discussed the matter in Committee, the Minister said:

"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 . . . However, I absolutely accept the principle that they"—

children in care—

"are a disadvantaged group of children and that we should work to maximise their opportunities."

She went on to say:

"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."—[Official Report, Standing Committee A, 13 January 2004; c. 132, 137.]

I hope that the Minister is able to say a little more now that we have reached Report stage, and at least say that she is working behind the scenes with her officials to examine the feasibility of doing something to help children in care. Perhaps she will agree, as she has over the matter raised by my hon. Friend the Member for Witney (Mr. Cameron), to look at this proposal and, providing that there are not overriding practical or financial objections, consider introducing it. I am not looking to her to give a cast-iron commitment today, but I would love her to say that she is considering my proposal and working behind the scenes with Treasury officials to see whether it is feasible.

Hilton Dawson (Labour, Lancaster and Wyre)

It is a pleasure to follow the hon. Member for Tatton (Mr. Osborne), and I agree with everything that he has said. The spirit behind new clause 6 is generous. I demur in just one respect. It is sometimes too easy for Members of Parliament to focus on the difficulties of children in care. It is right that they should, but we should not let those very serious, and sometimes quite dismal, facts overwhelm us or blind us to the reality that young people come through the care system and succeed. In only a few weeks' time, on 24 February in the Attlee suite, we shall have a celebration of children and young people in care, and I honestly hope that all hon. Members will come along to what will be a joyous and optimistic occasion.

I commend my hon. Friend the Minister for the way in which she has responded to this issue, not only in Committee but when she and her officials attended the January meeting of the all-party group for children and young people in care. Anyone who was in that room will have enjoyed the spirited, well informed, thoughtful and, indeed, surprising debate. I shall go into further detail on that later.

I return to the crux of the new clause. There can be no doubt that young people leaving care will be among the most disadvantaged 18-year-olds in our society. They will have had life experiences that would have floored all of us in the House. They will have experienced huge difficulties throughout their lives, including family breakdown, abuse, neglect and extreme poverty. They could well have experienced serious dislocation and disruption while in the care system, and they could have been through a large number of homes and schools.

The Government have done a great service to young people leaving care through the introduction of the Children (Leaving Care) Act 2000, which has placed statutory duties on local authorities in respect of young adults up to the age of 21, or the age of 24 if they are still in education. Regrettably, however, the situation remains patchy across the country. We have pockets of extremely good practice where young people are supported very well indeed but, sadly, there are other parts of the country where they are supported very poorly.

An important way of addressing that problem will be through the new children's legislation arising from the Green Paper, "Every Child Matters". I look forward to the Bill coming before the House and to the profound cultural and organisational changes that will be required to improve the lot of children and young people in care. Another important way to improve their circumstances, and those of every child in the country, will be to ensure that they have a good child trust fund, that they are able to manage it well, that they understand the significance of having their own money and that they are able to put the money to the best possible use.

Those young people will face challenges that most other young people will not face. Even if they remain in care into adulthood, they will still embark on adulthood with little of the support that millions of other young adults rely on—extended families, resources, advice, assistance and somewhere to go when they are in trouble. Many young people leaving care will be left to their own devices, and will have no one else to rely on. It is therefore extremely important that we assist them to build up their resources. It is good that the Government will be giving them the full extent of what will be available under the child trust fund scheme. It is important, as I have said, that local authorities and people working with young people in care understand how to help them manage the new assets, as a good parent would do. It is essential that local authorities' leaving care plans take full account of young people's need to have substantial trust funds.

It is essential, too, that the Government contribute significant extra sums to the trust funds. It is a naive but none the less compelling argument that as young people in care do not have the benefit of child benefit, which ceases to be paid to their parents a few weeks after they go into care, there should be regular contributions to their trust funds. It is important that local authorities, as good corporate parents, are encouraged to contribute to the funds. The situation is patchy, but the Government have a tremendous commitment to children and young people in care, so they may accept that the only way to ensure that all young people in care receive significant contributions to their trust funds and are able to make the very best of them is to make regular payments from a central source.

That point was very much accepted by young people who attended the meeting in January. However, rather surprisingly, they said that they would not wish to have that money until they were 21. They thought that young people leaving care at 18 would be more vulnerable if a significant asset were put in their hands at the precise time when, perhaps in contrast to other young people at that age, they would be making other major life changes, such as leaving home. They also said, perhaps less surprisingly, that they wanted local authorities to pay very little attention to the amount in their trust funds. They were concerned that if local authorities took account of trust funds they would feel entitled to reduce the money available to them through a leaving care grant and support into higher education, as well as practical and emotional support to which they would otherwise be entitled. They thought that the resources available to them might be diminished and undermined by the fact of their having a child trust fund, which is a tragedy. It would be an indictment of local authorities if such circumstances prevailed.

Young people in care believe that the substantial assets, such as compensation for criminal injuries, that some of them have received have reduced the amount of support that local authorities were prepared to make available to them. That may not be the Treasury's responsibility, but the Department for Education and Skills certainly needs to take that point on board. Young people's reticence about the age at which they should receive trust funds is understandable, as it is entirely related to the amount of support that they believe will be available to them from the local authority, perhaps provided by a residential worker, foster carer or social carers, who can help young people to understand trust funds and manage them. The Government and local authorities clearly have a huge responsibility to ensure that the people who work with young people in care do so with alacrity, skill and a genuine understanding of the importance of trust funds to them.

A great deal more needs to be done to ensure that the funds work well for young people in care. Nevertheless, anyone who was at last month's meeting or will be at the one later this month will have met, or will meet, young people with intelligence, ability and, in some cases, extraordinary resilience. I believe that they will use their trust funds well, and will benefit from having an asset over which they have complete control.

That is an important message for young people leaving care. The Government should complement it by assuring those young people that they are prepared to consider whether, in principle, they could make regular payments to the trust fund of every child in care—above and beyond what goes to other young people, above and beyond what they or their parents might contribute, and above and beyond what local authorities might contribute. They should say that, because the state owes a duty of care to such children, they will support them even better.

David Laws (Liberal Democrat, Yeovil)

I agree with what has been said by the hon. Members for Lancaster and Wyre (Mr. Dawson) and for Tatton (Mr. Osborne). There seemed to be widespread agreement in Committee that the Government had a particular responsibility to look after children in care, given that they were essentially in loco parentis. It was felt that the children should not lose out even more in relation to the value of trust fund accounts on maturity. That might well happen if no contributions were made by relations, as they would probably be in the case of most other children.

The problem in Committee was the lack of amendments commanding the support of the Committee as a whole and, in particular, the Financial Secretary, perhaps for understandable reasons. Our amendment focused on the issue of the initial contribution. We accepted that it would be defective if we were to deal with children who might go into care later in their lives.

Either the hon. Member for Tatton or the hon. Member for Witney (Mr. Cameron) proposed an annual contribution tied to the level of child benefit. Although the hon. Member for Tatton might regard it as something of a Sir Humphrey excuse, I have some sympathy with the Minister's reservations about mixing up a benefit designed for a particular purpose with a contribution to a child trust fund account designed for a very different purpose.

We wanted to table amendments that would not just get past the hon. Member for Tatton and the Clerk, but meet with the Financial Secretary's approval. I agree with the hon. Member for Lancaster and Wyre that it would not be appropriate for us to rely on discretionary contributions from local authorities, and that if we did so, money for children in care might filter into trust fund accounts to which they would have no access until later in their lives. We certainly would not want to divert money that would go to such children anyway.

New clause 10 and amendments Nos. 69 and 70 hold on to our first proposal that the initial contribution to the accounts of children in care should be twice that for any other child—in other words, four times the standard contribution and double the amount that would go to children from families on lower incomes. In order to address the annual contribution issue, we have added the proposal that an annual contribution should be linked not to child benefit, but to the minimum subscription that can be put into child trust fund accounts from time to time, perhaps on a monthly basis.

We discussed the reasonable minimum amount in Committee, and I will not anticipate that argument because we will deal with it in a separate group of new clauses and amendments. The Government have set the minimum subscription at £10, which, I am embarrassed to say, is slightly higher than the sum that I have been paying into my godchild's savings account and may cause me to revise my contribution upwards. Nevertheless, the minimum subscription is a useful benchmark by which to consider the contribution that the Government might feel is reasonable and appropriate.

In addition to an enhanced initial contribution to the child trust fund accounts of children in care, we propose that the Government should also pay in, presumably on an annual basis but it could be biannual or quarterly, an amount linked to the minimum monthly contribution, assuming that the contribution were paid monthly. In other words, if the amount were paid for a full year, it would be 12 times the minimum subscription rate, which has been set at £10, so it would be £120.

Using back-of-the-envelope calculations and the figure that the hon. Member for Tatton cited earlier of 60,000 children in care, that proposal would incur a significantly lower annual cost than his proposal to link contributions to child benefit. The cost would be £7 million to £8 million, which is affordable given that the annual cost of the Bill is likely to be between £250 million to £260 million once it is fully up and running—presumably the cost will be significantly higher once further contributions are made when children reach seven, 11 and 14.

Such an addition to the cost is affordable, and linking additional contributions for children in care to the minimum subscription is as a good a rough and ready measure as any that we might arrive at using another source. The additional contributions would be linked to the minimum subscription to child trust fund accounts for children who are not in care, where it would be reasonable for the Government to aspire to the idea of people adding such a contribution on to their own children's child trust fund accounts.

As the hon. Member for Tatton implied earlier, I do not necessarily expect the Financial Secretary to give way on the matter today. The Government have not tabled counter-proposals on children in care that we can debate today, but the Financial Secretary's responses in Committee were helpful and I hope that she can reassure Liberal Democrat Members and some Labour Members that she will go away, examine the issue and introduce a workable proposal to allow additional contributions for that particularly vulnerable category of young people.

Ruth Kelly (Labour, Bolton West)

The Bill is about extending life chances, especially to those children who are particularly vulnerable and disadvantaged in our society. I accept that children in care undoubtedly fall into that category, despite their individual successes, to which my hon. Friend the Member for Lancaster and Wyre (Mr. Dawson) has drawn attention. I pay tribute to him for his work with young people in care, and he is right to celebrate their achievements.

I accept the argument made by the hon. Member for Tatton (Mr. Osborne) that children in care are particularly disadvantaged. The new clauses and amendments seek to boost the child trust funds of those children in care with accounts opened by the Inland Revenue in the absence of a child benefit claim. The hon. Gentleman suggests that few additional contributions will be made to those accounts, but I would not jump to that conclusion. It will be 15 years at least between the setting up of the accounts and the time that the first ones mature, which is a considerable length of time. I do not know how the accounts will evolve in the future, but I suspect that we will see creative and imaginative thinking on how we can best serve the most vulnerable groups in society. I am not convinced that fewer contributions will be made to the accounts of children in care.

New clause 6 proposes that the Inland Revenue should contribute a sum related to the average value of contributions made to child trust funds in the preceding financial year, whereas new clause 10 would require the Inland Revenue to pay 12 times the minimum contribution level set out in the regulations. It is all too easy, as my hon. Friend the Member for Lancaster and Wyre suggested, to point to disadvantaged children and not recognise the successes. I would argue that it is also far too easy to point to the Government and claim that the answer always lies in more financial contribution from the centre. I understand the case that has been made, and I was so attracted to the new clause tabled by the hon. Member for Witney and his thinking on the matter because he recognised that point. There are other ways in which the interests of vulnerable groups can be advanced, and he proposed a creative and interesting solution to advance the interests of disabled children, which I have committed to considering further. We have 15 years before the first accounts mature, and I am sure that we will see innovative thinking on other ways to advance the interests of other vulnerable groups during that time.

It is true that children in care may be some of the most disadvantaged while they are in care, but the vast majority move out of care and have families to care for them and contribute to their child trust funds, as other children have. While children are in care, there is nothing to stop grandparents, other relatives and friends contributing to their accounts. Indeed, the new clause fails to address the category of children who have a child benefit claim set up for them. When a child is looked after by a local authority, payment of child benefit ceases after the first eight weeks, recognising the fact that the state, rather than the family, effectively maintains such children, including those placed with foster parents. That is right, as the Government provide for the cost of children being looked after through the revenue support grant paid to local authorities for personal social services expenditure. I do not believe that further Government endowments for those children are the best way to help them. Children move in and out of care and any Government payment would be hit and miss in its effect.

My hon. Friend the Member for Lancaster and Wyre mentioned the important Green Paper, "Every Child Matters", and made a powerful case for engaging young people with their child trust fund plan. Local authorities should be encouraged to consider that account in the pathway plan that they develop with children leaving care. Financial considerations are already taken into consideration in the pathway plan, but I will ensure that specific consideration is given to the child trust fund account. We are already aware of some local authorities that take financial education seriously. For example, Warwickshire county council has introduced a scheme in which a savings account is opened for foster children to help to make them aware of the value of money as they build up savings. However, most financial education will still be delivered through the school curriculum, which is the best place for such education to take place because it reaches all children. In the coming months and years, we will consult various bodies and organisations on financial education and how we can make it real for all children, but especially for vulnerable children.

Hilton Dawson (Labour, Lancaster and Wyre)

My hon. Friend is aware of the work of child-driven organisations such as A National Voice, a national organisation for young people in care, and of the Careleavers Association, an organisation for adults—generally those over 25—who have experience of the care system. Together, they combine the experience of potentially millions of people. Can she assure me that those voices in particular will be heard in the ongoing discussions on the future of trust funds for children in, and leaving, care?

Ruth Kelly (Labour, Bolton West)

I hear what my hon. Friend says. I shall draw the point that he makes to the attention of the appropriate officials, and make sure that those voices are indeed heard. As part of our consultation, we intend to address the particular needs of looked-after children that may exist, and if possible to include some looked-after children in our consultation, so my hon. Friend's point is well made.

Given the argument that I have set out, I hope that the hon. Member for Tatton will reconsider his new clauses and amendments.

George Osborne (Conservative, Tatton)

I am very glad that we have had this debate. When I tabled my new clauses and amendments, I was not confident that they would be selected, as we covered this ground in Committee. The Minister did not really open the door to allowing such a discussion on Report, so I was very grateful to Mr. Speaker for allowing us to debate these issues. Through her reply, the Minister has moved matters on, a point to which I shall return.

I thank the hon. Member for Lancaster and Wyre (Mr. Dawson) for his contribution. I apologise to him if I painted an unnecessarily gloomy picture of children in care—I was trying to build my argument and to give force to what I was trying to achieve. He is of course right to point out that there are some outstanding examples of children in care thriving, of local authorities that do a very good job—of which Warwickshire is perhaps one—and of people working with children in care who do an excellent job. But there are also many examples of children who do not thrive in local authority care, and of local authorities that do not do a very good job and fail their children.

The Minister said that she is not convinced that the child trust funds of children in care will receive fewer contributions than those of other children. I am glad that she is confident about that, but I do not share her confidence. I suppose that time will tell who is right and who is wrong, but it will not take 15 years. It will be clear after just a few years whether any contributions are being made to the child trust funds of children in care. I hope that the Minister will at least give a commitment to monitor the situation, and to look specifically at the child trust funds of children in care. I know that the Inland Revenue will keep track of this policy in general terms—

Ruth Kelly (Labour, Bolton West)

indicated assent.

George Osborne (Conservative, Tatton)

The Minister nods, but it will be worth looking specifically at what happens to the child trust funds of children in care. As she knows, there is considerable interest throughout the world in the entire child trust fund policy, so such research would benefit not just the people of this country but those of other countries, should other Governments follow the example of child trust funds.

I accept that asking central Government to put more money in is quite a crude mechanism. I suggested it because I am not particularly confident that all local authorities will put money in: there will be good local authorities and bad ones. Something of a postcode lottery could arise, as the hon. Member for Lancaster and Wyre said. As the hon. Member for Yeovil (Mr. Laws) suggests, there could be a fixed amount—I suppose that it would be £120, given that we now know that £10 is the minimum contribution; indeed, in that regard it turns out that the Financial Times was right—or an unspecified amount, to be determined in regulations. However, I accept that whether the amount is fixed or unspecified, such a mechanism is fairly crude.

I was interested to hear what the Minister said about considering requiring local authorities, as part of the pathway plan, to consider child trust funds and how they can use them. That is a new development, which moves matters on. I should like to think that the Government looked at this issue and decided that that should happen because of our debates in Committee, on Second Reading and on Report, and because of the speeches not only of the hon. Member for Yeovil and myself, but of the hon. Member for Lancaster and Wyre. Because that has happened, I beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn.

New Clause 7 — Prohibition on Publicity in Pre-Election Period

David Laws (Liberal Democrat, Yeovil)

I beg to move, That the clause be read a Second time.

Alan Haselhurst (Deputy Speaker, Saffron Walden)

With this it will be convenient to discuss the following: Government amendments Nos. 44, 45 and 51.

Amendment No. 26, in page 15, line 14 [Clause 27], leave out subsection (2).

Amendment No. 27, in page 15, line 17 [Clause 27], at end insert—

'(4) No order may be made under subsection (3) before the dissolution of the present Parliament.'.

Amendment No. 81, in page 15, line 17 [Clause 27], at end insert—

'(4) No order may be made under subsection (1) before the dissolution of the present Parliament.'.

Government amendment No. 52.

David Laws (Liberal Democrat, Yeovil)

The Liberal Democrat new clause 7 deals with the prohibition of publicity and advertising in the pre-election period. It is a particularly sensitive and important issue, because of the timing of the payment by the Government of the initial amounts that will go into the child trust fund accounts. That will happen for those entitled to it by the likely date of the general election, and the Government are also paying out in 2005 all of the amounts to which individuals are entitled backdated to 1 December 2002. That might give rise to a particular temptation on the part of the Government in what might be the run-up to the general election in spring 2005 to devote much publicity and advertising to that particular disbursement of funds in the expectation that the effect may not be wholly unfavourable for the general election.

We debated some aspects of the issue in Committee. I drew the Committee's attention to the Cabinet Office report entitled "Information Activities during a General Election", which specifies some of the existing limitations on Government advertising in the run-up to election periods. Paragraph 10(g) of the paper, under a section entitled "Paid Media", states:

"New advertising campaigns will in general be postponed and running campaigns closed. However, some advertising (for example recruitment, health and safety) might be specifically approved to continue by the Head of the GICS in consultation with the Central Secretariat, Cabinet Office."

An additional later section appears to go further than advertising campaigns alone, stating:

"In addition, it has always been recognised that special care must be taken during the course of an Election since information material produced with complete impartiality which would be accepted as objective in ordinary times, may excite criticism during an Election period when feelings are running high."

We debated some of the issues in Committee and some of the Financial Secretary's responses were to some extent contradictory. Towards the end of her comments, she said:

"I was a little surprised that the hon. Member for Yeovil felt that new clause 11 was necessary. During any general election campaign the Government retain their responsibility to govern, and essential business must go on. It has long been the practice that, where possible, activities such as advertising are stopped for the duration of the pre-election period. The period starts when the Prime Minister calls a general election and asks the Queen for the dissolution of Parliament, and it ends once the result of the election is known. Under those rules, the operation of the child trust fund would continue during an election campaign, but any advertising surrounding its launch would cease."

In other words, she seemed to believe that I merely wanted clarification and assurance that my new clause 11 was already the Government's practice. She meant that there was no need for concern about the Government hyping up the measure at a sensitive time because the Government would shut down advertising, as the new clause sought.

However, when the hon. Lady concluded her speech, instead of accepting my new clause, which merely asked the Government to confirm that advertising should not take place during that period, she urged the Committee to reject the amendment. She said:

"Parents need a basic level of information to allow them to make sensible choices on behalf of their children".

A little earlier, she had said:

"It is essential to the operation of the policy that parents are well informed when they receive the voucher and have the opportunity to open a CTF account. That is at the heart of the financial education programme embedded in the Bill. Clearly, during such a period"—

the run-up to the election—

"the child trust fund information pack would be distributed to all parents, and I would be very surprised were the hon. Gentleman to suggest that we should not distribute such an information pack."—[Official Report, Standing Committee A, 20 January 2004; c. 232.]

That raises a problem for the child trust fund account. Although the Government may seek to abide by the letter of the rules and regulations by ending what could be considered to be advertising campaigns, they will retain a strong incentive to inform people as much as possible about the child trust fund account. We need some clarification from the Minister about where the boundary between advertising and publicity will be drawn. That is why new clause 7 says:

"The Government shall not advertise or publicise by the distribution of leaflets or other literature the introduction of child trust funds during the pre-election period."

Of course, the election period may not cover the spring of 2005. The date about which everyone is speculating may not be the date of the general election, as the Government may decide to delay it further. The major launch of the child trust fund accounts may have happened already, and the problem may not arise. However, it is possible that a May 2005 election might take place just as the Government launch a major campaign to publicise the payments to be made for cohorts of children going back to 1 September 2002.

If that happened, it would conflict with the advice given in the Cabinet Office paper to which I have already referred. Direct mail literature sent by the Government to inform people about the child trust fund account may cause concern in an election period. The Government need to be sensitive to this problem, as the number of people entitled to the payments is so large.

I hope that the Minister will confirm that if the child trust fund scheme is launched in the run-up to a general election, there will be no advertising campaign. Also, I hope that she will set out the safeguards that will be put in place to ensure that none of the publicity or information material associated with the payments can be perceived to be political, or an attempt to underpin the Government's prospects in the campaign.

George Osborne (Conservative, Tatton)

We now come to the politics of the debate—a shame, given the constructive afternoon that we have had so far, in which hon. Members have worked together to improve the Bill. At the outset, let me say that I think that the Minister's motives in introducing the child trust funds are entirely pure. I have no doubt that she genuinely wants to encourage saving, to improve financial education and to build up the financial assets of those who are least well off in our society. However, she is surrounded by others who have impure thoughts and regard child trust funds as a clever election ploy.

Richard Bacon (Conservative, South Norfolk)

Where are they?

George Osborne (Conservative, Tatton)

My hon. Friend asks where they are, but I can tell him that they are not here: they lurk in the shadows, surrounding the Minister in the Treasury and in Downing street. The timings involved in the child trust fund proposals are strikingly suspicious. The proposals were announced in the April 2001 Budget, just a month before what was then the expected date of that year's general election. The scheme is due to be launched in April 2005—just one month before the most likely date of the next general election. Government amendment No. 44 reveals for the first time the date of the scheme's implementation as 6 April 2005. That date is not totally unexpected, and will appear on the face of the Bill. Any flexibility that remained in the legislation to delay implementation if the processes for delivering child trusts are not ready will disappear.

I am not a cynical person, and thought that curious timing—with the scheme's announcement one month before the last general election and its implementation one month before the likely date of the next general election—was just coincidence. Then I came across the minutes of the Institute for Public Policy Research summit held at 10 Downing street in 2002. I felt a bit like an anthropologist stumbling across a forgotten tribe in the forests of Papua New Guinea cut off from the modern world and unaware of what had been happening around them.

The tribe at the IPPR summit were still talking in mystical terms about the third way—in fact, they were talking about the third way within the third way. They were still inviting Will Hutton to attend their events and listened to everything that he had to say. A huge wave of nostalgia washed across me and brought back memories of cool Britannia, the stakeholder speech in Singapore and the days when Alastair Campbell and the right hon. Member for Hartlepool (Mr. Mandelson) ran things—mind you, Alastair Campbell and the right hon. Gentleman probably still do run things.

There was a presentation at that IPPR summit by Mr. Kevin Rudd, who I assume is still the Australian shadow Minister for Foreign Affairs. Maybe he has been promoted, or perhaps he has been sacked; I do not know what has happened to Mr. Rudd. I have not really kept up with the comings and goings on the Front Bench of the Australian Labour party. It is difficult enough keeping track of what goes on among shadow Ministers on my own party's Front Bench.

I am not sure what Mr. Rudd was doing at the IPPR summit, but he gave the opening presentation to the assembled luminaries, including the Financial Secretary to the Treasury and the Home Secretary—I am not sure what he was doing there either.

Ruth Kelly (Labour, Bolton West)

What is wrong with that?

George Osborne (Conservative, Tatton)

It was not his Bill. It is surprising that the Chancellor of the Exchequer was not present, but the Home Secretary was present. Mr. Rudd talked about child trust funds and asset-based welfare. The minutes of that meeting concluded:

"Kevin finished his presentation with a potential problem. The long-term nature of the Child Trust Fund could mean that it does not fit well with the electoral cycle. It will need to be sold to the public as there are not necessarily any short-term gains to point to."

The Government, with their inevitable genius for spotting political tricks, solved Kevin's problem for him because they are about to send out 1.8 million child trust fund vouchers to parents just before the next general election.

I am sure that such calculated political considerations did not enter the head of the Financial Secretary. Having worked with the hon. Lady in Committee, I genuinely do not think that she is one of those people always looking for a political advantage. The way in which she has engaged with Opposition Members during the passage of the Bill suggests that she does not always look for the party political advantage. Others probably do. I suspect that some of the timings relating to the Bill are motivated by the electoral cycle.

If that is the case, the Financial Secretary would surely agree that it would undermine many of her more wholesome objectives in successfully launching and promoting child trust funds. The timetable imposed for child trust funds would force financial providers and the Inland Revenue into a tight corner. Only yesterday, the Financial Secretary published the regulations. In less than one year, the hon. Lady will be sending out the first vouchers. During that period, providers will have to design their products, prepare systems, organise marketing and otherwise prepare for distributing the vouchers. I think the indication from the Government is that it will happen in January.

Even more worrying than the situation for the providers, in whom I have quite a lot of confidence, is the situation for the Inland Revenue. It, too, will have to get its systems up and running, and we already know what a mess it made of the introduction of tax credits. It is especially worrying that just after the introduction of the child trust funds, the Inland Revenue is to change its IT provider, and it is not yet clear who the new provider will be.

Furthermore, there is the question of what will happen when the election is called. The hon. Member for Yeovil (Mr. Laws) dealt with that by repeating what the Minister said in Committee, but it is not reassuring to realise that the launch of child trust funds and their promotional material could be interfered with by the election timetable. A simple solution would be for the Minister to accept my amendment No. 27, or my amendment No. 81 if the acceptance of a Government amendment renders amendment No. 27 inoperable. If the Minister accepted my amendment, she would give the Inland Revenue and providers more time, she would avoid any risk that an election campaign would interfere with the launch, and she would prevent the party political row that would inevitably have taken place.

That would not affect the success of child trust funds, because they do not mature for 18 years, so I commend my amendments to the House, and shall probably press amendment No. 81 to a vote if the Minister does not accept them.

Ruth Kelly (Labour, Bolton West)

The new clauses and amendments are cynicism writ large. The hon. Members for Yeovil (Mr. Laws) and for Tatton (Mr. Osborne) both seem to think that somehow the Prime Minister will choose the general election date based on the date of the launch of the child trust funds. I can reassure them, because I am sure that my right hon. Friend is not even aware of the implementation date for the child trust funds.

We are committed to implementation in spring 2005. As the hon. Member for Tatton pointed out, the manifesto pledge was made before the last election, so it is only right that we should try to introduce the policy during this term of government. The 2005 introduction date for the child trust funds was announced in the Budget in 2003. Parents of eligible children born since 1 September 2002 are waiting to open their child trust fund accounts, and we want that to happen at the earliest opportunity.

The effect of new clause 7 would be to prevent any advertising of the child trust fund in a pre-election period. The hon. Member for Yeovil referred to the Government's responsibilities, and the point that I made in Committee about the fact that during any general election campaign the Government retain their responsibility to govern, and essential business must go on. It has long been the practice that once a general election is called, activities such as the advertising of policies are stopped, where possible, for the duration of the pre-election period. The proposal would thus have an impact not only on the child trust fund but also on the introduction of any Government policy during a general election campaign.

I remind the hon. Member for Tatton that a general election can be called at any time up to—I believe—summer 2006. Were an election to be called, advertising would undoubtedly be stopped. He has urged me to set out, today, in this place, the precise contents of the information pack that would be sent to parents.

David Laws (Liberal Democrat, Yeovil)

If the Financial Secretary is willing to give us a guarantee that the child trust fund will not be advertised during a pre-election period, why did she oppose the new clause on that issue that we debated in Committee?

Ruth Kelly (Labour, Bolton West)

I think that the hon. Gentleman misinterprets the remarks that I made in Committee. I have always said that the basic information pack would be sent out to parents. It is integral to the policy that parents be fully informed, so that they can make a reasonable and informed judgment about the sort of account that they should open on behalf of their child. It is essential to the operation of the policy that financial education be built into that decision. However, the surrounding publicity and advertising would stop, exactly in line with the Cabinet Office guidelines. Of course, I can give the hon. Gentleman that assurance.

David Laws (Liberal Democrat, Yeovil)

I want the Financial Secretary to confirm what assurances she is giving to me. Is the first assurance that the child trust fund will not be advertised during the pre-election period? Can she give me a second reassurance that any material at all that is issued to promote the child trust fund account during that period will be considered very carefully indeed, to ensure that it is not outside the spirit of the existing Cabinet Office guidelines?

Ruth Kelly (Labour, Bolton West)

The hon. Gentleman makes his point, but he is deliberately misinterpreting the nature of my comments. Of course all advertising would cease. Of course there would be no generic marketing of the new policy during any general election campaign. Cabinet Office guidelines, from which he quotes, set out precisely the rules that we would follow during a general election campaign, and we would follow them. I can give him that assurance. He asks for that commitment; I give him that commitment.

The proposal to remove the provision that allows the child trust fund to be phased in would not be helpful for parents, providers or the Revenue, as allowing parents of children born before April 2005 to set up child trust fund accounts before the launch date will allow people to manage what would otherwise be a pronounced peak of work at launch. Providers have welcomed the proposal to phase in the launch.

The Government amendments are technical, so I do not intend to speak to them unless hon. Members wish me to do so. I hope that the arguments that I have set out and the assurances that I have given will allow the hon. Gentleman to withdraw the motion.

David Laws (Liberal Democrat, Yeovil)

I am not sure whether I am fully reassured by the Financial Secretary, not least because she appears to continue to contradict herself. At times she indicates that there will be no advertising in the pre-election period, but the fact remains that in Committee, she resisted an amendment that asked for precisely that and no more than that. She criticises the Opposition amendments as "cynicism writ large". As the hon. Member for Tatton (Mr. Osborne) said, we are trying to protect her from the cynicism of others in the Government. She ought to welcome the measures that we are taking to try to protect her integrity.

The Financial Secretary went on to say that we were somehow suggesting that the general election date had been fixed to match the launch of the child trust fund. That is not what we are suggesting at all; we are saying that it is fortuitous that the launch of the child trust fund and the payments under it seem to be matching the most likely date of a general election. That is our concern.

We have made a little bit of progress today in getting the Financial Secretary to confirm that the child trust fund account will not be advertised during the general election campaign. I wish she was a little clearer in recognising that, as is indicated in the Cabinet Office paper on advertising information during an election period, there will still be tension between the Government's understandable desire to give information about the child trust fund to people during its launch and the possibility that that information could be given during a pre-election period, when people are bound to be looking carefully at what any information on the child trust fund says and the way in which that might seek to promote the Government. Obviously, the comments from various IPPR seminars cited by the hon. Gentleman are relevant. I note that he may wish to press one of his amendments to a Division.

George Osborne (Conservative, Tatton)

I am told that apparently, I should indicate—now is a good time to do so—that we shall seek a Division, probably on amendment No. 81 if an earlier Government amendment is accepted.

David Laws (Liberal Democrat, Yeovil)

After that indication, I beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn.

Clause 2 — Eligible Children

Ruth Kelly (Labour, Bolton West)

I beg to move amendment No. 31, in page 2, line 4 [Clause 2], leave out

'by a directly applicable Community provision'

and insert

'because of a directly applicable Community provision or an international agreement'.

Alan Haselhurst (Deputy Speaker, Saffron Walden)

With this it will be convenient to discuss Government amendments Nos. 32, 46 to 48, 50 and 53 to 55.

Ruth Kelly (Labour, Bolton West)

Unless the House wishes me to discuss these purely technical, drafting and minor amendments further, I am happy to ask the House to accept them.

Amendment agreed to.

Amendment made: No. 32, in page 2, line 8 [Clause 2], after 'provision' insert 'or an international agreement'.—[Ruth Kelly.]

Clause 3 — Requirements to be Satisfied

David Laws (Liberal Democrat, Yeovil)

I beg to move amendment No. 56, in page 2, line 31, at end insert—

'(1A) Regulations shall not require account providers to provide equity-based accounts, and shall make provision for cash deposit accounts, including provision for such accounts provided by building societies.'.

Alan Haselhurst (Deputy Speaker, Saffron Walden)

With this it will be convenient to discuss the following: Amendment No. 82, in page 2, line 31 [Clause 3], at end insert—

'(1A) Regulations under subsection (1) may not impose a requirement that the charge levied by the account provider must be set at less than 1.5 per cent. of the total value of the relevant funds under management by the account provider, divided by the number of child trust funds held with the account provider.'.

Amendment No. 57, in page 2, line 33 [Clause 3], at end insert—

'(2A) An account is not a child trust fund account unless it permits subscriptions of amounts of no more than £5.

(2B) The minimum amount in subsection (2A) may be increased by regulations if the Treasury is satisfied that the increase is no greater than is required to maintain the value of the amount in real terms.'.

Government amendments Nos. 36 to 39 and 41.

Amendment No. 59, in page 4, line 5 [Clause 6], at end insert—

'(1A) An account may only be selected in accordance with subsection (1) if it is an account of a description which has been designated by the Financial Services Authority in a manner prescribed by regulations as a low risk account.'.

Government amendment No. 43.

Amendment No. 60, in page 4, line 20 [Clause 6], at end insert—

'(6) Regulations shall designate a person to act generally in the stead of a responsible person in the management and oversight of provider risk and investment risk for child trust funds opened by the Inland Revenue under this section.'.

Amendment No. 78, in page 4, line 27 [Clause 7], at end insert—

'(2) No charge may be levied in respect of a transfer undertaken in accordance with the provisions of regulations under this section.'.

David Laws (Liberal Democrat, Yeovil)

The group of amendments deals with a whole series of issues relevant to the supervision of account providers and the selection and opening of accounts. I shall speak especially to amendments Nos. 56, 57, 59, 60 and 78. I am afraid that I shall cover some ground that we covered in Committee in the hope that we will receive assurances from the Financial Secretary.

Amendment No. 57 addresses whether stakeholder and child trust fund accounts could be cash-based accounts rather than being required to be equity-based accounts. We have two worries about that aspect of the Bill, the first of which relates to choice and an issue raised by the Building Societies Association. Is it appropriate for the Government to rule out providers that could offer only cash-based accounts and thus perhaps rule out several building societies that might find it expensive to make provision for equity accounts? Associated with that is a concern that we expressed in Committee about whether the stakeholder accounts should all have an equity component, and whether that would be appropriate for many people who would end up with such accounts, especially if the Inland Revenue made a decision about the selection of them.

Amendment No. 57 deals with the minimum subscription amount, and I certainly hope that the Financial Secretary will address our worry today. In Committee, we referred several times to the illustrative projections of the final proceeds of child trust fund accounts that were put out by the Government and referred to by her in the House and in front of the Treasury Sub-Committee. It was clear at that stage that the Government envisaged that the minimum subscription amount would be as low as possible, thus allowing people on low incomes to contribute easily to child trust fund accounts. Many examples cited by the Financial Secretary involved a minimum subscription of £5.

We debated in Committee an article in the Financial Times that indicated that the Government had changed their mind about the £5 minimum subscription, and we became more concerned about that as our discussions evolved due to the Financial Secretary's unwillingness to confirm that £5 was still the Government's target. We now discover from the regulations that the Government have decided to plump for a minimum subscription of £10, although it will obviously be left open to account providers to choose a lower figure if they wish.

I understand the difficult balancing act that the Government must execute in balancing account providers' desire for a reasonable return on their commitments with the Government's desire to ensure that child trust fund accounts are as accessible as possible for those on low incomes who are saving for children. I am worried that it has been necessary for the Government to move away from the £5 minimum subscription. Although many people may believe that the £10 figure is pitched at a low level, one must put that in the context of a situation in which a huge proportion of our population save little or nothing, as the Government have indicated. A huge proportion of people—even those in employment—have low incomes. Saving £10 regularly, particularly for families with two, three or even four children, could be an onerous financial responsibility. I would have preferred the Government to maintain their apparent commitment to the £5 minimum subscription. Has the Financial Secretary had any indication that any providers might be willing to accept regular subscriptions of less than the £10 minimum set down by regulation?

We had prolonged debate in Committee about the stakeholder accounts, and in particular those where the Inland Revenue and the Government would be acting in loco parentis—for example, for children in care. I had a particular concern that the Government's eagerness to ensure that everybody should be able to benefit from the potential returns in the equity market might lead to that particularly vulnerable group of young people automatically having to have equity accounts.

Last weekend, I received a letter from a company of investment managers and tax and trust consultants based in my constituency. In the penultimate paragraph, it reminded me of the quarterly performance of the funds managed by the group and stated:

"Stock market investing is risky. Please remember that the value of investments and the income from them may fall as well as rise and there is no guarantee that you will get back the amount of your original investment. Past performance is not a reliable guide to future performance."

That final sentence relates to a matter of particular concern to many of us, because it seems that the Government have decided that past performance is a reliable guide to future performance, and that the very high returns in the equity market seen since the second world war will continue. Returns in the post-war period have sometimes been extremely adverse in some markets—for example, in the Japanese equity market. We also know that before the second world war, there were long periods when returns in the equity market were considerably less buoyant than those that the Financial Secretary and the Government allude to in the material that has surrounded the Bill.

We also have the uncertainty about the potential yield on cash-based accounts. When interest rates are rising, the responsible individuals might well put the child trust fund assets into longer-maturity deposits, where there could be a significant pick-up along the yield curve. In other words, the yields that the Government seem to think are achievable only in the stock market could be achievable by putting money into longer-term deposits for periods of years.

I am not yet convinced that the Government have put in place adequate safeguards for prolonged periods when the returns from the equity market may be negative. Short periods are allowed for to some extent in the Government's provisions for dealing with these accounts as they approach maturity, but equity market returns have been negative for a prolonged period in some foreign markets over the last 20 years.

The Government need to consider safeguards to be put into place where equity markets are in long-term decline. They should also bear in mind something that the Financial Secretary acknowledged on Second Reading: there is often a relationship between the amount of individuals' financial assets and the extent of the risk that they are willing to take. Individuals with large child trust fund accounts—where, for example, parents and relatives are making large payments into the accounts or there is an affluent family background—may well be willing to accept more risk for the accounts. They know that if they endure large losses in parts of those accounts they will still have other financial assets, either in the child trust fund account or outside it.

Individuals in a weaker financial position, particularly some of those for whom the Government are acting in loco parentis, might well have a much higher risk aversion. If they had had the opportunity, they might far rather have taken guaranteed returns of 5 or 6 per cent. in a cash-based account or an account linked to Government stocks than have taken a potentially much larger risk in an equity-based account, for a return that, over a significant period of time, might not be significantly higher. I am sure that all hon. Members can understand that. When we have fewer financial assets, we are all generally less inclined to take high risks with those assets than when we have a lot of money to play with.

No doubt the Minister is motivated by legitimate concerns and a desire to make sure that people whose child trust fund accounts are managed by the Government should do as well as possible, but she needs to put in place adequate safeguards for those individuals. Some of those people, particularly if the accounts do badly, may not appreciate her taking larger risks with that money in terms of equity investment than they would have chosen to take, given that the money in their child trust fund accounts could represent a large proportion of their financial assets.

That is why we tabled amendments Nos. 59 and 60, which seek more advice and information from the Government about the safeguards that they envisage putting in place for child trust find accounts, particularly stakeholder accounts, into which the Government may put money in loco parentis. Will there be a more explicit role for the Financial Services Authority in examining the risk characteristics of those accounts? In particular, where vulnerable individuals will not be taking decisions about the equity allocation themselves, or where their parents are not taking such decisions, but the Government are doing so instead, will the FSA have any role in ensuring that the risks are reasonable, and in policing those risks over time?

In Committee, we had a not entirely enlightening debate about the individual who would act on behalf of children in care, for example, in respect of child trust fund accounts. Our discussion was predicated on the basis that the Solicitor-General would have a large role in that, but I think that the Government had in mind the Official Solicitor. The Financial Secretary has since confirmed that. In her comments to the Committee and to me subsequently, I believe that she was indicating that the Official Solicitor might play some role on behalf of children in care in respect of provider risk and investment risk, but I am not sure how far she will be able to ask the Official Solicitor to go down that route, especially as I assume that the Official Solicitor does not have the expertise to make judgments about provider and market risk.

Will the Financial Secretary clarify the responsibilities that the Official Solicitor will have in respect of accounts where the Government are acting in loco parentis? Will there be any attempt to ensure that the Official Solicitor or any other agent of the Government will manage and keep an eye on the provider risk and the investment risk inherent in the child trust fund accounts?

Our final amendment in this group, amendment No. 78, deals with the absence of charging in respect of transfers from one child trust fund account to another or one class of account managed by a single provider. That point has been addressed by the Financial Secretary in Government amendments. I am pleased that the clarification that she provided in Committee has been backed up by those amendments.

Adrian Bailey (Labour/Co-operative, West Bromwich West)

I shall explore some of the issues raised by the hon. Member for Yeovil (Mr. Laws) and, somewhat tangentially, by the hon. Member for Angus (Mr. Weir). First, I should declare an interest. I am chair of the all-party group on building societies and financial mutuals, and in another capacity, I am chair of the Labour and Co-operative group of Members of Parliament, so I have a specific interest in mutuality in the provision of financial services.

This is a very good and well-intentioned Bill that has the long-term potential to transform the prospects of people who have hitherto been unable to access the personal wealth-creating processes that are available. I want to make a few comments about how we can maximise that potential.

In the long term, the Bill's success will depend on its ability to attract low-income families into the habit of saving for their children. There is little point in the Government merely introducing yet another savings plan for middle-class children, because there are already plenty of those. Traditionally, because of their strong community roots and perceived safety, building societies have been the main source of savings products for low-income, working-class people—particularly in the context of children's savings, where they have played a pioneering role. The movement is concerned about the fact that the regulations stipulate that any provider must be able to offer both savings and equity-based products, which means that some 17 of the 63 building societies will be excluded because they cannot offer the latter.

There are two possible responses. The first would be that those building societies should look to make the necessary arrangements to offer equity-based products. However, to secure the necessary compliance from the Financial Services Authority, they would have to enter into arrangements that would cost them considerable sums, making the whole process economically unfeasible. That most affects smaller building societies with the closest roots in particular communities, which means that those communities could be disadvantaged.

The other response would be to ensure that financial providers that can offer equity-based products can move into the market. One potential obstacle to their doing so was removed by today's announcement of the cap in the regulations allowing them to charge up to 1.5 per cent. in management charges. If that had been set at a lower rate, they would have found it financially uncompetitive to offer such products.

Even in this context, low-income people have natural reservations about entering into equity-based savings schemes, because they tend to put a premium on safety and perceive mutuals to be more likely to deliver that. I am seriously worried that if equity-based providers do not want to target low-income people in certain areas, and no mutual is capable of delivering a savings product there, we could end up with deserts without provision. I hope that the Minister will monitor that position carefully.

I am worried about other issues. First, as things stand, credit unions will also be excluded from the provisions, because they cannot provide equity-based products. There is a certain irony in savings institutions that have pioneered the savings habit among the lowest-income people, and in some cases with children, being excluded. For example, the Glasgow credit union, with 17,500 members and £40 million of assets, is very keen to launch a deposit-only child trust fund. The Leeds City credit union, with 14,000 members, £11.5 million of assets and, above all, a schools programme with 2,000 young savers, would also be potentially excluded. I hope that the Financial Secretary will examine how the scheme works with a view to trying to bring on board those institutions that have developed that savings ethic among low-income, working-class children.

Secondly, under the default provisions, people who do not take up the provisions will almost certainly have their accounts put with an equity provider by the Inland Revenue. Those will tend to be people on lower incomes who will be even less confident about dealing with an equity provider. As a result, I do not believe that the potential of such a role will be fulfilled. Thirdly, the minimum £10 monthly requirement to save, which has been mentioned previously, could be a deterrent to people on very low incomes, who would not be able to fulfil their full savings potential.

In total, the Bill is excellent. However, certain areas need to be monitored closely to ensure that the policy is reaching those people whom we most want to help and whom we feel will most benefit. I am reassured first by the Financial Secretary's history of support for mutuality—her contribution in relation to Private Members' Bills is recognised and acknowledged—and by her comments today and in Committee that the Government will review and monitor the working of the legislation to ensure that it achieves the objectives that have been set out. If the concerns that I have raised appear to be materialising, I hope that she will take steps to ensure that the Bill's full potential is fulfilled.

Michael Weir (Scottish National Party, Angus)

I am pleased to follow the hon. Member for West Bromwich, West (Mr. Bailey) and I agree almost entirely with his comments.

I raised this matter both on Second Reading and in Committee, because I am concerned that many small building societies will not be able to offer child trust funds. We have seen almost a flight from mutuality over the past few years, and the main Scottish mutual life insurer, Standard Life, is now seriously considering going down the plc route, too, which will remove most mutuality from the life assurance business, at least in the Scottish context.

In Scotland, only two building societies remain: the Dunfermline building society and the smaller Scottish building society. Under the Bill, the Scottish building society will not be able to offer a child trust fund. That is a shame, because over the past few years it has opened agencies in many small towns from which many of the bigger building societies have pulled out, with some following plc status and some closing agency networks. I am not sure whether it is common in England, but in many small Scottish towns it is common for a solicitor, accountant or other professional to have an agency from a smaller building society.

There is a bigger issue, however. As I have said previously, many people consider the traditional building society account to be a safe investment. The Financial Secretary said in Committee that the provider's main mechanism for selling funds was a direct offer, with little or no face-to-face advice. That concerns me greatly, as I suspect that many people who receive such an offer will not read all the small print and all the documents that come with it. That strengthens the case for allowing people to invest in something with which they feel comfortable—an ordinary deposit-based building society. I understand the Financial Secretary's argument—we have been through it several times—about equity-based investment working over a longer period, but it will not necessarily persuade many people who view the money as a significant sum that they would not otherwise get.

I understood that one of the objects of the child trust fund was to encourage people to save more for the future and to encourage financial acumen. I have a horrible fear that, if we do not give people the option of saving in a way with which they are comfortable, the object will fail. If people are forced by circumstance to have an equity-based investment that they do not understand, they are unlikely to put more funds into it. The problem would be compounded for those on lower incomes by the nature of most of the equity-based funds.

We have heard today that, according to the regulations, a minimum investment is expected to be £10 a month—a substantial commitment for anyone who has more than one child and exists on a low income. The beauty of an ordinary deposit based account is that one can put in money when one can afford it. Families on lower incomes thus have the option of investing for their children's future when they can do so, without committing themselves to the regular investment that equity-based accounts require. We therefore exclude people from what I accept, as a supporter of the Bill, to be a good system.

For many people, equity-based funds will be fine, but others will be excluded—the very people whom we need to reach to improve their financial acumen and get them to save for the future. That is a serious defect in the Bill, and I ask the Financial Secretary to reconsider yet again, but I am not confident that she will do so.

George Osborne (Conservative, Tatton)

I shall speak about my remarkably prescient amendment No. 82. Before I do that, I want to point out that one of the most serious handicaps that hon. Members experienced in scrutinising the Bill is the absence of the detailed regulations on which most legislation greatly depends. Indeed, the success of child trust funds will depend on regulations. It is worth remembering that at the beginning of the process, the Treasury Sub-Committee stated:

"The Child Trust Funds Bill was introduced into the House without the relevant regulations covering important aspects including the proposed sales regime. We consider that these must be produced in time for the standing committee to consider them thoroughly."

Of course, they were not produced. The White Paper promised them before the end of last year, but they did not appear then or during our Committee proceedings. Indeed, they appeared only yesterday—too late for any amendments that the hon. Member for Yeovil (Mr. Laws) or I could have tabled to be selected. That is a shame.

However, I struck gold because I tabled amendment No. 82, which suggested that the charge cap should be 1.5 per cent. Yesterday, the Government announced their decision to abandon the 1 per cent. charge cap, which they set out in their response to the Sandler review and in the White Paper. They decided instead to set a charge cap of 1.5 per cent. That is a U-turn, albeit not as dramatic as the Prime Minister's U-turn on an inquiry into weapons of mass destruction. However, most of the press comments on it today.

It would be churlish not to welcome the decision, not least because I predicted it and tabled amendments to that effect in Committee. I have also tabled a similar amendment on Report. I propose a charge cap of 1.5 per cent. on, as I conceded in Committee, a remarkably unscientific basis. I took the 1 per cent., to which the Government appeared to be sticking, and the 2 per cent., for which most of the industry were calling, and suggested that we split the difference. Although unscientific, it was considerably cheaper than commissioning Deloitte and Touche to devise the same answer. Nevertheless, the Government and I reached the same conclusion by different routes.

The Financial Secretary has been right to listen to the arguments advanced by the financial providers and by me and others during the passage of the Bill. With a charge cap of 1 per cent. there would have been very few child trust fund providers, most of whom would probably have cherry-picked at the more prosperous end of the market. The Government were right to swallow their pride and get themselves off the hook that they had put themselves on last July over Sandler. I agree with what the Minister said in her written ministerial statement yesterday:

"The Government's decision on the charge cap is in the best interests of consumers, as it encourages as wide a selection of providers as possible to offer child trust fund accounts. A large number of providers will encourage competition and ensure the best value for consumers."—[Official Report, 2 February 2004; Vol. 417, c. 25WS.]

I agree with every word of that.

I shall be interested to see whether the Minister follows a similar logic with other stakeholder products over the coming months. Ignoring what she has said before, I would urge her to look at stakeholder pensions, for example. Pensions are not part of my shadow Front-Bench portfolio, but one of the things that almost every provider said to me when I was talking to them about child trust funds was that they did not want to go down the route that they took with stakeholder pensions, which are not working. They cited the 1 per cent. charge cap on stakeholder pensions as a particular problem, but that is an issue for another day. I hope that the Minister will approach the question of charges for stakeholder products with the same open mind with which she has approached child trust funds.

Government amendment No. 39 represents another welcome U-turn, because it opens the door to allowing parents to open accounts by means other than physically handing in a paper voucher to a provider. It will allow them, for example, to open an account by telephone or on the internet. I know that it will be possible to open an account in that way anyway, and I am sure that many providers will offer that service, but the amendment will mean that they will not then physically have to send in their voucher.

In amendment No. 39, the Minister has given herself some room for the future, because she has removed from the Bill the requirement to provide a voucher to the financial provider and has at least opened the door to other methods. That is sensible, because we expect child trust funds to be with us for some time and, with all the developments that are taking place in technology, she would have been foolish to tie herself to a paper-based system. It is a shame, however, that she has not bitten the bullet and abandoned the idea of a paper-based scheme right from the start. I notice that on page 6 of the regulations there is still a requirement for the applicant to give the voucher relating to the named child to the account provider.

All the providers and trade representatives whom I have spoken to made the point that the voucher was a cumbersome, bureaucratic and unnecessary feature. I do not accept the argument advanced by the Inland Revenue that it is all to do with the prevention of fraud. There are many sophisticated ways of preventing fraud by electronic means these days, and far larger sums of money are transferred electronically than will ever be transferred in the entirety of the child trust fund system, let alone in any individual account.

Will the Minister assure us that she will monitor the way in which the system is working? I understand why she does not want to change it now—not least because she has already published the regulations—but will she do all that she can to allow providers to offer an entirely telephone or internet-based system, perhaps once the funds are up and running, when the system is working fine and when she has reassured herself that the scope for fraud is limited?

Ruth Kelly (Labour, Bolton West)

I shall deal with the Opposition amendments first. The child trust fund account is a long-term investment for 18 years. Although the value of shares can go down as well as up, the historical evidence is that shares provide the best returns on such a long-term investment.

In Committee, we had lengthy debates with the hon. Member for Yeovil (Mr. Laws), among others, about the historical returns on equities in this country and other countries, and I do not intend to repeat those arguments here. Amendment No. 56 proposes that account providers need not provide equity-based accounts. The Government's position, however, is that all children should have the opportunity to benefit from the generally higher returns on equities over the longer term. The child trust fund stakeholder account that all providers will be required to offer will be equity based and risk controlled, and the charge cap will ensure that they provide value for money. Amendment No. 56 also proposes that provision be made for cash deposit accounts, including those provided by building societies. Draft regulations for the child trust fund ensure that parents may indeed invest in cash deposit accounts, including those offered by building societies, if they wish to do so.

I turn now to arguments advanced by my hon. Friend the Member for West Bromwich, West (Mr. Bailey), who has sustained a long-term interest in these matters, both before and after he became a Member of Parliament, and by the hon. Member for Angus (Mr. Weir). My hon. Friend argued that the success of the child trust fund depends on the savings that low-income families contribute to the fund. I do not dispute that. One indicator of success will be the savings contributed to the funds, but I am sure that he will accept, as I argued several times in Committee, that there is more than one factor in the success of the accounts. Other factors include the size of the asset that has built up for the child and is available to them at 18; the financial education attached to that, including the understanding of risk and reward; and whether responsible choices are made by the child at the age of 18. All those factors are important to the development of the policy. However, I accept my hon. Friend's argument that certain building societies, particularly some of the smaller ones, have special relationships with low-income communities. They may have deeper community roots, and indeed are highly regarded by some low-income communities as a particularly safe source for their funds. Families and individuals may well have well developed relationships with particular providers.

I respect the arguments made by hon. Friend, and I hope that I can reassure him that I have considered the issue seriously. Most building societies, I am told by the Building Societies Association, will indeed be able to offer the stakeholder fund as well as the cash-based account. More importantly, given changes to the rules under which the Financial Services Authority operates and the depolarisation changes that it is bringing into effect, it will become possible for smaller building societies to team up with partner firms, which could provide the stakeholder account while the building societies provide a cash-based account. They will therefore be able to offer a range of accounts to people in low-income communities if they think that there is demand for them and apply for authorisation if they have not already done so. It is important that individuals and families in low-income communities are given the opportunity to have an equity-based account. Indeed, it would extremely negative if they did not have that opportunity and, as a result of living in a particular geographic location or having a particular relationship with a financial institution, were deprived of the growth opportunity available through a stakeholder account.

David Laws (Liberal Democrat, Yeovil)

On the point made by the hon. Member for West Bromwich, West (Mr. Bailey) about whether smaller building societies would have the capability to offer cost-effective delivery of equity-based accounts, will the Minister confirm that the discussion with the FSA to allow smaller building societies to team up with larger building societies took place recently? Clearly, when the Building Societies Association wrote to Committee members on 15 December, it did not believe that such delivery would be possible, and said that 17 of the 65 building societies would not be able to offer the equity-based account.

Ruth Kelly (Labour, Bolton West)

I understand that, while 17 societies would not be able to offer stakeholder accounts on their own, if the demand existed there would be no reason for them not to team up with the partner firms. The FSA's change in the polarisation rules is a relatively new development and I do not know the extent to which it had been factored into the thinking of the Building Societies Association when it wrote to MPs, but the fact remains that if societies see a demand they will be able to offer accounts to individuals and families with whom they have a relationship.

The hon. Member for Tatton (Mr. Osborne) was pleased that we had decided to set the charge cap at 1.5 per cent. I am delighted that he foresaw that. I have always made it clear to Members, and to people outside, that decisions on the charge cap in relation to stakeholder products will reflect the economics of those products. It will be a case of "what works" in each case.

I also made clear, in my written statement to the House, that the economics of the child trust fund were different from those of other stakeholder products. For a start, lower minimum contributions are required. The nature of the contributions is likely to be very different from the nature of, for instance, a stakeholder pension: the contributions are likely to be less regular and of lower value. The market is also structured very differently. We want to encourage diverse providers into the market to ensure that consumers' needs are met, and that includes encouraging building societies.

All those factors were taken into account by the research report given to us by Deloitte and Touche. We concluded, on the basis of the evidence, that a 1.5 per cent. charge was appropriate in this case. I should emphasise that that is a maximum—a cap on the amount that a firm offering stakeholder products can charge. It is desirable and, I hope, likely that providers will compete below the cap. Indeed, I have negotiated with providers who have told me of their commitment to 1 per cent. The 1.5 per cent. provision is a backstop to ensure that there is enough competition for low-income consumers in particular to feel that their interests are being met. Similar considerations apply to the minimum contribution level. The figure of £10 specified in the draft regulations is also a backstop. Again, I expect competition to drive it down if the demand is there. Firms have told us that they would accept lower levels, particularly if regular payments were made.

I have also made it clear that firms must state their minimum contribution up front. If they intend to set it at £10, that must be made clear to parents when they open accounts. Parents can of course switch at any time, free of charge, if they decide that the account does not suit them.

The draft regulations also specify the risk controls that will apply to stakeholder accounts. The provider will be required to diversify investments and to move over time into cash-based assets as a fund nears maturity in order to lock in the gains made from equities in the early years.

I find the argument advanced by the hon. Member for Yeovil rather strange. I fail to understand his logic. It is difficult to see what purpose would be served by asking for additional risk controls to be set by the FSA, over and above what is already proposed. Additional provision would over-complicate accounts. If the hon. Gentleman wants the FSA to consider parents' individual circumstances and decide whether an equity account would meet their needs better than a cash account, I can tell him that that would be inappropriate.

Amendment No. 60 would amend the regulations to designate a responsible person for child trust funds opened by the Inland Revenue. The hon. Member for Yeovil has assumed that where the Inland Revenue opens a child trust fund account for a child, there will not be a responsible person willing to consider which provider or which investment is best.

We will, of course, encourage parents—or someone with parental responsibility—to ensure that they take full responsibility for a child's account, and that important point will be a key message in our information and guidance on the child trust fund. We will monitor take-up by parents closely, and if large numbers of them are not using their children's child trust fund voucher we will call them to encourage them to do so. Parents can even take responsibility for the account after the Revenue has opened it. We know that some parents lead such busy lives that they may be so preoccupied with other matters that they fail to open the account before the child reaches the age of one. In that case, however, it is possible that later on in the child's life the parents will decide to activate their parental choice, switch provider and take full parental control of the fund. Nevertheless, the stakeholder account has been designed to offer the best prospects to children over the long term, even if there is no active management.

The hon. Member for Yeovil is concerned about children in care, looked after children and the role of the Official Solicitor. We have not yet finalised the possible role of the Official Solicitor, with whom we are still negotiating, but I can confirm that we have discussed the need for the Official Solicitor to consider whether the account is performing poorly. The hon. Gentleman's concerns about an equity market slump or liquidity crisis that have driven him to make his many and varied comments would be the sorts of the concerns that the Official Solicitor, if he or she were to accept that role, should consider.

David Laws (Liberal Democrat, Yeovil)

The Financial Secretary is teasing me, but at the same time she appears to be indicating that the Government might take up my suggestion, so I am not sure whether she is in favour of it. Does she envisage a situation in which the Official Solicitor could consider provider risk and investment risk for the accounts of children in care? Is that what she is trying to persuade the Official Solicitor to do?

Ruth Kelly (Labour, Bolton West)

I am arguing that the Official Solicitor would act in loco parentis and take into account the same considerations as one might expect a parent to take into account.

On the Government amendments, I remain of the opinion that giving a voucher with the child's name on it to providers is the key to the operation of the policy, but it is also the key to operational efficiency and the most effective fraud deterrent as well. Possession of the voucher will enable providers to get Government payments into children's accounts as quickly as possible because they will be able to transfer the data encoded on the voucher to the Inland Revenue without risking the inevitable errors created by the manual transfer of such information and the need to return the claim for correction.

We have learned from our experience of individual savings accounts, which has benefited the child trust fund policy. It is not unlikely that the same type of errors that have arisen in relation to ISAs will be made with child trust funds. We want to minimise delays due to wrongly opened accounts and inaccurate information, and data transfer using the voucher will help to achieve that. I am convinced that that is essential to ensure that the process for claiming Government endowments runs quickly and smoothly. However, I accept that we should retain an element of flexibility on that point in the future and that it would be sensible to amend the Bill so that that requirement is in the regulations rather than in primary legislation. I have no evidence to suggest that the impact on fraud will somehow lessen or go away in years to come, but it is sensible to retain an element of flexibility.

I hope that my arguments have reassured both my hon. Friends and Opposition Members, and that they will withdraw their amendments.

David Laws (Liberal Democrat, Yeovil)

I am grateful to the Financial Secretary for her comments on several different amendments that deal with distinct issues in the Bill. I am pleased that she has offered a little more insight into the role of the Official Solicitor. However, this is a particularly critical issue, given that we are dealing with children in care, whose interests need to be properly looked after by the Government. I should therefore be very grateful if the Financial Secretary could update us on this issue, once her Department has agreed with the Official Solicitor just how proactive he or she is going to be. I do not know whether the Financial Secretary will succeed in persuading the Official Solicitor to take on what could be quite interesting investment responsibilities.

The hon. Member for West Bromwich, West (Mr. Bailey) raised a number of important points about making the child trust fund account accessible to low-income savers, rather than simply making it another savings option and savings break for the more affluent in society. I very much agree with what he said, and I hope that the Government will review some of the key issues that we have covered, including the minimum subscription amount, to see whether their decisions are making accounts more inaccessible to those from lower-income backgrounds.

Finally, I was very pleased to hear the Financial Secretary's comments on building societies. I assume that somebody at the Financial Services Authority will be available to talk to the Building Societies Association about the question of smaller societies twinning with larger ones, if they so wish. On that basis, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 5 — Opening by Responsible Person

Clause 6 — Opening by Inland Revenue

Clause 9 — Supplementary Contribution by Inland Revenue

Clause 19 — Payments After Death of Child

Clause 22 — Rights of Appeal

Clause 24 — Temporary Modifications

Clause 27 — Commencement

Clause 29 — Interpretation

Ruth Kelly (Labour, Bolton West)

I beg to move, That the Bill be now read the Third time.

The child trust fund is a radical and ambitious policy with four key objectives. They are helping people to understand the benefits of saving and investment; encouraging parents and children to develop the savings habit and engage with financial institutions; ensuring that in future all children have a financial asset at the start of adult life; and building on financial education—working with the Department for Education and Skills and the Financial Services Authority in helping people to make better financial choices throughout their lives.

The Third Reading of the Bill is a milestone on the route to achieving that ambitious policy. I am grateful to right hon. and hon. Members in all parts of the House for their support and constructive debate today and in Committee—when our deliberations were steered efficiently by my hon. Friend the Member for Bootle (Mr. Benton) and the hon. Member for Southend, West (Mr. Amess). The hon. Member for Southend, West commented that it was a model Committee. I have Opposition spokesmen to thank for that praise because their contributions were invariably made in the spirit of improving the Bill.

The value of our debates in Committee is demonstrated today by Government amendments tabled to reflect proposals discussed and agreed. The Government have presented an amendment to lower from 18 to 16 the age at which young people can manage their accounts, Young people will not be able to touch the funds until they are 18, but from 16 they will be able to make their own investment decisions. I am delighted that the House supported that amendment, which is a real improvement to our policy.

Debate in Committee focused also on the need for providers to collect the child trust fund voucher before opening an account. I still feel that collection of the vouchers is the best method to reduce errors and deter fraud, but I have signalled, by tabling an amendment allowing that feature to be changed in regulations, that the issue will be monitored in the future.

Concern was expressed about who might act for children in care in the unusual circumstances where no one had parental responsibility. I was able to inform the Committee that we were holding discussions with the Official Solicitor about whether his office could take on that role. Members will understand that a sensitive issue such as that needs to be considered thoroughly, so it was not possible to introduce an amendment at this point, but it is our intention to do so when the Bill is considered in another place.

Perhaps one of our most important debates in Committee was on the question of whether the child trust fund should have special rules for disabled children. I pay tribute to the efforts of the hon. Member for Witney (Mr. Cameron) for moving important and interesting amendments on that subject. In Committee, I promised that I would give the matter serious consideration. There are some difficult issues, both of concept and practice, and they cannot be rushed. Furthermore, I have made it clear that changes could be made by regulation without the need to amend the Bill.

Members of the Committee expressed particular interest in the level of the charge cap and the minimum contribution that providers would have to accept from parents and others who invest in the child trust funds. I am pleased to tell the House that the charge cap for stakeholder child trust fund accounts, which all providers will be required to include in their range of child trust fund accounts, will be 1.5 per cent. The decision to set the cap at 1.5 per cent. recognises that the child trust fund has certain key features that are not typical of other products in the stakeholder suite, such as stakeholder pensions. The funds in CTF accounts will be lower than funds in pension funds, for instance, and there will also be a lower level of minimum contribution than for other stakeholder products.

Providers will have to accept contributions of £10 and above for the stakeholder child trust fund account. The minimum contribution level has been chosen to ensure that the child trust fund is accessible to as wide a range of savers as possible, including those who might find it difficult to make regular contributions.

Andrew Love (Labour/Co-operative, Edmonton)

I thank my hon. Friend for informing the House about the charge cap, which I think everyone accepts, and about the minimum deposit required. After the child trust funds have been introduced, will she consider a review of the minimum amount of £10, to determine whether low-income groups, in particular, have been able to meet that hurdle, so that we ensure that they can save properly with the child trust fund?

Ruth Kelly (Labour, Bolton West)

I certainly give my hon. Friend that commitment. Accessibility for low income groups is a vital component of the success of the policy. I anticipate that some providers will accept lower levels of contribution, especially if they are regular. I have also made it a requirement that they tell customers up front what the minimum contribution is likely to be, so that families and individuals, especially those on low incomes, can make appropriate choices in the best interests of their child.

Members will be interested to hear that there are no charges for transferring between different types of CTF account—whether between a stakeholder account and other types of account, or between providers. For example, if a family on a low income suddenly find that they are unable to make a contribution of, say, £5 with their current provider, they are at liberty to switch, with no charge, to another provider who accepts lower amounts. A key objective of the child trust fund is to improve financial literacy, so I judged it appropriate that there should be no charge for families who choose to switch provider.

The child trust fund is a foundation on which we can build. I believe it is the key to creating a real change in people's ability and desire to save for the future, so that children can make the most of their opportunities. I ask hon. Members to support the Bill, and I commend it to the House.

George Osborne (Conservative, Tatton)

This is the first Bill that I have shadowed as an Opposition spokesman. It has been a steep learning curve, but I have enjoyed it, especially as the Committee process was particularly constructive. That was largely due to the Financial Secretary, in the sense that it is in a Minister's hands to determine the mood of the Committee—it depends on whether he or she accepts amendments and is prepared to listen to arguments. I served on several Committees as a Back Bencher and on one Committee as a Whip, and it is fair to say that we made more progress on this Bill and that there was a more constructive dialogue than in all those other Committees put together, so I thank the Financial Secretary, as without her input that would not have happened.

I thank the other members of the Committee, including the hon. Member for Yeovil (Mr. Laws), who speaks for the Liberal Democrats. We occasionally co-operated with each other and worked out where we would cause Divisions and so on, so I thank him for his support. I particularly thank Colin Lee, the Clerk to the Committee, who gave me an enormous amount of help, not least because, as I say, this was the first Bill that I have shadowed for the Conservative party. Perhaps it will be the last Bill that I shadow—it depends on when the general election takes place.

On Second Reading, I said that we Conservatives support the principle behind the Bill because we believe in the value of savings. We believe that savings nurture independence, that they encourage self-reliance and that they bolster the individual against the state. I also said that we did not stumble across those beliefs through a focus group, an Institute for Public Policy Research summit or some belief in asset-based welfare—they are rooted in the Tory tradition—but that we had concerns about the detail.

I am pleased to say that many of those concerns have been addressed by the very constructive approach that the Government have taken in considering the Bill. For example, I shall repeat some of what the Financial Secretary has just said. She accepted that 16 and 17-year-olds should be able to manage their accounts. The Government agreed to consider the situation of children with terminal illnesses. They looked very constructively—the Financial Secretary is still doing so—at the proposal made by my hon. Friend the Member for Witney (Mr. Cameron).

The Government have agreed to work with providers on the opening up of child trust funds to elder children and to consider regulatory changes if they are required. They have agreed to consider options to help children in care, and the Financial Secretary said some interesting things about that today. She has opened the door—no more than that—to a telephone and internet-based system, rather than a voucher system, by amending the Bill. She accepted the argument that sticking with a 1 per cent. charge cap would have been a mistake. I am glad that she recognised that and agreed with the 1.5 per cent. figure.

All that represents a constructive approach, but it would be a mistake to say that we do not still have some concerns, not least about the extension of means-testing to a cradle-to-grave society. We are instinctively against the extension of means-testing; it is our greatest concern, but we discussed that in Committee and I knew that it was unlikely that we would change the Government's mind on that.

Only time will tell whether child trust funds succeed in encouraging savings, educating people about the value of saving and spreading financial education. I suspect that we will not really know for 18 years whether they have been a success. We will then start to see how people spend or invest the money that they have at the age of 18, and there may be some horror stories at the time, but we shall see. Conservative Members are committed to trying to make child trust funds work, so we will support the Government if there is a Division tonight.

Hilton Dawson (Labour, Lancaster and Wyre)

I have never before served on a Standing Committee that has considered a Treasury Bill and, frankly, it is an experience that I would have avoided before now. We have talked a lot about financial education. I am one of those people who tends to avoid banks, building societies, financial institutions, regulations and all those worrying things, but I have thoroughly enjoyed serving on the Committee, partly because of the Front-Bench spokesmen and my hon. Friend the Financial Secretary, who have occasionally characterised themselves, and been characterised, as the young, thrusting generation of the House. We have been talking about a Bill whose effects we will only see over a generation and the generations beyond that. By the time that the first trust funds come to fruition, I can confidently predict that my hon. Friend will have attained great eminence in government, and I am sure that the other extremely able. Members will have enjoyed themselves making small achievements amid the general wastes of Opposition for many years to come.

It is important to recognise that the consideration of the Bill has been helpful and constructive, because underlying the whole debate has been the recognition that its proposals have enormously exciting potential. We heard about the grand old Tory values of savings, self-reliance and all the rest of it, but the Bill is new Labour. It is a universal provision that addresses the most serious issues in our society: child poverty, the urgent and desperate need for regeneration and the absolute need to ensure that every child in our society has real opportunities to succeed and make the best of what they have. It takes an entrepreneurial attitude towards the future and gives young people the chance to own a substantial asset. It will create an imaginative process and implement a grand proposal that will tackle poverty and help people to address their own circumstances and future in a way that neither this country nor any other country in the world has ever seen before.

I am sad, in a way, that we have not reached the conclusion that I wanted on a matter about which I feel strongly—children in care. However, I am encouraged by the idea that over the next 16 years—the next generation—people who work with children, and children themselves, will have the opportunity to determine the way in which the development of child trust funds may be adapted, adopted and improved to support children's lives in ways that we have perhaps not been able to foresee readily during the Bill's parliamentary stages.

Some grand ideas were expressed in Committee by not only the Government, but the Opposition. Ideas on working with and supporting children with disabilities and the way in which trust funds could be adapted to meet their needs in a new future of social care are important and point the way forward. A good Committee considered a good Bill that implements a truly inspirational idea and gives us something for the future of which we can all be proud.

David Laws (Liberal Democrat, Yeovil)

The hon. Member for Lancaster and Wyre (Mr. Dawson) started his speech by saying that he was not always invited to serve on Committees to consider financial Bills, and that he had not expected to enjoy his experience in Committee. I share his view that our scrutiny of the Bill has been especially interesting. I warn him not to read too much into his experience on that Bill Committee, however, in case any of his Whips come running to ask whether he wants to serve on the Finance Bill Committee. I assure him that that is an altogether different prospect—I give him that advice freely and constructively.

We have been engaged in a good constructive process over the past few weeks. Our consideration of the Bill has undoubtedly been interesting because whether one agrees or disagrees with the Government's proposals—we have disagreed—their effects will clearly be felt by many families throughout the country, so it was important for us to get the Bill right and amended as best we could. I pay tribute to the Financial Secretary for her constructive approach throughout our proceedings and her patience and tolerance when I pressed her on Japanese equity markets and other such matters on many occasions, without necessarily getting very far.

It has also been a pleasure to work with the hon. Member for Tatton (Mr. Osborne), who on occasion has been more critical of his own amendments than of the Government's, and has brought great honesty and candour to the Conservative Front Bench. Now we accept that the hon. Gentleman speaks for the Conservative party on this issue, and after its previous leader went out of his way some time ago to criticise the proposal, the hon. Gentleman has clarified its position on this matter.

I also pay tribute to the Clerk of the Committee, who was extremely helpful to Opposition Members in particular, especially as those on the Front Bench for both parties were relatively inexperienced. His assistance in the drafting of amendments was particularly useful. In addition, I thank those who chaired our proceedings, and the Minister's staff, who no doubt had to do a great deal of work in responding to the amendments.

I also thank the Minister for amending certain parts of the Bill to take on board some of the considerations expressed from the Opposition Benches. She mentioned the important issue of account management at the age of 16, on which the Government have made genuine progress. It is also clear that they will introduce regulations to deal with the issue of terminally ill children, which is extremely important, and I welcome the fact that the Minister has made it clear that no charges will be imposed on transfers.

There are a number of issues that we hope the Minister will return to at some stage, either because of undertakings that she has given or because the passage of time proves that our concerns were justified. In particular, I drew attention to the minimum subscription level, which we remain uncomfortable about leaving at £10. We would like to see the accounts more open to low-income savers. I also drew the hon. Lady's attention to the issue of children in care. She has agreed to look into the matter and review the progress of our support for children in care in its totality.

I have often expressed my concern about the emphasis on equity-based investment for the accounts to be opened by the Inland Revenue, including the accounts of children in care. I am pleased that the Minister said tonight that she was thinking about how that can be dealt with, including through the involvement of the Official Solicitor. If I were the Official Solicitor I would be pretty nervous about taking the responsibility of monitoring the accounts and investment returns, unless I had a guarantee that my time in that job would not last the full 18-year life of a child trust fund account.

We pressed the Minister on access to the accounts for 16-year-olds, particularly those in full-time work. I acknowledge that it seems unlikely that she will change her mind on that subject.

In Committee we had debates, which we did not air again tonight, about the interaction between child trust fund accounts and the benefits system, including issues such as the deprivation of capital. There was not much movement from the Minister on those issues in Committee, but I hope that she will keep them under scrutiny, so that if it turns out that some of the concerns were justified, the Government will be able to respond to those concerns as evidence bears them out.

I am afraid that in the final stages of Third Reading, I shall add a somewhat discordant note. As the Minister knows, we do not share her enthusiasm, and the enthusiasm of her hon. Friends and most Conservative Members, for the Bill. Our reservation is not based on the details—important, but details none the less—that I have just outlined. Our concern is about the bigger issues involved in the Bill—whether it will succeed in doing what the Government have said it will, and to some extent whether the Government are spending the large amount of money involved in the most effective way, particularly if they are concerned about child poverty.

Andrew Love (Labour/Co-operative, Edmonton)

I should like to ask the hon. Gentleman the question that he has been asked throughout the passage of the Bill. He was constructive in Committee, and has been the same so far on Third Reading, and that constructive approach included tabling amendments that would have enhanced the Bill. Does he see any contradiction between that and his opposition to the Bill overall?

David Laws (Liberal Democrat, Yeovil)

The hon. Gentleman may not be surprised to hear that I see no contradiction at all. We said at the beginning of the debates on the Bill that we were fundamentally opposed to it, because we did not believe that it would achieve its objectives, and because we thought the money could be better spent elsewhere. We made it clear that we would seek to amend the Bill, in Committee and elsewhere, as effectively as we could, to improve it. That seemed the sensible and constructive thing to do.

Nobody has mentioned in detail, although the Financial Secretary may have touched on them, the four fundamental reasons that the Government set out to justify the introduction of the child trust fund account. I shall run through them briefly, so that we can see whether the Government have satisfied the House that those objectives will be met. The first two seem to be more or less the same—first, to build on financial education to help people make better financial choices, and secondly, to help people understand the benefits of saving and investing.

We have questioned, as have the Institute for Fiscal Studies and others, whether the child trust fund accounts will succeed in those objectives, and whether money invested in financial education in schools could achieve that out-turn more effectively. After all, it was not until the past couple of days that the Financial Secretary accepted the proposal that 16 and 17-year-olds should be able to manage their own accounts, and that children should have any involvement in the running of those accounts. They were to have been run entirely by their parents, which seems an odd way to give people financial experience and education. We do not believe the Government have demonstrated that the large amount of money to be spent on the Bill satisfies those two criteria. The Minister referred in Committee to evidence-based policy. On these two objectives, we see a lack of clear economic evidence that the Bill will have the effects that the Government intend.

The third stated objective was that the Bill would ensure that in future all children had a financial asset at the start of adult life. That seems to be at odds with the Government's recent decision to encourage students to take on greater debt to fund themselves through university. The question is whether people need financial assets at particular periods of their life, or whether there is a rhythm in the way in which people earn money and save money, which means that the Government should leave those matters to people themselves, rather than interfering. There seems a particular contradiction between the Government's determination to give young people, through the Bill, assets at the age of 18, and their willingness to encourage people to take on debt at a similar age to fund themselves through university.

Hilton Dawson (Labour, Lancaster and Wyre)

Will the hon. Gentleman take into consideration the fact that the poorest 30 per cent. of students going into higher education will have substantial grant assistance? Might that not complement the asset that they will have in the child trust fund?

David Laws (Liberal Democrat, Yeovil)

I accept the veracity of the hon. Gentleman's point, but it does not address my concern that Government policy appears to be heading in two contradictory directions. On one hand, there is the desire and willingness for people to have large financial liabilities at the age of 18, and the Government say, "Don't worry, you can pay it off through your income. You'll earn a lot of money over your life in employment. You shouldn't be worried about having the debt." On the other hand, the Government say that it is vital to give children a financial asset at the beginning of their working life. Those two things are clearly contradictory.

The final objective of the Bill was to encourage parents and children to develop the savings habit. That implies that the Government expect additional saving as a consequence of the Bill; otherwise the Bill would simply shift the savings habit from one savings vehicle to another. I have not seen a shred of evidence that suggests that the Financial Secretary knows whether the Bill will increase saving. Not only has she been unwilling to put a target on the additional savings, but she has been unwilling even to estimate the extent to which the Bill will increase saving. That suggests a certain scepticism on the part of the Government, or at the very least uncertainty about whether their policy will deliver one of the stated objectives.

The Financial Secretary will say that the Government have received many representations from individuals and corporate entities welcoming the Bill. As I pointed out earlier, that is not surprising, given that the financial market providers ought to gain business from the activity envisaged in it.

Lest it seem that these are only Liberal Democrat objections, I want to bring the House back to some of the comments that have been made by independent bodies that have scrutinised the Bill—[Interruption.] They include not only the Institute for Fiscal Studies, as the hon. Member for Tatton suggests, but the Treasury Sub-Committee, whose Chairman commented that the proposals in the Bill were likely to be of most benefit to better-off families. That must surely worry the Financial Secretary.

In connection with the Government's four objectives, I draw the Financial Secretary's attention to comments made by the Institute for Fiscal Studies. In its report of October 2001, it evaluated the savings gateway and the child trust fund and concluded that

"it is not possible to state with certainty whether the Child Trust Fund or the Saving Gateway will lead to an increase, a reduction or no change in the rates of saving among the target groups."

The Minister should take the IFS's representations seriously, because I can think of no more independent and credible body that has made representations to the Government on the Bill. Its criticisms have covered a wide variety of areas. For example, it also questions whether the educational aspects of the Bill are best delivered through the child trust fund or could be better delivered through improved financial education.

In its paper to the Treasury Sub-Committee in November 2003, the IFS summed up its position by saying that the policy has not been satisfactorily justified, and went on to say:

"it is quite possible that the immediate beneficiaries of the Child Trust Fund will be richer families who can substitute the endowment payment for saving that they would have done for their children, and so increase their current consumption. Families who would not have saved for their children, many of whom will be poorer families, will have to wait eighteen years to benefit from their Child Trust Fund."

That takes me to my final point. Several hon. Members remarked on how valuable the policy will be in dealing with child poverty, which was one of the reasons that the Prime Minister cited in launching it a couple of years ago. However, they have all entirely missed the fact that it will not deal with child poverty at all, because the assets will not be available until the age of 18. That is presumably why the IFS, in its "green Budget" of 2002, concluded its assessment of asset-based welfare by saying:

"Equally, it is not clear that children from low-income families will be better supported by being provided with an asset that grows through their childhood, rather than by targeted increases in financial support to their families or by targeted education spending. Prior to considering design issues, it would have been useful to have had a stage of the consultation process that invited comments on whether the new policy direction that is asset-based welfare is a good one to take."

Perhaps the most important reason why Liberal Democrat Members will vote against the Bill is that we question not only whether it will deliver on its objectives, but whether this is the best use of a very large amount of Government money, starting at £250 million per year and probably going up to £350 million or £400 million per year. If the Government are really concerned about child poverty, as the Prime Minister suggested when he launched the policy, the money should be focused on the early years, where the roots of inequality in our society are based.

Hilton Dawson (Labour, Lancaster and Wyre)

Is not the hon. Gentleman overlooking the generational nature of poverty, whereby one poor generation begets another; and is not this policy entirely complementary to the work that the Government are doing on Sure Start, and in many other respects, to help people out of poverty at a crucial stage of their lives?

David Laws (Liberal Democrat, Yeovil)

It is of far less importance than the other good work that the Government are doing in trying to tackle inequalities of opportunity and child poverty, particularly in the early years. At a time when so many of the population, including many children living in poverty, do not have access to services such as Sure Start, the Government's first priority should be to extend the provision of those services, not to launch a Bill whose policy is supposed to be evidence based, but where evidence that the policy will work is in such short supply.

Michael Weir (Scottish National Party, Angus)

The Scottish National party supports the Bill. Perhaps some of the claims for it have been overplayed, but it is none the less an interesting idea and an interesting way forward, and we have supported it throughout its various stages.

However, there are still some concerns about the Bill, and I share some of the concerns of the hon. Member for Yeovil (Mr. Laws), although not his opposition to it. I raised on Second Reading, in Committee and again today the whole question of access for lower-income families. We have seen movement on many areas from the Financial Secretary—or potential movement, as we have yet to see the outcome, which will be interesting over the next year or so. We even saw perhaps a slight indication of movement on the question of deposit-based accounts, but the absence of those will be a serious drawback for low-income families.

We live in a society in which hundreds of thousands of low-income families do not even have a bank account. Those people are to be encouraged to make their first financial investment an equity-based one, which many will not understand. As the Financial Secretary said in Committee, if my understanding is correct, most of the selling will be direct, and little will be done through face-to-face interviews. I fear that many people will end up with an investment that they do not understand, and in which they will be unable to invest in future years.

As to whether the scheme is a success, the real question, as the Treasury Sub-Committee said, and as was generally accepted on Second Reading, is whether parents will invest in these funds in the future. The absence of a building society account option will mean that many low-income families will not be able to invest, and it will fail on that level.

Secondly, the scheme may fail in relation to the minimum investment being set at £10. We discussed in Committee setting the minimum at anything between £5 and £20. For someone with two or three children, living on a low income, £10 will be an impossible target to meet on a regular monthly basis. As a result, in many cases the £250 initial investment will be all that is invested. That, too, will be judged a failure of the policy.

As I said, the policy merits support, and we will support it tonight, but I ask the Minister to review it as it goes forward. We must look at how lower-income families deal with it. If we find that there is no addition to the initial investment, and that many low-income families are not able to top it up as we would desire them to do, we will need to look again at the policy. We will need to consider again whether alternative investments, which they understand, with which they are happy, and which provide them with access to saving and to the whole banking and insurance business, would be better for those families. Although we have reservations, we support the Bill, and we look forward to seeing how the scheme works out in the future.