Finance (No. 3) Bill

Public Bill Committee, 24 May 2011.

Schedule 8 - Reduction in childcare relief for higher earners

Justine Greening (Conservative, Putney)

I beg to move amendment 108, page 159, line 11 [Schedule 8], leave out from ‘earnings’ to end of line 12 and insert

‘specified in regulations made by the Treasury under this paragraph.’.

Jimmy Hood (Labour, Lanark and Hamilton East)

With this it will be convenient to discuss Government amendments 109 to 111.

Justine Greening (Conservative, Putney)

May I welcome you to the Chair, Mr Hood? It may help the Committee if I run through the background to schedule 8, and then talk about the purpose of our amendments. Schedule 8, which is introduced by clause 35, makes changes to ensure that all recipients of employer-supported child care who join schemes on or after 6 April 2011 receive the same amount of income tax relief as basic rate taxpayers. Reform in this area was announced in 2009 by the previous Government, and this Government also accept that changes to the system will make it fairer, because it will ensure that individuals do not receive a greater amount of tax relief on employer-supported child care just by virtue of being higher earners. Employer-supported child care allows participating employers to offer their employees support with their child care costs, and it supports the Government’s policy on providing support for child care costs to encourage parents to work.

The latest HMRC modelling suggests that around 450,000 parents are members of employer-supported child care schemes, and about 40% of them are higher or additional rate taxpayers. That support is offered through tax relief and an associated national insurance contributions disregard, and employers are able to offer their employees up to £55 a week free of income tax and national insurance contributions.

Most employers offer that support through child care vouchers, delivered either by salary sacrifice or by flexible remuneration arrangements. Such arrangements benefit employers as they can also make national insurance contribution savings. At present, basic rate taxpayers can receive up to £900 of support a year, whereas higher rate taxpayers can receive up to £1,200 a year.

While we are very much in favour of employers helping their employees to share the cost of child care, it is neither progressive nor well targeted for wealthier parents to derive more benefit than those on lower incomes. The argument rehearsed in the debate on clause 35 in the Committee of the whole House was that the previous Administration announced these reforms in order to fund further free child care provision for the most disadvantaged two-year-olds. I remind the Committee that the basis of that was all tax relief on employer-supported child care—all tax relief—would be stopped for those joining schemes on or after 6 April 2011, and indeed tax relief for those in existing schemes would cease from April 2015. That was hardly an incentive for parents to go back to work. In the face of robust opposition from parents, the child care sector and even Ministers in the previous Government, the reforms announced in September 2009 reappeared in the 2009 pre-Budget report in the format being introduced now.

All parents who join employer-supported child care schemes on or after 6 April 2011 receive the same amount of income tax relief as basic rate taxpayers. That is the change that the clause and the schedule seek to introduce. That is achieved by limiting the amount that higher rate taxpayers and additional rate taxpayers can receive each week to £28 and £22 respectively, so all parents receive the same amount of income tax relief support each week—about £11. All existing members who joined a scheme before April 2011 will be able to retain their current rates of tax relief as long as they stay within a scheme offered by the same employer. I can assure the Committee that the change will not affect the tax and national insurance contributions relief available for workplace nurseries.

Paragraphs 2 and 3 relate to child care vouchers. Paragraph 2 introduces a new condition for tax relief to apply, based on a new condition relating to employers making an estimate of the employee’s relevant earnings for the tax year in respect of which the vouchers are provided. Paragraph 3 introduces a new section setting out the detail of the relevant earnings amount and the required time for making the estimate. That should take place at the beginning of the tax year, or, if an employee is joining an employer-supported child care scheme during the course of the year, at that point.

Paragraphs 4 and 5 of the schedule deal with directly contracted child care: for example, when an employer pays a child care provider directly on the parent’s behalf. The provisions mirror those for child care vouchers. Some respondents to the consultation on draft legislation, which we undertook prior to finalising the Bill, felt that this change should be through P11Ds, the normal form used by employers for the reporting of employee benefits. However, it was felt that the approach taken—of asking employers to make an assessment of employment income at the beginning of the relevant tax year—was better for several reasons.

First, it is more generous to parents, in that it focuses on the single employment offering child care support, and does not include income from further employments or other sources. Secondly, the approach taken is quicker to implement, since changing the P11D would have taken a further two years. Finally, it keeps the necessity of employer contact with HMRC to a minimum, a point that many employers will welcome. Further guidance aimed to address any outstanding concerns was published at the beginning of April, and HMRC will continue to work with key interest groups. The additional cost for all employers will be around £1 million over five years, a reasonable amount given that at least 450,000 employees participate.

I will now briefly set out the purpose of the amendments. As a result of continuing consultation with relevant interested parties on the detailed guidance to support schedule 8, we identified some further practical issues that require an amendment to the legislation as published in March.

The aim of amendment 108 is to offer further support to employers who have the responsibility for applying the legislation. It is they who will have to determine the appropriate level of tax relief on employer-supported child care. The amendment removes some of the detail related to the estimate of relevant earnings from the primary legislation. The detailed provisions will instead be replaced with a statutory instrument containing regulations relating to the estimate of relevant earnings for the year. A draft of the regulations will be made available for consideration by interested parties as soon as possible. The regulations will be introduced before 31 December 2011 and will take effect from 6 April 2011.

They will have a more generous effect than the legislation as it currently stands, and will reflect more accurately guidance published last autumn. Further guidance to help employers has already been published by HMRC. Through the amendment the Government are showing that they listen to the concerns of interested parties and take action to address them. The changes aim to support employers and make the legislation more business-friendly. Therefore, I urge the Committee to accept the amendment.

More broadly, in terms of schedule 8, the Government recognise how valuable the support is to working parents, but it cannot be right that wealthier parents receive more support than basic rate taxpayers with their child care costs. The reform will make employer-supported child care fairer, better targeted and more progressive. I urge the Committee to accept that the schedule stand part of the Bill.

Kerry McCarthy (Bristol East) (Lab) rose—

Jimmy Hood (Labour, Lanark and Hamilton East)

Before I call the hon. Lady to address the Committee, the Minister in proposing her amendments referred throughout to the schedule. She implied that she would like me to consider the stand part question as well. I think that is right, so we will consider stand part with this group of amendments.

Kerry McCarthy (Labour, Bristol East)

Thank you, Mr Hood. I am happy to discuss the stand part question as well as the amendments.

We had an interesting and impassioned debate on clause 35 in the Committee of the whole House several weeks ago. Given the concerns raised by many hon. Members during that debate about the finer details of the clause and the associated schedule and the implications for child care provision, it is important that we now have the opportunity to debate it in more detail and to look at the Government’s amendments. I have some technical concerns about them, which I will come to later.

Schedule 8 reduces child care relief for higher earners. It has been well documented that the previous Labour Government had planned to reduce child care relief for higher earners to bring it into line with the relief for basic rate payers. There are, however, clear differences between this Government’s proposals and the plan put forward by the previous Government. The original idea was motivated by a concern that support for child care was not sufficiently well targeted given that a third of funding for employer-supported child care schemes goes to higher rate payers. Currently, basic rate taxpayers can receive up to £900 a year, while higher rate taxpayers benefit from relief of up to £1,200 and additional rate payers up to £1,500. It is generally accepted that that could be targeted much more effectively and fairly, and schedule 8 accordingly introduces a new tax exempt limit of £28 a week for higher rate payers and £22 for additional rate payers, compared with £55 for basic rate payers.

To understand our reservations about schedule 8, it would be helpful to outline the differences between the proposals in front of us and Labour’s intention when in government. Equalising the rate of relief will generate substantial savings for the Treasury, and the Labour Government proposal was to use that to fund an expansion of nursery places for two-year-olds, starting with 65,000 places for the most deprived children. We thought that it was right to target the families who are most in need and who stand to benefit the most from the funding, and the policy ensured that hard-working higher rate payers could continue to receive some still much-needed support.

In contrast, we understand that the present Government intend to pilot an entitlement to 15 hours a week for 28,000 two-year-olds. The Exchequer Secretary told the House that clause 35, as detailed in schedule 8, will save the Treasury £100 million a year, but my understanding is that the estimates have been revised down to £15 million this year, rising to £65 million in 2013-14. Nevertheless, it is clear that the proposals that we are discussing today fall far short of the previous Government’s proposals and lack the ultimate long-term ambition of 250,000 free places for two-year-olds.

When considering what constitutes a fairer employer-supported child care scheme, it is important to consider it in the context of wider support that may or may not be available to working parents. That is why, when it was discussed by the Committee of the whole House, we tabled an amendment to clause 35 that would have required the Chancellor to report on the impact of taxation on child care. Our amendment was not selected for discussion, but we hope that the Treasury will nevertheless give due consideration to our concern that the affordability of child care, and the undoubted impact that Government policy has on it, is kept under review. Indeed, the low incomes tax reform group, responding to the proposals to reduce child care relief for higher earners, called for a full review of child care policy across government, which supports our view that the relief for higher earners cannot be considered in isolation.

The context in which we must consider the impact on families has changed markedly for both high and low-earning families since Labour’s original plan to reduce higher rate payers’ relief. Under this Government, all parents have had their child benefit frozen, which represents a substantial real-terms cut given that inflation is now at 5.2%, or 4.5% if the Government choose to use the consumer prices index. Moreover, families with a higher rate tax payer will not only see their help with child care reduced, but also lose all their child benefit from 2013. As we have made clear, when in government, we thought that there was an argument for reducing child care relief so that support was targeted, but the child benefit cut is not at all fair or equitable, given that higher earning couples will continue to receive child benefit. The Government’s policy on support for working parents, therefore, does not seem to be about ensuring that it is appropriately targeted.

In contrast, the Government have chosen to target their spending cuts in a way that disproportionately hits women and children. Families not only face losing child care support and child benefit, but will on average also be paying £450 a year extra in VAT. The House of Commons Library has calculated that some families will be £1,700 a year worse off due to the Government’s tax and benefit changes, and there are no longer plans to improve child care provision for two-year-olds from low-income families.

Returning more specifically to the provisions in schedule 8, doubts have been raised about whether they achieve the Government’s aim of ensuring that all working parents receive the same rate of relief. As my right hon. Friend the Member for Delyn mentioned during the Committee of the whole House, the Chartered Institute of Taxation’s low incomes tax reform group has expressed concern that the schedule will only apply when an employer estimates at the beginning of the financial year that an employee will earn above the basic rate limit; what the employee actually earns is irrelevant.

Concerns have accordingly been raised that the earnings assessment will be too unreliable and inconsistent and, consequently, will wrongly penalise some parents. Additionally, putting the onus on the employer has the potential to compromise their relationship with the employee, especially as the employee has no effective means of challenging the decision. As the Treasury has confirmed, it will increase the administrative burden on employers, who are required not only to estimate their employees’ earnings when they are not necessarily in possession of all the relevant facts, but to retain records for HMRC.

Clearly, there are financial implications for the employee if the employer gets the assessment wrong, which I will come to later. Is there any possibility of penalties being imposed on the employer if HMRC considers that they made a mistake with the assessment or failed to keep the necessary records?

Julian Smith (Conservative, Skipton and Ripon)

As a small business owner, I found that administering the voucher scheme was very difficult. Will the hon. Lady give the Committee her views on that scheme, which was set up by the previous Government? How efficient did she feel it was at dealing with this issue?

Kerry McCarthy (Labour, Bristol East)

We will come to the child care voucher scheme when we address clause 36, which is the next clause, so it might be more appropriate for me to answer those questions then. I accept that there is some concern that the system was complicated to administer, but in this instance we are talking about tax relief, rather than the voucher scheme.

Bridget Phillipson (Labour, Houghton and Sunderland South)

I do not want to draw my hon. Friend further on the comments she has just made, but does she accept my concern that although it is important that the burden on small businesses is not onerous, without support for child care many parents would not be able to work and, therefore, would not be in the workplace to begin with?

Kerry McCarthy (Labour, Bristol East)

That is a valid point. I am concerned, as are many of my colleagues on the Committee, that Government Members tend to portray some of the measures to support people in work with child care arrangements—whether it be through financial provisions, such as tax relief or vouchers, or through other provisions, such as allowing flexible working and maternity and paternity leave—as burdens on business, rather than something that helps employees.

Obviously, a balance has to be struck, but, particularly as the Government make great play of encouraging people back into work and, in some cases, have introduced draconian measures to force people back into work, it cannot be just a stick approach, rather than a carrot approach. There have to be conditions that allow people to juggle their busy lives. People with child care responsibilities need support from the state to combine looking after their children and going to work.

Nicholas Dakin (Labour, Scunthorpe)

My hon. Friend makes a powerful point. Is it not true that as well as being advantageous to employees, such flexibilities are also advantageous for employers? They allow employers to maintain their work force in an imaginative way so that skills continue to work for them, which allows them to prosper.

Kerry McCarthy (Labour, Bristol East)

My hon. Friend makes a good point. The situation is sometimes portrayed as employees demanding certain things from employers, and employers grudgingly having to go along with it because the Big Brother state tells them that is how they have to do things. Actually, most decent companies care about their work force. When an invaluable employee who has been working for an employer for some time decides to have children and goes on maternity leave, because the employee’s contribution is valued and the employer would like them to return to work, it is important that the employer can facilitate that through flexible working and other support with child care. There is an underlying philosophical debate about the state’s role in helping people, rather than only imposing burdens on them, but now is perhaps not the time to venture into it.

Before those interventions, I was saying that there has been some criticism that the administrative burden on employers may lead to them being challenged by HMRC, and penalties may be imposed on people if they make mistakes with the assessment. The low incomes tax reform group concluded:

“The proposals introduce a new layer of complexity for employers and employees alike and the mechanism is, in our view, unworkable.”

The tax faculty at the Institute of Chartered Accountants in England and Wales reported that the system

“will prove not to be practicable”,

and warned that the earnings assessment is

“open to error, manipulation and abuse.”

I would appreciate the Minister’s comments on those experts’ concerns, and on how schedule 8 would work in practice.

I note that the Treasury has responded to some points raised during the consultation on the draft legislation, such as the requirement to take into account the amount of any coded-in personal allowances, but reservations remain about the impact on businesses. The Treasury has estimated that the average annual cost of the administrative burden would be £200,000, so, for some businesses, the amount would not be inconsiderable. Will the Minister tell us what discussions the Treasury has had with businesses about their additional responsibilities included in schedule 8, and whether the schedule could deter them from offering employer-supported child care? As we have suggested, it is important that the balance is right. It should not be a deterrent to employers; it should be a benefit for employers and employees alike. Will HMRC be able to provide advice and assistance to employers who are uncertain about the relevant earnings assessment?

Many groups have raised concerns about the inflexibility of the relevant earnings assessment approach, which means that an employee’s exempt entitlement cannot change until the next financial year, regardless of changes to their circumstances, which could be in hours or earnings. It also does not take into account the fact that some employees may have additional sources of income, meaning that one employer’s assessment may misrepresent the tax band that they are actually in, which again, undermines the objective of ensuring that all parents receive basic rate relief. Although, on one hand, there can be additional complexities and administrative burdens in requiring in-year changes, will the Minister tell us what consideration has been given to allowing for those, and whether it is thought that the earnings assessment is a more accurate reflection of actual earnings?

Justine Greening (Conservative, Putney)

Can I take the hon. Lady back to an earlier comment, so that I can understand her point? She asked about the fact that it would only be down to the employer’s earnings—the earnings that the employee had with that employer—and that only they would be taken into account, and not other earnings, which she said could put people’s ability to get basic rate taxpayer support at risk. I wondered how she felt that that would be possible, given that if someone had employment elsewhere and already qualified for the support, in many respects, the only risk is that their overall earnings would have been under-calculated. Had all their earnings been taken into account, they would have been a higher rate taxpayer, but they would still be eligible for the same basic rate tax relief. Will the hon. Lady clarify that, so that I can understand the point that she was making?

Kerry McCarthy (Labour, Bristol East)

An outside group raised that concern with us. I appreciate the Minister’s point, which is that the danger would be that if somebody’s extra earnings from another job were not noted, the only impact would be that they would not get the higher rate relief. I think that perhaps the concern is that if people have two separate jobs, they would be assessed separately and could somehow be entitled to the relief in respect of both employments. I am not quite sure what the issue is, but I think that is what has been suggested: somebody could benefit, as though their two jobs did not correlate, and the relief would be received in respect of both employers.

I was asking the Minister whether it would be better to deal with the matter on a more ongoing basis through in-year changes, rather than through the earnings assessment. The Chartered Institute of Taxation and the tax faculty of the Institute of Chartered Accountants have suggested that the previous year’s earnings and P60 could be used as an alternative to the earnings assessment. That would not be perfect, because the parent’s earnings might have changed significantly, but it is another possibility. I would appreciate further information on what consideration was given to that and why, if it was considered, it was rejected by the Treasury. Similarly, others have recommended using the P11D form to reduce the burden on employers, so that actual earnings are used. Will the Minister elaborate on the reasons for rejecting the P11D method and treating employer-supported child care like any other benefit?

Many responses to the draft legislation queried whether it took account of employment income exemptions under part 4 of the Income Tax (Earnings and Pensions) Act 2003 and suggested that it could mean, for instance, that provisions for transport for disabled employees might result in their basic earnings assessment classing them as a higher rate payer when they are not. Can the Minister confirm that that is no longer the case and that sufficient guidance and information will be given to employers to ensure that the appropriate exemptions are made?

Uncertainty about what should be included in the earnings assessment brings me to the four Government amendments. Amendments 108 and 109 give the Treasury further powers to change the definition of “relevant earnings” and “excluded amounts.” Not only does that have implications for the level of parliamentary and external scrutiny, but it might mean that employers are more dependent on interpreting guidance and additional regulations than on following clear legislation. Can the Minister clarify why the Government are proposing this amendment and what they plan to include, and exclude, from the proposed regulations? How will the Treasury ensure that the list is a clear and exhaustive one, which will help employers more accurately to assess an employee’s tax band?

The reason for these changes is unclear. The explanatory notes to the amendments state that they are

“designed to better express the policy intention of the measure”

and that they

“will increase clarity for employers through the introduction of regulations which will contain further detail to help them carry out the estimate of relevant earnings required under the legislation.”

It is difficult to see how giving further powers to the Treasury to change those definitions whenever it likes will result in greater clarity for employers. If more detailed definitions were needed, why did the Minister not provide them by making amendments to the Bill, as she has done with schedule 2? Regulations will result only in more uncertainty for employers, because they will have to watch for secondary legislation rather than being able to rely on the certainty of primary legislation, and the secondary legislation may be liable to change without notice. It seems more sensible, therefore, for the Government to include those definitions in a further amendment to the Bill. For the sake of clarity and transparency, I encourage the Minister to consider bringing that forward on Report.

Amendment 111 would allow the Treasury to make retrospective changes, which would apply to the current tax year, as far down the line as 31 December 2011. That is particularly troubling and seems impractical. Paragraph 3(5) of schedule 8 makes it clear that the relevant earnings assessment will be conducted only once each year and that unless the employee joins the scheme part way through the tax year, the assessment will take place at the beginning of the tax year. Can the Minister explain to the Committee how changes can be retrospectively applied part way through the financial year? Does the amendment mean that a parent’s entitlement could change with very little warning, and does it increase the burden on employers still further by potentially requiring them to conduct another assessment in December? I think that the Minister said during her opening remarks that secondary legislation would be brought forward before December this year, which seems rather a long time given that the Bill has been discussed on the Floor of the House and is now being considered in Committee. Will she explain why it might take until December to produce the secondary legislation?

The Chartered Institute of Taxation has commented:

“We are disappointed that the Government has not listened to our concerns that this proposal will complicate matters and introduce a significant additional burden on employers. The mechanism proposed for restricting tax relief on employer-supported childcare is, in our view, impractical and depends on an employer’s ‘back of the envelope’ calculation of ‘basic’ earnings.”

With the Office of Tax Simplification including employer-supported childcare in the reliefs that it plans to review, is the Minister satisfied that the requirements in schedule 8 are sufficiently straightforward for employers, employees and HMRC and that they will promote fairness in ensuring that all parents can access the same level of relief?

In conclusion, although we support the general principle of trying to make the system of child care tax relief fairer and removing the higher rate, as we suggested when we were in government, there are real concerns about how it would be implemented. We want to make sure that the system works so that employees with child care responsibilities are supported in work and get some help from their employers and from the Government via their employers. There are concerns that people will find themselves in very complicated situations and that we will have to unpick the mess once the new system is in place. I would be grateful if the Minister reassured us that the Government had looked at alternatives ways of delivering this measure and addressed some of my points about the potential complexities and problems that could arise from the current proposal.

Justine Greening (Conservative, Putney)

Before I answer the hon. Lady’s points, it is probably worth while setting out the original starting point for the legislation and the schedule. The previous Government introduced a proposal to abolish employer-supported child care entirely. Many felt that that was a retrograde step and, as a result of the fallout from that proposal, a hybrid and more sensible approach was proposed. The previous Government were right to recognise that their original proposal was not well targeted and to seek to remedy that. Their initial proposal to abolish employer-supported child care altogether to ensure that it was better targeted by having it targeted at nobody was seen by many as a draconian step. The measures before us today and the measures that the previous Government finally realised were perhaps more sensible will strike a balance between targeting employer-supported child care and ensuring that it does not get spent excessively on higher rate and additional rate taxpayers who, under the previous scheme, were benefiting the most financially. We are going to press ahead with this.

To answer the hon. Lady’s questions, we are absolutely committed to striking a balance between supporting people in work but more broadly supporting families and working families. That is one of the reasons why we are providing access to affordable and high-quality early education and care with 15 hours of free early education for all three and four-year-olds. It is also why we are extending that entitlement for the first time to all disadvantaged two-year-olds, which is a targeted measure that will bring some real benefits. The spending review provided £380 million per year by 2014-15 to fund that new entitlement for two-year-olds. More broadly, and not explicitly related to child care per se, but to support families, we have brought forward above-indexation increases in the child care tax credit for this year and for next year too.

As for the impact on individuals, when employers carry out the basic earnings assessment they are not expected to take employment income from other employments into account. In other words, we have built in some generosity in a sense to make sure that it is simple for employers and that they do not have to go through a whole process of asking their employees whether they have other sources of income.

Bill Esterson (Labour, Sefton Central)

The hon. Lady uses the term “generosity”. The Library calculates that some families will be £1,700 a year worse off. They may not feel that the Government are being desperately generous in those circumstances. The Chartered Institute of Taxation has warned of a considerable increase in the effective burden on those on incomes in the £40,000 to £50,000 bracket. Does the Minister accept that analysis, and will she explain how those on middle incomes are so heavily squeezed by this and the related changes?

Justine Greening (Conservative, Putney)

I realise that the hon. Gentleman is speaking up for people who will feel that this puts a squeeze on them. Obviously, the people worst hit by this will be those earning £150,000 a year who receive tax relief on their employer-supported child care. He may want to argue that, in this time of fiscal deficit—which the Government have picked up—we should prioritise supporting those earning £150,000 a year with tax relief. He may feel that that is the right priority. The Government believe in ensuring that money is there to support the families who need it most. Perhaps that priority is different to his, but I think that it is right. [ Interruption. ]

I can see that I have made Opposition Members slightly irate, but I remind them that if they argue against me then they argue against their Government’s policy prior to the election. I also remind them that to argue against this is effectively to argue against the money that we now have to help improve free education and child care support for the most disadvantaged children. That would undermine our ability to bring forward the pupil premium and a range of measures targeted at low-income families to help them and their children have a better life.

Kerry McCarthy (Labour, Bristol East)

I said in my remarks that there was a correlation between the amount that we would have saved by abolishing the higher rate of relief when we were in government, and a direct programme with the ambition of creating 250,000 free nursery places for two-year-olds. It was not hypothecated as such, but we made a clear link between reducing something that benefited higher rate taxpayers and shifting the money to provide for people who needed it at the lower end of the scale. The Minister just outlined a broad-brush approach, such as the pupil premium. Will she clarify how much the Government think will be saved by introducing the measure—I think the figure of £65 million was mentioned—and how much of it will actually be spent on providing nursery places for children?

Jimmy Hood (Labour, Lanark and Hamilton East)

Order. I remind the Committee that interventions should be a little shorter than that.

Justine Greening (Conservative, Putney)

We will be churning £380 million per year into the new entitlement for two-year-olds by 2015, particularly targeted at the disadvantaged. That is the right thing to do. I understand that many families on the higher rate, and those on an additional rate, will lose out because of the proposal. I understand that they will not welcome that, but, when you look at the sweep of reforms and changes that we are introducing to tackle the deficit left by the previous Government, the biggest burden falls on those with the greatest shoulders. This measure contributes to that.

Bill Esterson (Labour, Sefton Central)

The hon. Lady makes the point that the burden falls on those on the highest incomes, and yet that is not what the Chartered Institute of Taxation says. It says that

“increasing the tax burden on middle-income households while withdrawing tax credits and child benefit from them will result in their being squeezed proportionately more than those on higher incomes”.

More, not less. That is the complete opposite of what the Minister just said.

Justine Greening (Conservative, Putney)

The problem with the hon. Gentleman’s point is that it is a half argument. There is an argument that pretends we live in a world without a fiscal deficit to tackle; that we do not have to make any savings; and that we can somehow ignore all that debt and pass it on to our children. I do not accept that argument. We need to sort out the country’s public finances as fast as possible. Debt is costing the taxpayer £120 million every day. Getting a grip on that by taking the actions that we are to bear down on it and ensure that we do not hand that debt and deficit on to our children is critical.

I will make more progress on the questions put by the hon. Lady. We have published guidance. I want to reassure the Committee that we have worked with employers and general stakeholders on the guidance and the amendments to ensure that the legislation will operate as intended. The hon. Lady asked about some of the amendments we have brought forward. Those amendments reflect the discussions that we had with stakeholders and the clarity they felt they needed to ensure that the schedule and the clause work well. We are encouraging employers to use that guidance, and to speak to HMRC if they encounter problems. As any further problems are pointed out, we will of course update the guidance. The message to employers is that as long as they take reasonable care in how they look at the earnings assessment, the question of penalties should not arise.

I was asked explicitly whether using the P11D would have been a better approach. That was obviously a possible alternative. However, the estimated administrative cost for employers of the approach we are using is approximately £1 million over five years. If P11Ds were used, the estimate was £4.7 million over five years, nearly five times as much. Using the P11D to deliver the reform would not just have been more expensive, it would have meant that we could not have made progress for two years, which would have delayed any savings and meant that employers could not report national insurance contributions on any overpayments at year end using the P11D. Generally, the thought for employers of having to file P11Ds for 450,000 employees would be the practical evidence of that increased administrative burden. It would also have carried significant processing costs for HMRC.

Nicholas Dakin (Labour, Scunthorpe)

The Minister is explaining the situation well, but could she be a little more precise about what she means by employers taking “reasonable care”?

Justine Greening (Conservative, Putney)

Obviously, it is as I have just said. If employers can demonstrate that they have reasonable processes and systems in place to collate information, and that they are taking their information from the payroll system, for example, which would be most companies’ source data on the level of employment remuneration, that will clearly be seen as reasonable.

All we are saying is that we want to find a balance between being prescriptive enough, so that employers have the detail and understand what they need to do, and flexible enough, to enable them to get that detail in the way that is most straightforward for them. We hope we have found that balance. The regulations approach will enable us to provide more detail and that extra degree of support and certainty for employers—something that came out of our consultation with external stakeholders. That has enabled us to remove some of the detailed provisions from schedule 8. The regulation-making powers for HMRC will enable greater detail to be provided, but should support employers and make the legislation more business friendly, which, as the Committee can imagine, is what they wanted.

I hope I have been able to answer the questions. Although these are difficult debates and important questions, I remind the Committee that we are implementing a proposal that the previous Government had gradually reached, probably not starting from the best approach—of proposing to abolish employer-supported child care entirely. We did, however, end up in the right place, and we will ensure that we continue to work with business to ensure that the measure now operates as intended. With that, therefore, I hope that we can accept the amendment and the schedule.

Clause 36 - Childcare: salary sacrifice etc and the national minimum wage

Kerry McCarthy (Labour, Bristol East)

I have some fairly brief comments to make on clause 36, which amends the limited exemption for qualifying child care vouchers in the Income Tax (Earnings and Pensions) Act 2003 to relax the requirements for any child care scheme to be generally open.

At present, employees on or near the national minimum wage cannot benefit from any salary sacrifice scheme that would bring their earnings under the legal limit. That remains true under clause 36. It is important that people on the minimum wage are protected from back-door attempts by employers to reduce the amount that they are paid.

Many of us will have encountered situations in our constituencies over the years in which employers provide rented accommodation or food for restaurant workers, which actually has the effect of undercutting what the people are paid, because those things are, in effect, deducted from their wages or seen as payment in lieu of wages. It is important that we maintain the legislative protection for people on the minimum wage who would be vulnerable to such attempts to reduce the amounts that they are paid. Again, that remains true under clause 36.

The regulations for employer-supported child care and child care vouchers, which are included in ITEPA 2003, however, mean that an employer can offer a child care scheme with tax relief only if the scheme is open to all employees. Under existing legislation, that means that employers cannot offer it to any employees if some are on or near the minimum wage. The fact that some employees are paid the minimum wage in an attempt to protect them actually means that the employers are prevented from offering the scheme to anybody, which, people would accept, is an unfair provision and something that ought to be changed. Clause 36 changes that, so that employers are not prevented from offering a salary sacrifice tax-relief scheme to other employees simply because they cannot include the workers on the minimum wage.

I can see the advantages of extending the provision so that more working parents are entitled to the child care vouchers. There are some concerns, however, about the Treasury’s reasoning, which, according to the explanatory notes, is

“the alternative availability of the childcare element of the Working Tax Credit”

to employees on or near the minimum wage, in most cases. That is the child care element that the Government have just reduced from covering 80% of child care costs to covering 70%, representing a loss of up to £1,560 a year for some families. At the same time, the Government have chosen to freeze the basic and 30-hour elements of working tax credits, to freeze child benefit and add £450 to the average family’s annual bills with the VAT increase.

Consequently, when considering clause 36, it is important to note the low incomes tax reform group’s advice to working parents, which stated:

“For the last few years we have been warning that if you were on a low or middling income and able to recoup most of your childcare costs through tax credits, it would usually be to your disadvantage to start receiving childcare vouchers from your employer in exchange for a reduction in salary. From 6 April 2011 the rules change so for some low-income people there may now be a small advantage in taking vouchers.”

It went on to cite the

“less generous help in tax credits”

as the reason for the change in advice.

It should also be remembered that parents working fewer than 16 hours a week are not entitled to working tax credits, and consequently do not receive help with child care. I have spoken to young mothers in my constituency who work with the Prince’s Trust on issues around helping them to get back to work, and they have raised this as an obstacle. Before the reduction of working tax credit to 70% of child care costs, the charity Gingerbread was campaigning for an increase to 100%, arguing that this would cost

“£420 million but would have a much lower net cost as it would help parents to access employment.”

I do not necessarily advocate that, but Gingerbread raises an important alternative viewpoint. It also cited a 2008 study indicating that only one in 10 working tax credit recipients take up the additional child care support, which they partly attributed to the complicated eligibility criteria. That is an important issue for the Government. Given that the take-up of child care reliefs is so low, the balance between whether the provision of child care vouchers by employers is an easier alternative that would result in better take-up, and whether it would have administrative problems, is significant.

I accept that the alternative—tax-exempt child care vouchers—is not available to the lowest earners, or consequently to any of their colleagues, and that the point of the clause is to make the vouchers more widely available. I am concerned with ensuring that reducing the “generally open” requirement does not mean that the needs of working parents with lower earnings are neglected.

Does the Minister have any information about the number or proportion of employers that would like to offer salary sacrifice vouchers but are prevented from doing so, or whose schemes cannot include tax relief because they employ people on or near the minimum wage? I say “prevented”, but that is not necessarily the case, because employers have the option of offering a salary plus arrangement, which can provide a much needed supplement to a parent’s low pay.

Will the Government give us an indication of the prevalence of such arrangements? It would be troubling if clause 36 withdrew any incentive for employers to offer this benefit, and if workers on the minimum wage lost out as a result. Would employers be more likely to offer salary sacrifice vouchers than salary plus vouchers? That might have an impact on people close to the minimum wage.

Affordable child care can make the difference as to whether a parent can work or not. That is why, recently in the House, I asked the Minister at the Department for Work and Pensions, the right hon. Member for Epsom and Ewell (Chris Grayling), about worrying reports that Jobcentre Plus offices tried to impose sanctions on single parents on jobseeker’s allowance because they were only looking for work that fitted around their child care needs. Given that single parents whose child has reached the age of five are expected to look for work from next year, and reports that Jobcentre Plus is not showing the flexibility that it should, in order to keep the claimant count down, the availability of affordable child care will become increasingly important.

What estimate has the Treasury made of the number of employers who will offer vouchers as a result of the clause? My concern is that this will not prove sufficient, and that the Government do not have a coherent plan for child care, particularly following the cuts to Sure Start and working tax credits. As was noted during the discussions on clause 35 and schedule 8, the previous Labour Government planned to redistribute child care support and invest in places for younger children from lower-income backgrounds. Although the Government are continuing with the reduction in relief for higher earners, there is no commensurate investment for lower earners.

The previous Labour Government set ambitious targets to reduce child poverty, and lifted 600,000 children out of poverty. The child care policy, if implemented, could have contributed to continuing this trajectory, but instead we have the OECD and the Institute for Fiscal Studies warning that Government policies could push another 300,000 children into poverty. We would, therefore, appreciate further information from the Minister on plans to support working parents more generally, and whether the Government have a coherent strategy to ensure that all parents can access affordable child care.

The Department for Business, Innovation and Skills launched a consultation on flexible working and parental leave, but the potential benefits for parents will not be available for another four years. In the meantime, the Government have removed new employment rights for workers in micro-businesses, so child care will remain a priority for working parents struggling to balance their commitments. Although working tax credits make a significant contribution, I have highlighted why we should be cautious about thinking that they are the solution to all the problems of working parents, especially as the future of tax credits and the child care element are in doubt, given the introduction of universal credit.

This week’s Gingerbread and Resolution Foundation report has raised fears that child care changes with the universal credit could mean that working parents lose 94p in every pound if they increase their working hours. Given that the explanatory notes emphasise the role of the child care element, what steps will the Treasury take to ensure that parents on low incomes know that they can access it and what help will it offer to encourage them to apply? Another recent Gingerbread report concluded that changes to the tax credit system this April have

“significantly, blunted the incentives to remain in work for the majority of single parents who are currently claiming tax credits”.

Has the Treasury considered that report? It would be helpful to know whether it had held any discussions with Ministers or officials in the Department for Work and Pensions about the impact of clause 36 on working parents and the provision of employer-supported child care.

The Bill refers to “relevant low-paid employees”, defined as those employees for whom, if they were part of a salary sacrifice scheme, their remuneration

“would be likely to be lower than the national minimum wage”.

The “likely to” seems rather vague and imprecise. Who is expected to be the judge and what evidence will they use? If a decision is not to be based on exact calculations, is the Minister satisfied that workers will not be wrongly excluded from a tax-relief scheme? How much will clause 36 cost the Treasury if more parents qualify for tax relief? The Bill allows for it to be introduced retrospectively from 2005-06, so how does HMRC plan to implement it?

Justine Greening (Conservative, Putney)

Clause 36 amends the condition on employer-supported child care to be generally open. The shadow Minister has run through some of the situations that we seek to address through the clause. It should enable some employers to make their child care schemes more available to their employees by removing the restriction that applies to those employees at or near the minimum wage.

Employer-supported child care is a benefit provided by employers to help their work force with child care costs, and it is valued greatly. The Government support it with a limited exemption from income tax and a national insurance disregard. Many employer-supported child care schemes are offered through salary sacrifice or flexible remuneration packages. The hon. Lady asked how the salary sacrifice scheme will relate to salary plus arrangements. Employers will be able to offer a mixture of such schemes to their employees, so hopefully there will be additional flexibility. Where employer-supported child care schemes are offered through salary sacrifice or flexible remuneration packages, working parents who earn the minimum wage, or near it, cannot join their employer’s scheme, because making deductions from a person’s salary or earnings that lead to them being paid less than the minimum wage is prohibited.

The minimum wage rules are in place to ensure that the wage is at least at or near the minimum wage. At the same time, unless employers make their employer-supported child care schemes available to all employees, except for in exceptional circumstances, the existing tax exemption does not strictly apply, so we have ended up with employees caught between minimum wage legislation and the conditions needed to allow for the tax and national insurance contribution exemptions from employer-supported child care. The changes made by the clause will rectify that anomaly.

The clause will allow employers to meet the “available to all” conditions and thereby continue to offer schemes through salary sacrifice or flexible remuneration arrangements. We know that many parents with earnings at or near minimum wage are already excluded from employer child care schemes. That reflects the Low Pay Commission’s 2006 report, which

“concluded that childcare voucher schemes would benefit few low paid workers; the majority would be better off claiming support for childcare through the Working Tax Credit system.”

Although this might seem to be a reduction in support for low-income parents, I think the shadow Minister recognised that in practice it corrects an anomaly between the minimum wage legislation and the conditions in place to encourage employers to provide employer-supported child care; it should not have any real effect.

I stress that the majority of working parents paid at national minimum wage levels are already eligible for support with their child care costs through the child care element of the working tax credit, which, in many cases, is more generous than employer-supported child care would have been. The changes are being made retrospectively to put widespread practice on a proper footing and to allow us to make the appropriate amendments to the national insurance contributions legislation.

The hon. Lady asked about the impact on employers. These clauses have been out for consultation since December 2010. The clauses and the explanatory documents were perhaps worded clearly, but we received no responses asking for further clarification or challenging the Government’s rationale. We are amending the law to reflect a problem that employers had to address themselves in a way that did not stack up with the contemporary legal situation. Hopefully, clause 36 will ensure that we reflect the reality faced by employers. In practice, the clause will not remove any child care support from working parents. Conversely, it will allow employers to meet the conditions required to continue to offer this tax relief to the 450,000 parents who currently benefit from the scheme.

The hon. Lady asked more broadly about what the Government can do to support child care. We in the Treasury worked alongside the Department for Work and Pensions to develop the recently published White Paper. The White Paper contained a commitment to developing a system of support for child care costs that will work alongside the universal credit when it comes in. We will ensure that that support is maintained as the broader legislation on supporting families, particularly working families, changes.

The hon. Lady also asked about the impact on child poverty, and she talked about the recent OECD report, which is interesting. She will be aware of our child poverty strategy consultation, which we have now published. How we talk about child poverty, and the breadth with which we talk about it, is a challenge. Is it purely about income, or do we want more measures that address a wider definition of child poverty? It is perhaps not only about the financial poverty in which children may find themselves, but about emotional poverty and poverty of opportunity, too.

Alongside the OECD report, the IFS has done some work, which the hon. Lady briefly mentioned. The IFS analysis is not directly comparable with Treasury forecasts, but I draw her attention to the fact that the Office for Budget Responsibility has looked at the past two Budgets and said that there will be no measurable increase in child poverty. I think I am right in saying that the OBR has said that, if anything, the measures we brought forward in the Budget would result in a small decrease in child poverty, albeit a decrease so small that it is not statistically significant.

Kerry McCarthy (Labour, Bristol East)

As the Minister said, the past two Budgets have been assessed as not leading to an increase in child poverty; there may be a statistically insignificant decrease in child poverty. Does she think that that is adequate, given that both Government parties signed up to the Labour Government’s pledge to abolish child poverty by 2020?

Justine Greening (Conservative, Putney)

The child poverty strategy consultation is now under way, and I hope that we can have an informed and balanced debate. That is one of the reasons why we are pleased that the right hon. Member for Birkenhead (Mr Field) has provided his input.

I can see Opposition Members rolling their eyes. We need to debate not just the financial aspect of child poverty but the broader issues that we must tackle in terms of support for early years, and particularly for disadvantaged children. They often face disadvantage far more broadly based than simple income targets. The right hon. Member for Birkenhead and many others are clearly saying that we need a broader-based strategy if we are to reach our longer term 2020 target. I hope that we can stand away from just having a debate on a statistic, important though it is, and remember that behind that there are children whose lives we want to change for the better.

Perhaps I can give one final example of what I mean. By raising personal allowance over the course of this year and next, we will take over 1 million people out of income tax altogether. The impact of that will be to raise average incomes ever so slightly. Because child poverty is worked out as a median relative indicator, that change will see more children technically slip into child poverty. Those extra children will suddenly be defined as being in poverty, but will go to bed that night unaware of any change in their circumstances. That shows that, while statistics do matter and should be looked at, if we are to make a real difference to children’s lives that they actually notice, which surely is the main point of this, we need a broader-based strategy and a broader argument about where investment can be best placed to ensure that we make a difference on the ground.

Clause 37 - Accommodation expenses of MPs

Kerry McCarthy (Labour, Bristol East)

I am sure that on both sides of the Committee the title of this clause will cause hearts to sink. I suspect that people would much rather we were discussing something else. The only reason why I comment on it is that there have been reports on the provision in the media along the lines that hon. Members are being granted a special exemption from the new tax avoidance legislation. We are being portrayed as trying to get away with something that ordinary members of the public would not be able to get away with and as being up to our old tricks again.

Karl McCartney (Conservative, Lincoln)

Some of us here are new Members and we are therefore not looking to get away with some of our old tricks.

Kerry McCarthy (Labour, Bristol East)

When I talked about getting away with our old tricks, I was talking about the way the media and, perhaps, some members of the public portray the matter. I was not saying that I believe that old tricks are being got up to, apart from a small number of people who, in most cases, are getting their just deserts now. It is probably best not to start digging in that minefield.

I appreciate that the Exchequer Secretary wrote to all Members about this clause and the schedule to explain that, as the new rules are intentionally broad, this exemption is one of several necessary to ensure that legitimate behaviour is not unintentionally caught by them. In particular, an exemption is created for the accommodation expenses of Members where they are paid by the Independent Parliamentary Standards Authority directly to a third party such as a landlord, rather than to the Member. That results from a change IPSA made last November that allowed such direct payments to be made. Previously, we had to pay the landlord direct and then claim it back. That seems reasonable. Individual Members cannot change the way they are paid because it is statutory, so they should not be caught by anti-avoidance rules. In my view, this clause should not be necessary. Some Members might say that this clause would not be necessary if we had not moved to the IPSA regime, but that is a can of worms that we do not want to open in Committee right now. More importantly, the clause would not be necessary if the rules that the Government have proposed were not so complex. The clause is intended to ensure that the rules do not have unintended consequences. The rules are very difficult for the ordinary person to understand, so it is not too surprising that the media raised concerns. John Whiting, the director of the Office of Tax Simplification, was concerned about the provision. He said to the Economic Affairs Committee that the new rules had

“developed into so much detail it is in danger, at its 59 pages or wherever we are up to, of starting to create further loopholes that people will try and exploit or inadvertently block things."

My right hon. Friend the Member for Delyn quoted him as saying

“Whoa, this is just getting too much”

and we had quite a debate about that. Specifically on Members’ expenses, the Chartered Institute of Taxation has said:

"The fact that the parliamentary draftsman felt that Members might be caught by the legislation, is indicative of the wider problem...of it unintentionally catching legitimate arrangements which have nothing to do with tax avoidance, as well as the tax avoidance schemes that are its target.”

It has also said that the fact that the draftsman was still not sure that the rules would not catch Members, even after the changes that have been made to the draft clauses since December,

“shows the difficulties inherent in this kind of approach.”

How many more such clauses will the Government have to add to the Bill? That is quite a difficult question to answer, but it highlights the fact that the legislation has created a great deal of uncertainty in this area of the tax system. That goes against the Government’s own aims set out in their framework for tax policy making.

Ian Mearns (Labour, Gateshead)

I am very concerned about this clause, because if there is a question of expenses of this nature being subject to tax, it is essential that they come out of the right IPSA budget. In my own case, I have had accommodation expenses for my London flat taken out of my office budget by IPSA. I wonder whether that might cause me a problem in income tax terms.

Kerry McCarthy (Labour, Bristol East)

I hesitate to start advising my hon. Friend on his tax arrangements, or to venture into advising him on his problems with IPSA. I suspect that if I showed myself willing to do so, I would be besieged by hon. Members asking me for advice. It is best not to go there.

Karl McCartney (Conservative, Lincoln)

I find it hard not to add my two penny-worth, as I threatened to do last week in Committee. I thank the hon. Member for Bristol East for what she has said regarding IPSA. To draw this part of the Committee to a close, would the hon. Lady welcome the proposals that were put forward by my hon. Friend the Member for Windsor (Adam Afriyie), who is not on the Committee, for a resolution of the problems that Members from all parts of the House have had to date with IPSA?

Jimmy Hood (Labour, Lanark and Hamilton East)

Order. That is just a shade wide of the clause.

Kerry McCarthy (Labour, Bristol East)

Thank you, Mr Hood, for coming to my rescue. My stance in respect of that debate has been to keep well out of it and let other people have the discussion. That may be rather cowardly of me, but given the other demands on my time I think it is probably quite sensible.

The Government have the stated objective of creating simplicity and predictability in the tax system. Some of these measures do not seem to be particularly helpful in meeting that objective. I would appreciate the Minister’s comments.

Justine Greening (Conservative, Putney)

To be clear, this clause is not about disguised remuneration rules, but as the hon. Lady has pointed out it makes a minor change to the legislation on the income tax treatment of accommodation expenses that are paid to MPs under the scheme that is administered by the very popular Independent Parliamentary Standards Authority. She has asked whether we will see further changes coming through. The answer I would give her, which is perhaps the answer to many questions in life, is that it depends. It depends on any future modifications that IPSA makes to the rules.

The clause does not grant MPs any new special tax treatment. It broadly continues the tax treatment that has applied for accommodation expenses payable under the MPs’ expenses scheme, which was introduced by IPSA at the start of the current Parliament. With effect from 1 November, IPSA introduced a minor simplification, which allows it to make payments in respect of MPs’ rental charges direct to a third party such as a landlord or letting agent, on the authorisation of the claimant MP. The existing exemption from tax for residential accommodation expenses payments applies only to payments made by IPSA directly to the MP. So the Bill will merely address the consequences of this simplification.

Legislation which provides an income tax exemption for expenses paid to MPs that are necessarily incurred on overnight accommodation required for the performance of their parliamentary duties, whether in Westminster or their constituencies, has existed for many years. That legislation was updated in the second Finance Act last year so that, following the introduction of IPSA’s new expenses scheme on 7 May 2010, it applies to overnight accommodation expenses paid under this scheme where appropriate. As I said, from 1 November 2010, IPSA introduced a further minor simplification to the way it pays MPs’ expenses in respect of rental charges on constituency and residential properties. From that date, IPSA’s rules allowed such expenses to be paid direct to another person, such as a landlord, at the direction of the claimant MP. It is clear that the clause does not grant MPs any new special tax treatment as that would not be appropriate.

Clause 40 - Individual investment plans for children

David Hanson (Labour, Delyn)

I beg to move amendment 97, in clause 40, page 26, line 6, at end add—

‘(7) The Treasury shall, within three months of the passing of this Act publish final details of a new UK-wide Government contribution-based tax-free children’s savings scheme for looked-after children.’.

Jimmy Hood (Labour, Lanark and Hamilton East)

With this it will be convenient to discuss the following: amendment 98, in clause 40, page 26, line 6, at end add—

‘(7) The Government will, by 30 September 2011, publish a report on—

(a) children’s savings accounts, and

(b) saving across society,

including the impact of Government policy.’.

Clause stand part.

Mr Hanson, would you like to speak to your amendment?—[Interruption.]

David Hanson (Labour, Delyn)

I was just giving the Ministers an opportunity to decide which of them would respond to the debate. There seemed to be a bit of confusion, and as the Financial Secretary dealt with this issue on a previous Bill I thought he would do so on this Bill too.

The amendments are very political amendments to a very political clause. The clause sets a divide in Committee, which I hope we can explore in some detail this morning, over the replacement for the child trust fund. I hope we can also make progress on some issues that have been raised by the Government, but not answered by them to date, about what happens to looked-after children and children in care. The provisions of clause 40 are in place because the Government chose to end the child trust fund, which was established by the previous Labour Government, towards the end of last year, with effect from 3 January 2011.

Clause 40 is very political. The child trust fund—a universal benefit provided for all irrespective of income, with particular help to the poorest children and those with disabilities and in care—was a successful scheme established by the Labour Government. It was abolished by the Conservatives, with support from the Liberal Democrats, with effect from 3 January this year. Clause 40 contains the Government’s proposed replacement: a self-selecting benefit or child trust fund ISA, available to those who can afford to contribute. We need to explore the objectives, the possible take-up and how the scheme will benefit the many people who would previously have benefited from the child trust fund.

Hon. Members will know that the child trust fund was originally a savings and investment account for children born on or after 1 September 2002, and was established by the then Labour Government to support a long-term saving culture, with particular help for the poorest individuals. We spent some time with the Financial Secretary in Committee before Christmas debating the future of the child trust fund. I can see the hon. Member for Reading West nodding: he spent many a happy hour with me in Committee as we explored those issues.

The Government’s Bill was passed before Christmas, and they abolished the child trust fund from January 2011. The fund was worth more than £500 to all children over their lifetime and £1,000 to the poorest. The previous Government wanted to encourage saving, so that at 18 people had some savings towards the considerable costs they would face such as tuition fees. Children were also due to receive a £250 top-up on their seventh birthday—£500 for the poorest. All of that went under the Savings Accounts and Health in Pregnancy Grant Act 2010.

Nicholas Dakin (Labour, Scunthorpe)

Is it not true that in their manifesto the Conservatives committed to retain the child trust fund for the two-thirds poorest families?

David Hanson (Labour, Delyn)

My hon. Friend anticipates what I am to say. The child trust fund was abolished in the face of a Conservative manifesto—on which every Conservative Member stood at the general election just over a year ago—which I read intently at the time and took in good faith. I believed they were honest individuals who would stand on their manifesto. The manifesto said they would

“cut government contributions to Child Trust Funds for all but the poorest third of families and families with disabled children”.

The Financial Secretary, when he was a shadow Minister in February 2010, committed to keep the child trust fund for disabled children and the poorest third of families. I give credit to the hon. Member for Brecon and Radnorshire: he went into the general election with a commitment to stop spending on child trust funds for the public at large. He stood on his manifesto. All 57 of the Liberal Democrats convinced 300-plus Conservative Members of Parliament, who jumped at the chance to cut public spending still further, to cut child trust funds and to break their manifesto commitment made only six weeks before announcing the coalition agreement.

Roger Williams (Liberal Democrat, Brecon and Radnorshire)

I thank the right hon. Gentleman for his congratulations. The problem is that it is a universal benefit, and that it is received by families who can afford to provide for their children. Surely, it would be better for the money to targeted on those who really need it.

David Hanson (Labour, Delyn)

I do not want to revisit the Savings Accounts and Health in Pregnancy Grant Act 2010, which was passed before Christmas. We expressed our objections at the time, with a large number of Divisions in Committee—the most Divisions I have known in such a short time—and fought to maintain the child trust fund.

I pay tribute to the hon. Member for Brecon and Radnorshire for sticking to his manifesto. He was not supported by the two parties that said that they would keep the child trust fund for the poorest third and for disabled children. I give him credit for the fact that his 57 Members of Parliament managed to convince more than 570 other Members to support Liberal Democrat policy, even though he opposed it in Committee.

Good luck to the hon. Gentleman: I trust that when he goes back to Brecon and Radnor—I know the place well, as it is near my constituency—he will explain why the people there have lost that universal benefit. He should also explain why he may be supporting clause 40, which provides for a self-selecting contribution, probably from people who can afford it, including the hon. Gentleman and other Members, to support their children, while poor people in places such as Ystradgynlais in his constituency will not be able to contribute to the fund because they will no longer receive the universal benefit.

Ian Mearns (Labour, Gateshead)

Did my right hon. Friend take the intervention of the hon. Member for Brecon and Radnorshire to imply that there is antipathy among Liberal Democrats towards all universal benefits?

David Hanson (Labour, Delyn)

It would be interesting to consider that. We will shortly debate child benefit, and I look forward to the Liberal Democrats breaking the principle of universality yet again. They will have the opportunity to stand up to the Government once more, and I wonder how they will perform.

Ian Murray (Labour, Edinburgh South)

As always, my right hon. Friend makes illuminating points about what was in other manifestos. Not only did the Conservatives claim that they would keep the child trust fund for the bottom third, but things omitted from the manifesto, such as VAT increases and reforms to the health service, are now happening.

David Hanson (Labour, Delyn)

Indeed. As my hon. Friend points out, it seems that manifestos are flexible documents.

Nicholas Dakin (Labour, Scunthorpe)

I believe that my right hon. Friend is drawing attention to the fact that the British people gave an overwhelming mandate for retaining the child trust fund and focusing it on the most disadvantaged families.

David Hanson (Labour, Delyn)

There was overwhelming consensus in the Conservative party on maintaining the child trust fund for the poorest third and for people with disabilities; and there was a consensus on our side for maintaining it as a whole. These are important matters.

We are debating amendment 97, which deals with looked-after children, and we shall come shortly to the principle of clause 40, under which the child trust fund is replaced. This is important because, in itself, the child trust fund was a successful scheme. During the last year of its operation, 2 million people were contributing to 4.45 million open accounts; and £2 billion of assets were under management, attracting £22 million of regular contributions each month. There was a 60% increase in tax-efficient saving over the period, and the next generation of 18-year-olds will have amassed some £3 billion every year through the child trust fund over the course of its operation. That is according to Save Child Savings, which made strong representations on behalf of companies operating child trust funds that they should continue. The Minister has to look at how much money in savings the replacement for the child trust fund will generate, and whether that will address in any way, shape or form, the important need to improve the savings ratio for people, for their children in particular, and for future savings activity.

Roger Williams (Liberal Democrat, Brecon and Radnorshire)

The right hon. Gentleman is generous in giving way. I supported my party’s policy in the previous election because all the evidence that I have seen indicates that life-changing investment in a child’s development occurs very early in their life, which is why we preferred the pupil premium to the fund that the right hon. Gentleman advocates.

David Hanson (Labour, Delyn)

The hon. Gentleman makes my point, by walking completely into the fist that I will now put into him. Like me, he represents a constituency in Wales. As he will know, one of the Government’s arguments was to scrap the child trust fund and replace it with the pupil premium. As he will also know, the pupil premium does not apply to Scotland, Northern Ireland, or to his constituency. He has therefore voted to take money from his own constituents and transfer it to people in England.

Roger Williams (Liberal Democrat, Brecon and Radnorshire)

The right hon. Gentleman knows how the Barnett formula works. Money that is allocated for the pupil premium in England will be transferred to Wales, and it will be up to his party, who form the Government in Wales, to decide whether they use it for children during their early years.

David Hanson (Labour, Delyn)

The hon. Gentleman knows that he has taken a universal benefit away from people in his constituency and transferred part of the resource—not all of it—to help and support people receiving the pupil premium in England. As he will know, the pupil premium, in itself, is not universal, because it does not deal with every borough in every part of England, so I will not take lessons from the hon. Gentleman on that point.

Bill Esterson (Labour, Sefton Central)

The Liberal Democrats use words such as “evidence”. They talk about universal benefit, which they opposed, and the hon. Member for Brecon and Radnorshire mentioned the importance of early-years support, which the child trust fund is aimed at—I do not know whether the hon. Gentleman is aware of that. The professor of social policy at the London School of Economics called the child trust fund

“the most successful government savings scheme ever”,

supporting not only early years, but families much later in life, and it also helped many better-off families in getting young people into further education.

David Hanson (Labour, Delyn)

The key point is that the child trust fund was designed to encourage a savings culture, and it did so . During the final year of its operation, 823,504 child trust fund vouchers were issued; there were 70,000 a month. The vast majority of families—74%—contributed over and above that to the child trust fund. This issue is important, not because I want to revisit the battles around the child trust fund—they were lost with the 2010 Act—but because clause 40 is about the replacement for the fund.

Justine Greening (Conservative, Putney)

I want to check whether the Labour party would like to see the child trust fund reintroduced in the form that it had before the election. Is that the case, and if so, is that not a spending commitment?

David Hanson (Labour, Delyn)

The Minister again tempts me to talk about what the Labour party will do in four years’ time, when we are in government. I cannot give her a commitment, but as she will know, when we voted against the abolition of the child trust fund, we made it very clear that we wanted it to be maintained in the Budget. She will have to wait for the Labour manifesto before the next election in four years’ time. We will assess the commitment then, but at the time of the abolition, we supported the fund. We were committed to that £500,000 worth of expenditure, and we wanted it to be maintained.

Alec Shelbrooke (Conservative, Elmet and Rothwell)

I have listened carefully to what the right hon. Gentleman has said about the clause. In trying to rescue the hon. Member for Sefton Central, who said that it helped in early years—when of course, a person could not have access until they were 18—the right hon. Gentleman said that the fund was there to encourage saving. I say to him that the previous Government did nothing to encourage saving because, by simply means-testing anybody who had any savings, they completely disincentivised people from saving anything in this country.

David Hanson (Labour, Delyn)

Let me stick to the clause and the amendment. They indicate that we need to look at the replacement for the child trust fund, which is what clause 40 is about. The child trust fund was a success. Some 70,000 children are born into the UK each year and they were getting a contribution from the state towards a potential trust fund. Parents were matching that, and savings were generated for all sectors of society because of the financial incentive that the child trust fund gave. The fund was abolished. What savings have there been from individuals since January into the particular models that we have?

Stella Creasy (Labour, Walthamstow)

May I take this opportunity to congratulate the hon. Member for Elmet and Rothwell on his forthcoming nuptials? May he be better at doing the sums within a household than he is at doing sums for saving.

One of the challenges for us is whether the legislation will have the same impact that the child trust fund has had, particularly in encouraging saving among the poorer families in our communities. Does my right hon. Friend agree with me that one of the tests we should set for this child ISA is how well it does in encouraging those on lower incomes to save? As we have clearly seen, the child trust fund did that, and many of us on this side fear that the junior ISA will not.

David Hanson (Labour, Delyn)

My hon. Friend makes a valuable point. That is one of the points that I want to explore in our questions today—the junior ISA, in clause 40, replacing the child trust fund. The child trust fund was successful because it gave a financial contribution from the state and said to families from all sectors of society, “The state is in partnership with you to provide for your children’s future at the age of 18. Here is a financial contribution from the state.” In response, parents from across the social spectrum, from all incomes, rallied to that call and contributed to help build assets for the future.

Paul Blomfield (Labour, Sheffield Central)

Is it worth noting, on a day in which we welcome President Barack Obama to the UK, that there is also evidence from the United States of the growing recognition of the importance of asset-building in transforming social mobility? The Child Savings Account Coalition in the US reports that increasing numbers of states are moving towards similar schemes, where state injection of funds incentivises savings and transforms the life chances of young people.

David Hanson (Labour, Delyn)

My hon. Friend makes a valuable point about the experience in the United States. In our discussions before Christmas on these matters, that was the case that I, as the shadow Minister, was trying to make for the retention of the child trust fund. We need to look at how clause 40 and the replacement meet that similar objective; the state will not be contributing financially, and therefore not encouraging parental contributions through any financial contribution. The savings ratio within that group of people might be reduced.

Alec Shelbrooke (Conservative, Elmet and Rothwell)

Will the right hon. Gentleman forgive me? I would like to make a double intervention. May I ask him to return to the statistic he gave a few moments ago, because I missed it? He gave a statistic about how many people were investing into the child trust fund out of the total number of accounts.

David Hanson (Labour, Delyn)

I do not know whether I get extra points for a double intervention. If there are such things, I will take them as they come.

Jimmy Hood (Labour, Lanark and Hamilton East)

Order. From where the Chair is sitting that was a single intervention.

David Hanson (Labour, Delyn)

The majority of parents—74%—have actively opened their child trust fund. A quarter of the accounts received extra contributions from relatives and friends.

Alec Shelbrooke (Conservative, Elmet and Rothwell)

That is what I thought the right hon. Gentleman said. I would like to probe him. Which people were investing money and increasing those savings? Was that 25% from the poorest in society, or were the more affluent contributing to the Government money? Effectively, the question raised by the hon. Member for Walthamstow was how we encourage the poorest to save. If they were among the 75% who were not investing in the child trust fund, they were not saving, but simply getting a Government subsidy.

David Hanson (Labour, Delyn)

It is a valid point, and we debated it long and hard before Christmas, when we considered the Bill that abolished the child trust fund. The figures show that considerable numbers of people in middle-income and well-off families contributed to child trust funds, but an increased percentage of people from lower-income families—sadly, I do not have the figures to hand—contributed because of the co-operation and partnership with the state.

Nicholas Dakin (Labour, Scunthorpe)

Is that not the key point? Getting individuals to save for the future is a massive challenge, and child trust funds were an innovative way of meeting it. It is a great shame that they have been withdrawn.

David Hanson (Labour, Delyn)

It is. The key point—this is where we come to the clause; we have been dealing with the background so far—is that following the decision to abolish the child trust fund, the Government announced at the end of last year that they would establish a child ISA from autumn 2011. As part of that, they have said that they want to

“provide families with a simple, transparent, accessible and competitive product to save for children who do not have a CTF…and…create the conditions for families to save more for their children than they otherwise would.”

They propose that all UK-resident children under 18 who do not have a child trust fund will be eligible for junior ISAs. That includes children who were born before the start of child trust fund eligibility in September 2002, as well as people from before 6 January this year, who will be eligible for the child ISA when it commences later this year.

In making that proposal, what calculation has the Minister made of the savings the junior ISA will encourage, particularly among middle and lower-income earners? What calculations have Ministers made of how many additional savers will be created? How much new saving will be forthcoming, on top of what would have taken place anyway?

I ask that because in response to questions that my hon. Friend the Member for Nottingham East (Chris Leslie) tabled to the Chancellor of the Exchequer, the Financial Secretary to the Treasury said that the Government had estimated

“that 20% of eligible children will have a Junior ISA”.

The Minister’s own estimate, therefore, is that only 20% of people who are eligible for a junior ISA will take one up. Straight away, that compares with the figures I gave the hon. Member for Elmet and Rothwell, which show that 100% of children had a child trust fund. Of those child trust funds, 74% were opened by the parents, and parents contributed to 24% of them. On those statistics, 80% fewer people will have a junior ISA than had a child trust fund. There will also be less saving, because the Government’s estimate for the junior ISA says that fewer people—20%—will save than contributed to the child trust fund. How does the Minister marry those figures together? What is her measure of success for the junior ISA?

Tom Blenkinsop (Labour, Middlesbrough South and East Cleveland)

As my right hon. Friend says, the whole point of the child trust fund was that it capitalised the uncapitalised and incentivised and financed people who would not necessarily have the wherewithal to start a savings programme. However, even under the Government’s agenda for the junior ISA, it is not beyond the realms of conceivability that the Government could lend money for a time directly to the institutions that people want to set up a junior ISA. That would kick things off and increase the number of families who could start a savings programme for their child.

David Hanson (Labour, Delyn)

My hon. Friend makes the point that the purpose of the child fund was to incentivise people across the board to save. Lots of middle-class and well-off people saved, and more people on lower incomes saved. That is the key thing. Figures that the Minister provided in reply to parliamentary questions show that the Government expect 20% of eligible children to have a junior ISA, but 24% of parents contributed to the child trust fund. The savings ratio under the junior ISA is lower.

More importantly, the answer to the question from my hon. Friend the Member for Nottingham East said:

“The Government have made no estimates of the take-up levels of Junior ISA accounts among the income groups specified”.—[Official Report, 26 April 2011; Vol. 527, c. 323W.]

There is not even any estimate of whether it will effectively be a tax handout to richer middle-class families. Dare I say it? Many of the people in this room qualify for that status. Some of us have children who could qualify for the junior ISA. I declare an interest, having three children, including an eight-year-old son who could qualify. A tax relief for the junior ISA would be a potential tax relief for me. I do not need that tax relief to encourage me to save.

Bridget Phillipson (Labour, Houghton and Sunderland South)

The challenge that it is clear the Government face is how to communicate to parents what the junior ISA will mean and how parents can take it up. Many parents, even if they have the money, will be understandably concerned about the range of financial products on offer, and might distrust financial institutions. The simplicity of the child trust fund was that parents could be confident that it was a Government-backed scheme, inasmuch as the Government encouraged it. I would like to hear from the Minister what plans the Government have to encourage parents to take up the junior ISA, if they have the money to do so.

David Hanson (Labour, Delyn)

I am grateful to my hon. Friend. That is important.

Again, in the absence of the child trust fund, what assessments has the Minister made of the take-up? How many people does she expect to contribute, how much does she expect to raise, what is the likely level of tax relief and where will it be directed? Will it be directed at the incomes of families making £50,000, £60,000, £70,000 or £80,000-plus or at lower-income families? What income band does she expect to contribute to the child ISA?

Rather than a direct financial contribution under the child trust fund, clause 40 will now effectively give a tax relief to people who voluntarily contribute to the child ISA. My hon. Friend the Member for Houghton and Sunderland South made a point about the range of ISAs and providers. That is important, and we need to explore it during this debate.

Pamela Nash (Labour, Airdrie and Shotts)

Does my right hon. Friend agree that it seems likely that the 20% of children who have the ISAs will be from the richer quarters of our society? At a time when families are struggling to save with increased pressures on their incomes, the measures will only increase the gap between the poorest and richest in our society and decrease social mobility.

David Hanson (Labour, Delyn)

My hon. Friend makes a valuable point that the Minister needs to answer. What is the banding of the people likely to contribute to the child ISA? If richer people contribute to it and establish it, good luck to them; that is fine. But what mechanism exists to make the scheme help encourage savings by the poorest in society? The children of the richest in society, when they reach the age of 18, may well have had further inheritances or endowments, or might have parents who can contribute to offset university fees, help with initial rents and so on. The people whom we are trying to encourage to save in a child ISA have no disposable income and low levels of contribution. Their children at 18 will face higher levels of tuition fees—another broken promise by the Liberal Democrats—and other costs. How will they finance those costs?

We are not sure that the child ISA is the appropriate vehicle to generate the savings ratio for the age of 18, particularly at a time when the Office for Budget Responsibility, the Government’s own independent forecasting agency, has said that household debt is expected to increase from £1.5 trillion in 2010 to £2.13 trillion in 2015. The Government are privatising debt to individual households while trying to cut public debt. Therefore, families, particularly those on lower incomes, will have less disposable income to put into the new ISA in the first place.

Brandon Lewis (Conservative, Great Yarmouth)

I am curious about how the right hon. Gentleman relates this issue to tuition fees, bearing in mind that tuition fees are paid afterwards under the new scheme and in line with earnings. They are not something that somebody would use an ISA for in the first place.

David Hanson (Labour, Delyn)

The purpose of the ISA was to meet costs that individuals face at the age of 18. The purpose of the child trust fund is the same. It is to build up a nest egg to meet costs at a particular time. Some people may wish to pay their tuition fees up front and not incur that level of debt.

Brandon Lewis (Conservative, Great Yarmouth)

That seems to be the point. People do not need to have the ISA to pay tuition fees up front. The whole point of the new tuition fees—the reason why they are fair and the reason why students will have to pay less money annually than they did under the old scheme—is that they are paid back in arrears, afterwards and only as and when those people can afford to pay them, depending on their professional position.

David Hanson (Labour, Delyn)

We can debate this issue for a long time. There are costs related to further education that the child trust fund was intended to help people meet at a particular time, as well as other costs related to accommodation and other charges. I am very happy to debate this issue with the hon. Gentleman and I think that the public know which side they are on in relation to it.

However, the key point today is that clause 40 replaces what existed before. The Minister needs to justify to the Committee what clause 40 will do and say who will benefit from the tax handout that she is giving to help support that level of savings. Given the Government’s own projection of 20% take-up, my assessment is that 80% of people are not expected to contribute to their child’s future ISA. I might be wrong, but my assessment is that that 80% of people will predominantly be people from the poorer sectors of society who are experiencing a squeeze on their household incomes because of the rise in VAT—another broken promise by the Liberal Democrats—as well as the rise in tuition fees and a range of other issues. Those rises mean that those people’s disposable income will be even less in future than it is now, making them less able to save money. Has the Minister focused on that issue?

Jessica Lee (Conservative, Erewash)

I want to raise two points. First, as we keep coming back to election promises and manifestos, can the right hon. Gentleman reassure us that in all the time he was in government he only voted on Government Bills before the House if they had been expressly in his party’s election manifestos? Does his voting record reflect that, for example on issues such as the introduction of tuition fees?

Secondly, there has been reference to the importance of helping the most vulnerable children. I want to give the right hon. Gentleman an opportunity to applaud and thank the Government for introducing the savings account for looked-after children. I am sure that we all accept that they are the most vulnerable children in our society. They need that help and the savings account for them is a policy that has been welcomed by children’s charities—

Jimmy Hood (Labour, Lanark and Hamilton East)

Order. Too long.

David Hanson (Labour, Delyn)

I can give the hon. Lady one assurance—I can assure her that I did not ditch a manifesto promise three days after the general election, which is what her party did in relation to child trust funds. In fact, I can give her another promise. I can promise her that consideration of the issue of looked-after children, which I will come back to in a moment, was dragged out of the Government kicking and screaming, because of the objections that were raised. In a moment, I want to discuss with her the details of that scheme for looked-after children, because amendment 97 asks for details of it. The details of that scheme are still hazy and unclear. I hope that the Minister will give me an opportunity to withdraw amendment 97 by giving us details of that scheme today and not three months after the Bill gains Royal Assent.

Alec Shelbrooke (Conservative, Elmet and Rothwell)

Will the right hon. Gentleman give way?

David Hanson (Labour, Delyn)

I will give way to the hon. Gentleman, because I know that he is keen.

Alec Shelbrooke (Conservative, Elmet and Rothwell)

I am most grateful to the right hon. Gentleman for giving way. To expand on the comment that he made just a moment ago, it is one thing to be unable to deliver a manifesto if one’s party does not have a majority; it is slightly different to go back on a manifesto promise if one’s party has a majority of 66 or 179.

However, the specific point that I want to make is that he said that the child trust fund was money to be used when children went to university, to meet the costs involved in that. Of course, he will accept that a great number of children do not go to university and they still have that trust fund available to them. What were they using it for? Surely, therefore, he welcomes the fact that we have not only gone further on tuition fees, as my hon. Friend the Member for Erewash outlined, but we have created thousands of apprenticeships. However, those apprenticeships have to be paid for somehow.

David Hanson (Labour, Delyn)

The trust fund was available for 18-year-olds to spend as they wished. Starting in 2002, when the child trust fund was launched, the first 18-year-olds would matriculate in 2020, which is nine years away. The nest egg, which would be for all parts of society and contributed to by the state and by parents, would help with the challenges that they will face then. Most importantly, it would also show partnership between the state and families in helping to support those 18-year-olds.

We can look at what those challenges are, but the fact of the matter is that the Minister’s figures, given in answer to my hon. Friend the Member for Nottingham East, show that we now expect fewer people to save under the junior ISA than we expected to contribute to the child trust fund. We now expect 80% of the eligible population not to contribute to the child ISA. As the first part of the discussion, before I come on to the looked-after children, I want to ask the Minister who benefits from the proposal in clause 40. Is it just people who will be richer and better off? If it is, that will not help poorer people to meet challenges in the future. It will be a tax handout to people who will use the child ISA effectively to support tax-efficient savings for their children, when that money could have been used elsewhere.

Bridget Phillipson (Labour, Houghton and Sunderland South)

Of course, the cost of university education means not only tuition fees. There are other costs attached that the child trust fund could have been used to support. We are not, however, only concerned with young people going to university, and I know that my right hon. Friend will come on to looked-after children. There is, however, one interesting case study in the Barnado’s document, “On our own two feet”, which focuses on this issue and gives the example of a young woman called Jo. Jo was in foster care, and, unfortunately, she was in a car accident, for which she received compensation. That compensation allowed her to buy a car, which then allowed her to move away to university. That is precisely the kind of young person whom we want to support with savings schemes. The concern, however, is that, because of the lack of detail in the Government’s proposals, we are not sure that such people will be supported.

David Hanson (Labour, Delyn)

I am grateful to my hon. Friend, and I will come on to the question of looked-after children, so that I can raise that particular issue. Before I do, however, I want to end with a general point on clause 40.

The Labour party supported and introduced child trust funds. It wanted to see them develop, wanted to keep them and voted accordingly. That answers the Minister’s criticism initially. They were abolished, and that is a fact of life that we, in Opposition at the moment, have to face. The Minister has to make the case today for why the proposed junior ISA is better than the child trust fund, why it is more efficient, why it will contribute to a better savings ratio, who will save and how that resource will be used by individuals to help generate a pot to help meet the challenges of 18 years hence. I need to know the details of that. As part of the discussion today, she needs to look at that issue.

I will now move on to amendment 97, which is about the detail of the

“UK-wide Government contribution-based tax-free children’s savings scheme for looked after children.”

The hon. Member for Erewash has touched on that, and I am grateful to the Chancellor for announcing a pot of money—some £5 million—to support looked-after children. So that the hon. Lady knows the history, we tabled amendments in the Savings Accounts and Health in Pregnancy Grant Bill Committee before Christmas to exempt looked-after children from the abolition of the child trust fund. When those amendments were voted on, they were lost with 10 votes to seven. The seven votes came from Opposition Members and the 10 votes came from Government Members, supported by the Liberal Democrats, who continued to keep—even in the face of looked-after children—to their manifesto commitment to abolish the child trust fund completely.

We also voted for that in the House of Commons. I do not have the voting figures in front of me, but I suspect that the hon. Lady voted against the provision for looked-after children when we moved a clause on the Floor of the House. When she asks whether I should be grateful to the Chancellor for bringing forward funds for looked-after children, I say to the Chancellor, “Thank you very much.” However, it was after one vote in Committee, one vote on the Floor of the House, a campaign by Barnado’s, Save the Children and a range of other charities, and people being dragged to make that announcement through questions to the Chancellor about what provision was being provided for looked-after children. It dawned on the Chancellor that a child ISA, which is being proposed in clause 40, is for parental contributions to a tax-free savings scheme.

Gradually, after a vote in Committee and on the Floor of the House, and after parliamentary questions and a lobbying campaign, it dawned on the Chancellor that people in respite, residential and foster care are there because they do not have parents. Either the parents do not exist or they have had parental responsibility removed because of drugs, alcohol, prison or whatever.

So the Chancellor came to the conclusion that we needed to have a looked-after children child trust fund, because ultimately he realised—he should have realised when we first raised it—that the most vulnerable in our society needed support. They fall within the definition of the

“poorest third of families and families with disabled children”

in the manifesto, which he supported, and they therefore needed to have an element of state support to help them meet the challenges of 18. Three of my children are over 18, but the one who is under 18 will have help and support from active parents and will have resources to meet the challenges of 18. The fact that a looked-after child is in care or in foster care means that their parents are either dead or have had parental responsibility removed. That is why we want a scheme for looked-after children.

In Treasury questions, the Chancellor announced:

“I can tell the House that the Department for Education will work with others to make the necessary funding available to ensure that we can provide the support that they deserve. We will work with charities and interested parties to develop detailed proposals funded by the Government, so that junior ISAs can best support these children.”—[Official Report, 22 March 2011; Vol. 525, c. 834.]

That was on 22 March; today is 24 May. Later today, representatives of Barnardo’s will have a meeting with the Department for Education. Barnardo’s produced “On our own two feet”, which presents the case for a savings scheme for looked-after children. The representatives e-mailed me yesterday to tell me about today’s meeting. It is their first contact with the Department since 22 March, and they are meeting to develop a scheme. I want to welcome the scheme today. I tabled amendment 97 because I want, within three months of the Act being passed, details of what the scheme means for the Economic Secretary and for the Committee.

I need to know three or four key issues: how much the Government intend to contribute to the potential child ISA for looked-after children and how they intend to operate it. The Chancellor has stated that the Department for Education will deal with it. I particularly need to know whether the proposed replacement will apply in my constituency in north Wales, in the constituencies of my hon. Friends the Members for Edinburgh South and for Airdrie and Shotts in Scotland, and in the constituency of the hon. Member for East Antrim in Northern Ireland, because, as the Committee knows, the Department for Education is an England-only Department. What was, before the abolition of the child trust fund, a universal UK-wide benefit could now simply be a matter for England. I tabled questions to that effect and the Government have said that they intend it to be a UK-wide provision.

So, again, I want to know the exact details of the scheme. We want it within three months, but I am happy to withdraw amendment 97 if the Minister can provide the information today. To deal with clause 40 and to assess a future child ISA, we need to know what the issue is for children in care. That is important because about 6,000 children are taken into care each year in the UK. There is currently a care population of about 86,000 children. Figures for 31 March 2010 show that 64,400 children are in care in England; 15,288 in Scotland; 5,162 in Wales and 1,653 in Northern Ireland. At the moment, I am still hazy about how they will be able to access the child ISA and about what the arrangements are. In the report “On our own two feet” Barnardo’s and others make a strong case for help and support. They call on the Government to contribute to the ISA for looked after children. Does the Minister intend to make a financial contribution within that £5 million, and if so, what it will be.

Paul Blomfield (Labour, Sheffield Central)

The report to which my right hon. Friend refers includes information from a survey conducted by Action for Children, which makes the point that 85% of the looked-after children in the survey would be encouraged to save themselves if the Government paid into a savings account for them. Some 70% thought that their carers or family would be encouraged to save for the future if the Government paid in for them. Is it not the case therefore that it is crucial that the Government give us an indication of their intention?

David Hanson (Labour, Delyn)

I am grateful to my hon. Friend for those points. I will put my hands up when I know that we have had a discussion. We lost the battle in Committee and in the House of Commons over the child trust fund, but eventually, through persistence both outside and inside this House, we have won the principle that there should be a support mechanism for looked-after children to help contribute to the child ISA. In particular, I pay tribute to my right hon. Friend the Member for Wythenshawe and Sale East (Paul Goggins) who assiduously raised this issue with the charities. As my hon. Friend the Member for Sheffield Central said, we need to know when the scheme will be up and running, when it will be UK-wide and whether there will be a minimum deposit in those accounts, which is something to which the Government have not yet committed themselves. Carers, supporters and people in local authorities need that information. We want a mechanism to ensure that we generate help and support for looked-after children who, at the age of 18, will leave residential care or foster care without the parental support that most others in society have.

Action for Children and Barnardo’s have a meeting today with the Department for Education. This is their first meeting with officials since the Chancellor’s announcement on 22 March. They say:

“We have obviously felt quite frustrated about this slow progress.”

That is not me saying that; it is them saying it to me. They go on to say:

“Like you, we are of course keen to get the scheme up and running as soon as possible, and will be pushing for accounts for looked after children to be established in autumn 2011 when Junior ISAs are expected to be made available for other children…We are pushing for a guarantee that this scheme will be UK-wide…We are pushing for a guarantee of a minimum deposit for each savings account (something not yet committed to).”

We still do not have clarity from the Government over the potential scheme for looked after children. Will the Minister give us a commitment today as to how the £5 million that the hon. Member for Erewash mentioned is to be invested in looked after children? What is the provider mechanism? What is the commitment? Who will organise this? How do people access it? What is the role of local authorities? What is the contribution and who will run the scheme? We need to have answers to those questions. If this amendment is passed, I have helpfully given the Minister three months’ grace to provide that information.

Amendment 98 gives an indication of what we want to see in the broadest sense of the word. It proposes that by 30 September, the Government publish a report on children’s savings accounts and saving across society, which would include the impact of Government policy. We tabled the amendment because we are conscious that since the abolition of the child trust fund, no information has been provided to show whether savings are being generated for children under the age of 18 to the same extent that they were before the abolition. At the time, we suggested that the Government carry out a review of the abolition’s impact by the end of this year, but they rejected that proposal; the amendment provides another opportunity for them to consider it.

I am taking a chance here, but perhaps the Government will accept the amendment and produce a report that shows that all my fears were unjustified—that people on low incomes are still contributing and saving for their children. Perhaps their report will blow me out of the water in October this year. If they wish, they could even time the report for the Labour party conference to make a real hole in our proceedings. They can accept the amendment, look at the impact of the abolition of the child trust fund and show that the Opposition need not have worried because their fears were not real and everything is hunky-dory in the garden.

Mary Glindon (Labour, North Tyneside)

As an add-on concern in the report that my hon. Friend the Member for Sheffield Central referred to, seven out of 10 cared-for children are worried about not having enough money put aside for when they leave care. Is it not, therefore, a matter of urgency to settle this issue for their health and mental well-being?

David Hanson (Labour, Delyn)

It is. I am grateful for my hon. Friend’s comments on her concerns for looked-after children in care, which is a crucial issue.

Amendment 98 says to the Minister, “Let’s look at this issue in the round.” I have reluctantly accepted that the Government have had their way on the abolition of the child trust fund for all sectors of society, with the possible exception—details awaited—of looked-after children. Let us have an assessment this September of what the abolition has meant in real life. Has the savings ratio fallen? Are people from different sectors of society saving? What is the level of saving? What is the contribution? What has the abolition meant in real terms?

We do not necessarily want to reinvent the wheel. I have committed today, as every Committee member has heard, that the Labour party will look at the measure at the time of the general election and make our views clear then. We simply want to know whether the abolition has had any impact on the difficulties that we face in our savings ratio and on savings generally.

We face increasing levels of household debt, the VAT rise, the squeeze on living standards and reductions in child benefit. What is the Government’s long-term strategy to get people to save for their children at the age of 18? How will people build up their savings, which could be invested in growth, businesses and in manufacturing because of the savings ratio?

Bill Esterson (Labour, Sefton Central)

My right hon. Friend has returned to that crucial point several times. How do we persuade families to save for their children? My great concern is that unless a system is in place to help low-income families, in particular, given the tough economic times, they will simply have no spare cash to put into savings for their children. That is why the existing child trust fund arrangements have worked so successfully. My real concern is that the changes will help better-off families, but not those on low incomes.

David Hanson (Labour, Delyn)

I am sure that the Minister will provide figures that show that people on lower incomes did not contribute to the child trust fund. I am sure that she has such figures, because we debated this matter during the passage of the Bill. The fact, however, is that more people contributed to the child trust fund on lower incomes than will potentially contribute to the child ISA. The Government’s own figures show that. Amendment 98 simply asks the Minister to produce a report to look at the implications of the abolition of child trust funds, and to look at how we generate savings for the future.

Nicholas Dakin (Labour, Scunthorpe)

My right hon. Friend is setting out the case well. Will he reassert the importance of creating the saving habit, and challenge the Government to explain how their proposals will create that habit for lower income families?

David Hanson (Labour, Delyn)

I am grateful to my hon. Friend, because that is one of the key issues. He knows that in the same Act in which the Government shamelessly scrapped the child trust fund—the Savings Accounts and Health in Pregnancy Grant Act 2010—they also scrapped the proposals for the saving gateway accounts. It had pilots across the country, it helped poorer people to contribute by matching savings pound for pound and it generated a massive amount of savings. There is no mechanism now for the state to encourage people and families on lower incomes to save. At a time of squeezed incomes, that worries me.

Amendment 98 simply says to the Minister, “Let’s look at this.” Let us have a discussion and by the end of September a report can be produced that tells us the impact on savings across society, including the impact of Government taxation policy, which is squeezing incomes so that families cannot save for the future. I pray in evidence the fact that only this week a survey by The Observersaid that six out of 10 families

“say they are struggling to pay bills. Savings are pitifully low—half have less than a month’s salary to fall back on—and two-thirds aren’t contributing a penny to a pension.”

That is the situation we face—half the population of the UK have less than a month’s salary to fall back on and two-thirds are not contributing a penny to their pensions.

We can argue about whys, wheres and whatevers for the rest of the day, but with that financial background, given that we abolished the child trust fund—fair enough, it has gone—and are looking at what the saving mechanism will be, how confident is the Minister that this mechanism will be a success? How confident is she that people will contribute to it, that it will raise the resources that the Government want and that the people who need it, who benefited from the child trust fund, will benefit from the child ISA?

I contend that low and middle-earners are unlikely to have spare money to invest in a junior ISA and so the beneficiaries of it will be those wealthy enough to afford to take advantage of an attractive new savings product, which this will undoubtedly be. Effectively, the policy change is ditching a universal benefit and replacing it with a tax product that will most benefit the richest members of society, which is why I said that this is a very political clause. I do not object to their contributions, because they could save under the child trust fund as well, but the Minister needs to answer my key point that this will disadvantage those on low and middle incomes.

It is misleading for the Government to claim that the junior ISA is some sort of successor to the child trust fund, when it blatantly is not. It is about giving a tax break to those who can afford to put money into it; it is not a universal benefit in the way that the trust fund was. Although no distributional or regional analysis or assessment of income bands is provided, the assessment is that only 20% of children will take it up.

Steve Barclay (Conservative, North East Cambridgeshire)

Does the right hon. Gentleman think that the expansion of means-tested benefits boosted a savings culture under the previous Government?

David Hanson (Labour, Delyn)

We could debate for a long time various issues that the hon. Gentleman has mentioned, but my contention, which I base on information that the Minister provided me with in parliamentary answers, is that fewer people will save under the proposed child ISA than saved under the child trust fund. The Minister must answer that charge. The Government’s actions in abolishing the child trust fund and saving half a billion pounds of taxpayers’ money have resulted and will result in a reduced savings culture, and the savings culture created will be in a different band of the population than was previously the case.

Steve Barclay (Conservative, North East Cambridgeshire)

Would the right hon. Gentleman like to comment on the need to change the cap from 1% on stakeholder products? Was that not in itself an admission that the previous Government had failed in its attempts to expand the savings culture?

David Hanson (Labour, Delyn)

No, I do not think that it was, but we will be ruled out of order if we discuss pensions and savings policy related to those benefits.

The Minister does not have to justify the change—we have argued about the move away from child trust funds—but to justify the benefits that are in addition to the new child ISA. She needs to outline them in detail, and give a clear explanation of how the ISA will help to generate those savings for the future. It would help in my withdrawing of the amendment if she gave the same level of detail about the contribution for looked-after children as she did under clause 40 about the child ISA—she managed to fill out several pages. The issue is not new; it was raised in Committee last October and November, and the Government committed to the child ISA at that stage. They could have worked on the looked-after children contribution then as well, and I want to hear the Minister’s proposals for that today.

I am grateful that I have had the opportunity to raise these issues, and I know that my hon. Friends will wish to continue to speak to them in due course.

Bridget Phillipson (Labour, Houghton and Sunderland South)

It is a pleasure to serve under your chairmanship, Mr Hood, and I am grateful for the opportunity to speak in the debate.

I should like to focus my comments on the effect that the measures will have on children in care. We all know that children in care are among the most marginalised and disadvantaged people in our society, and face significant disadvantages in life. It is incredibly important, therefore, that we press the Government, with the amendment, to give much firmer details of what the scheme will do and what support will be offered to young people in care. Action for Children and Barnardo’s have published an interesting report on the subject, entitled “On our own two feet: The case for a savings account for looked after children.” It is only through the work of those organisations that the Government have been forced to reconsider their proposals for the scheme.

We are talking not about handouts to these disadvantaged young people, but about providing support to allow care leavers to flourish and become independent when they reach the age of 18, and I would have thought that Members from all parties would support that. The savings accounts would provide a financial asset, enabling young people to receive the additional support they need. In the absence of a parent, whether through a care order or difficult circumstances that have arisen, the state will act as a corporate parent to provide young people with the security and stability that they need, and it is therefore crucial that the Government make it clear what the proposals will do. Will they be UK-wide? How will the money be used? There are a number of areas in which questions need to be answered by the Minister. Many of those young people end up homeless, and any support in reserve would be of massive benefit in enabling them to go on and live fulfilling lives.

I have seen at first hand the challenges that many young care leavers face. The organisation that I used to work for ran an accommodation project for young women aged 16 to 18, who were homeless as a result of abuse. Many of them were care leavers who had left the care system at 16, and who would have benefited from any changes that had brought about further support to enable them to flourish. Many of them had experienced trauma and abuse, often at the hands of people who should have been caring for them—often their parents. Whether it was physical, sexual or emotional abuse, it was often perpetrated by the people who should have cared about them most in the world, and should have acted in their best interests. That is traumatic enough in itself, and it is important that we provide care leavers with the greatest possible support to help them to face all the difficulties that leaving the care system brings.

Care leavers and young people in the care system already face significant disadvantage, from finding themselves homeless or under-attaining in school for example, and they are far more likely to end up as NEETS—people not in employment, education or training. That failure to overcome serious disadvantage in their lives will increase the costs to the state in the long run, either through additional benefits, or through additional pressures on the NHS or on council services such as housing. The unfortunate reality is that many young people who leave care end up in prison because of the difficulties that they face throughout their lives. All of that brings huge costs to the state, and we want to avoid that.

I do not for one moment suggest that having a savings scheme that supports such young people will solve all those problems, but I want to hear from the Government what assessment has been made.

Roger Gale (Conservative, North Thanet)

I remind the Committee that with this we are discussing the following: amendment 98, in clause 40, page 26, line 6, at end add—

‘(7) The Government will, by 30 September 2011, publish a report on—

(a) children’s savings accounts, and

(b) saving across society,

including the impact of Government policy.’.

Clause stand part.

Bridget Phillipson (Labour, Houghton and Sunderland South)

It is a pleasure to serve under your chairmanship once again, Mr Gale. Before we adjourned I was talking about the additional costs faced by the state as a result of young people going into care and how we can mitigate some of those deleterious effects and look to support young care leavers and those within the care system. In the long run, that may save the Government money, whether in benefits or additional costs to the NHS, council services or costs for those young people who unfortunately may end up in prison as a result of their difficult start in life, which is through no fault of their own.

I was asking whether the Government had made any assessment of those long-term costs and what measures could be put in place to mitigate the effects of those negative outcomes for young people. I was also saying that I do not for one moment suggest that a savings scheme will solve all of those problems. However, young people in the care system and those leaving care often face significant disadvantage, do not have families to fall back on and do not have a nest egg, so it is important that they receive the support that they need through the scheme that the Government are introducing. That is why it is vital that we receive proper information and proper detail to allow us to scrutinise the Government’s proposals and to make sure that they are implemented to best effect.

My concern is that, according to the Treasury’s impact assessment of the junior ISA, only 20% of children will benefit from the new scheme and no distributional analysis has been provided. However, it is fair to assume that the young people who will benefit from the scheme will unfortunately not necessarily be those in care or care leavers, who struggle to gain access to a range of services that other young people may ordinarily access. So I hope that the Government can provide some further information on what distributional analysis has been done, whether young people in care will be properly supported through this new scheme, and whether those who will benefit will come from low and middle-income families.

As my right hon. Friend the Member for Delyn described at length this morning, our concern is that those who benefit may be those who would save anyway—those whose families are able to save—and that the proposal is simply a tax break for such families. We want to encourage saving across the board, particularly in families on low and middle incomes. They may be finding it incredibly difficult to save at the moment with the squeeze on their living costs through the VAT rise and the rising price of fuel and reduced wages, but even small amounts of savings can make a big difference to a child’s life when they reach 18 and need that money to fall back on.

I gave an example in an intervention of a case study in the report by Barnardo’s and Action for Children. A young woman was in and out of the care system through most of her teenage years and was awarded compensation after being involved in a car accident. As a result of that compensation she was able to buy a car and to go to university and move on with her life. That is something we all want. We all want to see young people able to progress, aspire and achieve the best that they possibly can. But for some young people that is more difficult than for others. That is certainly the case for care leavers, but it is also the case unfortunately for many people from low and middle-income backgrounds who do not always have that financial nest egg to fall back on or families who can support them financially.

We discussed this morning the costs of university and tuition fees and whether people might put those savings towards university education. We also had some exchanges about the scheme that the Government have brought in. I will not speak at length about that, but the point that I made then and that I would make now is that the cost of university includes not only tuition fees but living costs. It is also about allowing young people to benefit properly and fully from a university education. Unfortunately, some people from better-off backgrounds, who have more at their disposal financially, find that easier than young people from low or middle-income backgrounds, who do not necessarily enjoy the same advantages.

It is therefore important that, when the Government introduce schemes such as the junior ISA, they give proper consideration to ensuring that young people and families from a range of backgrounds and incomes properly enjoy its benefits. That is why I am concerned that the Treasury has not done a distributional analysis of where the impact will be felt and which particular families will benefit and save.

Another concern is that some families, particularly those on lower incomes, are not necessarily aware of the financial products or institutions available to them or of how they can best save. The benefit of the child trust fund was that, because it was a Government-supported scheme and the Government strongly encouraged parents to take it up, parents had confidence. From my previous professional experience, I know that parents from lower incomes had the confidence that, because the Government brought it into being and were backing it and supporting it strongly, they did not have to worry about looking for the best rate or speaking to a bank. Clearly, there are other options open to families, but, the universal nature of the benefit, meant that families could have confidence in it.

I know from my professional experience that a time of particular difficulty for young people is when they move from the care system into a life of independence. That transition is a critical period for young people. It is often when placements fall apart. Young people are expected to go and live independently. While big strides forward have been made in the leaving care service to support young people at that difficult time, it is still fair to say that those excluded young people face additional challenges that young people from supportive or stable families simply do not face. It would be wrong not to recognise those additional challenges. Care leavers are often forced to be independent at a far younger age than their peers from stable families with supportive parents who are able to encourage them, which is why it is so important that the Government ensure that they take due notice of young people within the care system. I am glad that the Government have backtracked somewhat and announced the £5 million fund to support care leavers. It is precisely those young people who would benefit from having that financial nest egg to fall back on to allow them to prosper and achieve their full potential.

Returning to the contrast between the child trust fund and the proposed junior ISA, the general difference was that the child trust fund—my right hon. Friend touched on its background this morning—involved a Government contribution. While those outside the care system could have a reasonable expectation that, if their parents could afford to do so they might make a contribution, the difference for young people in the care system is that they often have no parents. If they do, their parents have often had legal rights removed from them, and the state acts as a corporate parent. That is why it is all the more important that the state sends out a clear message to those young people that they will be fully supported to open up their life chances, to build their confidence and also to build their sense of responsibility.

Alison McGovern (Labour, Wirral South)

My hon. Friend is making an important point about the message that we send to looked-after children about the corporate parenting that the state provides. Does she agree that it is more than a message? Sometimes, for a looked-after young person at that crucial period when they are about to leave care, a financial asset might give them a wider choice that will make them a much more effective member of society in the future.

Bridget Phillipson (Labour, Houghton and Sunderland South)

I am grateful to my hon. Friend for those comments. Choice within the care system is incredibly important for young people, because, as a result of their life experiences and the damage that has often been done to them, choice has been removed. That is right; the state has to intervene, but such young people have not always enjoyed the same opportunities and choices that young people with a stable family from other social backgrounds have. It is therefore important that on this point, the state sends a clear message to young people in the care system that they have choices, and that they can broaden their horizons and have aspirations. The unfortunate reality is that too many young people leave the care system not in a position to fully benefit from the opportunities that are available in society, and not fully able to contribute. That is why so many care leavers still end up not in education, employment or training and why, unfortunately, a small but significant minority end up within the prison system. Everything that we can do to help young people, give them choices, and support them in those choices is to be welcomed.

Amendment 98 calls on the Government to publish a report on children’s savings accounts and on saving across society, which would include the impact of Government policy. The DWP structural reform plan had “Get Britain saving” as a key strategic goal in the Department’s plans for the years ahead. However, the measures that the Government propose would not support low-income families to save in the same way as the child trust fund, which is a concern. We want to encourage a saving culture within society, so that young people and their families are encouraged to save throughout their lives. As we all know, saving even a small amount over the course of 18 years can build up a significant nest egg for a child, so that, at the age of 18, they can enjoy the privileges that many people take for granted. That may be the opportunity to buy a car or have additional money to support them at university, so that they do not have to work full time when they are there. A whole range of other life opportunities—travelling, for example—are not always available to families from low or middle-income backgrounds, but such opportunities broaden a young person’s horizons and allow them to contribute more fully to society.

The Resolution Foundation carried out a new study on the living standards of some of Britain’s 6 million low and middle-income households, all of whom were in work, and who were earning just at or below the national average. It said that six in 10 were struggling to pay the bills, and that savings are already pitifully low. Half have less than a month’s salary to fall back on, and two thirds are not contributing a penny to a pension. Clearly, that is a big concern, and anything we can do to support such people, even in difficult, straitened financial times, is to be welcomed. Low and middle-income earners are unlikely, at this point, to have the money spare to invest in a junior ISA, but it is not unreasonable to think that they may, in future, have an opportunity to increase their income, particularly if they are able to take on extra hours at work, and be encouraged to save throughout that time. The Government could send a clear signal —and could have done so through the child trust fund—that they wanted to support low and middle-income families to save for the future.

I press the Minister to publish the final details of the contribution-based ISA for children in care. We know that the Chancellor agreed £5 million a year for the scheme, but we are still short on the details, which is why amendment 97 proposes the following:

“The Treasury shall, within three months of the passing of this Act publish final details of a new UK-wide Government contribution-based tax-free children’s savings scheme for looked-after children.”

What is also crucial, and I would like to stress this point to the Minister, is that the scheme should cover the whole of the UK, and not simply England. I would be grateful for reassurance that that will be the case.

I am pleased that the Government have listened to some arguments being made by organisations supporting looked-after children. I have referred to Barnardo’s and Action for Children, but I know that others have been working with the Department for Education to press for the scheme to have the effects that we all hope it will. It is disappointing that, although the Conservative party promised in its manifesto to keep the child trust fund for the poorest two thirds of families and for families with disabled children, it has backtracked. It has taken significant pressure for us to get the Conservatives to recognise the difficult and very different challenges facing young people in the care system. It is right and proper that we support such young people, not only because it is the right thing to do but because we should help those young people to have proper choices in their lives, so that once they leave the care system, they have the same kind of choices and opportunities that many young people outside the care system enjoy. I hope that we can get some answers from the Government about how the scheme will operate, so that we can have confidence that young people in the care system will see a proper scheme that supports them, gives them choice and allows them to benefit and contribute fully to society as they grow.

Nicholas Dakin (Labour, Scunthorpe)

It is, as ever, a pleasure to serve under your chairmanship this afternoon, Mr Gale. I rise to speak to the amendments in the name of my right hon. Friend the Member for Delyn. As somebody who, before coming to this place, worked all my professional life with young people, I sometimes find the Government’s attitude to children and young people disappointing. From the health in pregnancy grant to Aimhigher, from the complete dismantling of youth services to the pulling back on Building Schools for the Future, there seems to be a theme of not backing rhetoric—[ Interruption. ] Does the hon. Member for Skipton and Ripon want to intervene?

Julian Smith (Conservative, Skipton and Ripon)

No thank you.

Nicholas Dakin (Labour, Scunthorpe)

That is fine; I will continue. The question of rhetoric and reality is at the heart of the clause and of the amendments, and the amendments try to turn rhetoric into reality. The concerns about the child trust fund uncannily resemble those about education maintenance allowance; support will be taken away from young people at the start of their lives and at a point of significant transition. Those are questions that disturb me.

Focusing on the child trust fund, let us look at a couple of quotes from people who know far more about such things than I do. David White, the chief executive of The Children’s Mutual, said in May 2010:

“The Child Trust Fund is the single most successful savings policy to date and this sort of short-term cut does not address the pressing need for families to save, or recognise the significant benefit to society that the Child Trust Fund will bring from 2020 as maturing funds return an anticipated £2.96bn each year to the economy”.

That was his view of the proposals and of what was happening to child trust funds. If we do not accept his views, let us see what Sian Williams of Toynbee Hall has said. She stated:

“My real concern around the removal of the child trust fund is not across the whole population; it is for the lowest income groups. We really believe that, for that particular income group, from 16 to 18 years was a really important time to have no assets to fall back on. That really puts people in a difficult position. It reduces their opportunities, and we think the child trust fund was really effective in tackling that.”

The child trust fund is overwhelmingly endorsed by people who know what they are talking about. Unfortunately, as my right hon. Friend was saying earlier, despite the manifesto commitments of the two parties that gained the most votes at the general election, it is not being taken forward. Instead, it is being replaced by the junior ISA proposal. No Government contributions will be made to the junior ISA, but it will be tax free up to a limit of £3,000 and will operate in a largely similar way to the adult ISA. As my right hon. Friend has pointed out, the question is who benefits. Where is the equality impact assessment? Who will get the advantage? It is good to encourage anybody to save, but the danger is that it will not encourage those families with the least income to do so.

Ian Murray (Labour, Edinburgh South)

Last year’s Conservative manifesto stated that the party would concentrate the child trust fund on the bottom third of the population. Will the proposed junior ISA concentrate those funds on the bottom third?

Nicholas Dakin (Labour, Scunthorpe)

The worry—not only mine, but that of the sort of commentators whom I have quoted—is that it will have the opposite effect, and that the top third rather than the bottom third will take advantage of the junior ISA. That is the danger. It is quite misleading of the Government to claim that the junior ISA is a sort of successor to the child trust fund, because it is not; it is a different instrument, which performs a different function and achieves different things. My hon. Friend’s intervention and the way in which he expressed his point pulls that out very well. The measure does not take a progressive asset-based approach. There will be a tax-based break for wealthy savers, rather than an investment in people who usually do not save. The provision will not increase the saving culture that we want to encourage through the child trust fund.

According to the Treasury’s impact assessment for the junior ISA, just 20% of children will end up with one. No distributional analysis is provided but, as my hon. Friend has indicated, we can guess which 20% of children are most likely to take advantage of this tax break. The junior ISA will not improve the life chances of people from the least wealthy backgrounds, which was a Conservative party manifesto commitment; it will enhance the life chances of people who are the most advantaged.

It is sad that that is the case considering that, to their credit, both coalition parties have strong traditions of asset-based welfare development, as shown in how they have approached things in the past. There is a social liberal tradition stretching back to Thomas Paine and his call for assets for all. I would have hoped that modern liberals would build on that strong basis today, rather than tearing it up in their approach to the child trust fund. Although the Conservatives do not talk about their “Red Tory” guru Phillip Blond much these days, his ideas about recapitalising the poor are right at the centre of things such as the child trust fund. It is disappointing that two great parties with two great social traditions should be missing the opportunity to build on that.

I shall move on to consider where we are on care leavers. When the Prime Minister spoke about them in 2010, he captured those traditions very helpfully. He said:

“We really do need to do better as a country”

for care leavers. He continued:

“We are looking at this area and I recognise that dealing with the scandal of the poor outcomes for children in care is something, frankly, that everyone in this House ought to support.”—[Official Report, 30 June 2010; Vol. 512, c. 887.]

Those words have a huge resonance and I think we would all support such comments, which is why I welcome the Government’s commitment to make this £5 million available for the child trust fund proposals for looked-after children.

As my right hon. Friend the Member for Delyn said, it is far from clear what the scheme will mean—whether it will cover the whole of the United Kingdom and how it will operate. The hon. Member for Erewash helpfully celebrated the fact that the commitment is there but, like her, I want answers from the Minister on how the measure is being taken forward. Today’s debate gives the opportunity for that.

Let us consider the proposals made by Barnardo’s and Action for Children in their very good document, “On our own two feet.” Their proposals sketch out various ingredients of a scheme and draw attention to those elements. I would be interested to know from the Minister whether they are the sort of elements that will be included in the scheme being initiated by the Government. The first part of the proposals contained in “On our own two feet” states that the scheme should apply

“equally to children in England, Wales, Scotland and Northern Ireland.”

The second part states:

“Any child who enters local authority care under section 20 or section 31 of the Children Act 1989 (or the equivalent legislation in Scotland and Northern Ireland) and remains in care for a minimum of 13 weeks is eligible.”

Thirdly, it states:

“After 13 weeks the responsible local authority send the child’s details to HMRC who will then open an account.”

The fourth element is that HMRC’s initial payment would be of £250, and the fifth states:

“The responsible local authority notify HMRC if the child spends more than 26 weeks of the next year in care. HMRC will then make a further contribution of £100”.

That would happen for each subsequent year of care until the child left care. Finally, the sixth element of the proposals states:

“Looked after children who currently have the Child Trust Fund would also receive the annual top-up payments if, as above, they have spent more than 26 weeks in care.”

Those six elements give us a clear basis on which to get intelligence from Minister on how the proposals and the commitments made by the Chancellor, which everybody in the House welcomed, will be taken forward. Now is the time to act.

I conclude my remarks by quoting an anonymous care leaver. After all, it is care leavers on whom we should focus, because they are the beneficiaries—or non-beneficiaries—of Government plans. My hon. Friend the Member for Houghton and Sunderland South drew attention to how investment in young people now, through such a mechanism, could have great benefits to the Exchequer in the long term by assisting them when they leave the care system to find positive pathways into their future. The quote is on the final page of the Barnardo’s document and was given this year. The care leaver said:

“By having some savings I could have set myself up when I came out of care. Instead, I had nothing and no one”.

Those words should echo round this Committee Room. Our responsibility is to step up to the plate and show leadership. The Government have committed the money, but we now need leadership, a message of hope and a direction forward, and I am sure that we will get them from the Minister when she replies.

Alison McGovern (Labour, Wirral South)

I am honoured to serve under your chairmanship, Mr Gale. My hon. Friends have made many important points on these amendments, and the issues are important for all of us. I sat on the Savings Accounts and Health in Pregnancy Grant Committee in 2010, which removed child trust funds, and I remember those debates well. I do not propose to go through them again, but I will use them as an introduction to my remarks on transparency and the differences in savings across society.

This is part of the debate about whether Government’s role is to support income now, which Governments have a long history of doing, or to address asset inequality. As my hon. Friend the Member for Scunthorpe said, this is part of a broader, more long-standing debate about how to redistribute wealth, and what doing that does for people, especially those who have the disbenefit and misfortune to have been born without wealth or any great inheritance. I hope that most Committee members accept that one thing we have learnt over the years in this debate is that it is right for the Government to address asset inequality. There is cross-party agreement on that, although the Liberal Democrats disagreed with it when they wrote their manifesto for the last election. It is right for the Government not only to support people today, but to look at how people can build wealth, because from wealth comes independence, and from independence comes a sense of dignity and pride, which ought to be what Britain is all about. I am proud of the strides forward on that issue that my party made in government.

I wanted to make a point about transparency, because both amendments call for the publication of information. We have debated in this Committee and on other related Bills how important it is to get information and data out there, and how the Government should consult properly. We politicians have given the financial services sector a bit of a rough ride in recent months and years. For a moment, I would like to set the record straight and balance the argument slightly the other way. People in the financial services sector led, were involved in and consulted on the establishment of the child trust fund. I recall conversations with several experts in the field who were trying to find a way to build a product for families that would work for them. Yes, it would send a message from Government, as my hon. Friend the Member for Scunthorpe said, but would also encourage saving.

People in the financial services sector brought a great deal of expertise. I hope that the Minister will listen to those same voices now, as we go forward with a product for looked-after children. There is a need for complete transparency. I hope that those voices will be listened to in the design of the product, drawing on their expertise about which products work, are least complex to understand and most likely to bring in contributions from elsewhere. I would be grateful if the Minister could tell us what discussions there have been.

When we debated the Bill that took away the child trust fund, we discussed the possibility of establishing a product for looked-after children, who have the greatest call on us as politicians to stand up for their interests—not just their income and life chances now, but the possibility and choices they have for the future. If local authorities wanted to join us and build on this policy, and themselves make contributions to such a financial savings product for looked-after children, they might want to make it part of their own strategy for improving the asset-base, wealth, possibilities and choices in life for thousands of looked-after children. They also need to be involved in the discussions.

Nicholas Dakin (Labour, Scunthorpe)

My hon. Friend makes a detailed and careful argument. She is drawing attention to the corporate parenthood responsibility of local authorities, and this matter plays directly into that.

Alison McGovern (Labour, Wirral South)

My hon. Friend is right; that is exactly what I am doing. In a previous life, I was a local councillor in a borough with pretty serious deprivation in parts, although great wealth in others. It was the one responsibility that I felt more than any other. The financial management of the council was a great worry at times, as was the broad sweep of the local authority’s responsibility. However, our role as corporate parent worried me more.

I hope that, with this pledge, the Government will open up an opportunity for us to do better by looked-after children than we have in the past. That is what we should aspire to. If we are going to do that, we need to learn the lessons of the most recent past, when we tried to build a savings culture among people who were disadvantaged and did not have one. It would be a terrible shame if we lost that learning, and did not encourage the people designing the project to talk to local authorities with expertise, and to the financial services sector that built the child trust fund and thought through what would work, in order to get this scheme going now that the Government have agreed to it. Will the Minister say what consultation there will be? The amendment calls for the details to be published as soon as possible. We know how difficult it can be to take decisions while the Government are still deciding what they are doing, so having an inclusive discussion is highly important.

I will turn now to amendment 98, about savings across society, and shift away from the particular needs of looked-after children, which are great. We also need to watch what happens in children’s savings accounts, and savings across society, because not all homes have a culture of saving. We might think specifically about people’s inability to save at the moment as we see inflation rising much more quickly than wages. People’s ability to save is squeezed every month of the year, so we need to monitor it and be very careful. There is no doubt that, in relation to looked-after children, but also the rest of society, people’s ability to make investment choices about their lives is limited by their savings.

It is a fact of life that, as I go around my constituency, and as I know from friends and family, not everybody has copies of “Which? ISA” on the shelf. Not everybody is investigating the pages of TheGuardian money supplement to discover the most beneficial savings account and which is the best ISA; I know that that is true. One of the most interesting parts of the book written by Cass R. Sunstein and Richard H. Thaler, “Nudge”, about how Governments ought to manage their relationships with people, is the section on saving, and how saving money is habit-forming. People do not save because they sit and calculate like a cold logician. They do not calculate that they want to invest at some undefined point in the future so will therefore save a proportion of their income, and that gratification sacrificed now will lead to greater gratification in future. People just do not do that. They either get into the habit of saving, or they do not.

We need to build a culture in which people have a rough idea of how much of their income they will save. This was part of the point of the child trust fund, and other projects that the last Labour Government introduced to try to build a savings culture. It is habit-forming, but people also need knowledge and information. The amendment specifically refers to the “impact of Government policy”, which I think is very important, whatever else we might think about the state and whether it crushes individuality.

Ian Mearns (Labour, Gateshead)

Something that Ministers will undoubtedly be aware of, but which I would like to push home, is the fact that people’s capacity to save varies greatly from region to region. Last week Ministers gave examples of the regional concentrations of higher rate taxpayers; those people have the greatest capacity to save because they earn the most. Out of the 275,000 higher rate taxpayers, 195,000 are in the three southern regions—the eastern region, London, and the southern region—yet there are only 5,000 in the north-east. In my constituency, Gateshead, average incomes are around £17,000 or £18,000. The capacity to save is markedly different in different parts of the country.

Alison McGovern (Labour, Wirral South)

I thank my hon. Friend for his intervention. He is absolutely right, and that is the point I am making; there are disparate cultures and abilities to save among different groups in our society. We can say, “It’s fine, everybody has the same ability to save in principle and in theory,” or we can say “Governments shouldn’t care about that, they should care about the facts and what is happening on the ground.” If we ignore the fact that the savings culture—the ability to save—is different in different parts of the country and among different communities, we deny the Government their proper role in addressing inequality.

Nicholas Dakin (Labour, Scunthorpe)

I am struck by my hon. Friend’s powerful argument about the importance of habit forming. I am interested to hear whether, despite what is not there, she thinks that what remains—the commitment to a child trust fund for looked-after children—gives the opportunity to create the right habits for those young people in the future.

Alison McGovern (Labour, Wirral South)

I thank my hon. Friend for that intervention. Of course, it does. We can talk about the importance of financial education, but the best financial education people get is by doing it. From my life, I know the importance of having been given a demonstration of what saving can do. I remember my Dad saying to me, “Look, you’ve just started a new job. Bank a bit of that because you’ll need it later.” I did. Demonstration is the best teacher in the case of financial education.

Looked-after children know that they are at a disadvantage because they are different from the other children in school, and they know that it is not a good difference. It is important to demonstrate to them that there is something there for them that is supposed to rebalance that and that if they work hard and invest in themselves, they will have a far better future. We will then have a really strong argument.

Bill Esterson (Labour, Sefton Central)

I am struck by what my hon. Friend is saying about the differences that looked-after children see around them all the time. I have experience of that from my family and can confirm that. The logic of her argument is that savings accounts for looked-after children should be exactly the same as for all children in order to avoid discrimination. That is an argument in favour of keeping the existing child trust funds.

Alison McGovern (Labour, Wirral South)

I have huge respect for my hon. Friend’s expertise with looked-after children and how he uses his experience to inform us all in the House. He is right. We had that debate at length on the Savings Accounts and Health in Pregnancy Grant Bill and, unfortunately, Labour Members lost that argument. However, he is absolutely right. I hate the thought of looked-after children being stigmatised in any way, shape or form. The point of the child trust fund was that it was a universal benefit that everybody got, although some people got topped up a little bit more behind the scenes. However, as children grew up and were out in the playground together, they all knew there was something there for them and that the Government and hopefully their parents, grandparents and other people were investing to enable them to have a bedrock of saving. It is a shame that that is now gone.

I shall conclude by saying that people take state advice very seriously and that it is important to recognise that Government policy can have an impact on savings across society. The Government provide advice through the national health service and the Foreign and Commonwealth Office. In Britain, we would not be without the excellent, clear way that the NHS—often online through NHS Direct—helps us all to take the right decisions on our health. In many ways, the NHS is an absolute model of how we disperse excellent advice to ensure that people can keep themselves healthy. People take state advice about finances and savings equally seriously, so it is important that we deal with this measure transparently and that the Government publish what they believe to be the state of play with savings across society. They should also provide further information about savings, so that people can use that advice to make the best decisions.

On the debate we had about looked-after children, Barnardo’s could not have chosen a better title for its report, “On our own two feet.” To me, it describes exactly the dignity and the sense of pride that we want for looked-after children. We do not want them to feel as though they are permanently a burden or the responsibility of the state; we want them to feel as though they have been invested in because they are worthwhile members of our society. I truly hope that the Minister will recognise that and move heaven and earth to get the savings scheme for looked-after children ready and available to them.

Stella Creasy (Labour, Walthamstow)

It is a pleasure to serve under your chairmanship, Mr Gale, in this important debate on asset-based saving, about which many people in the House feel strongly. I want to set a series of tests, which I hope the Minister will address in his or her summing up, about the proposals for the junior ISA and what we can learn from the child trust fund, which offers some interesting evidence about how we can encourage saving in our society. In all parts of the House, there is agreement that that is a good idea; that we should do more to try to help people to develop assets so that they are able to make choices in their life to advance their own progress; and that there are things that Governments can do, and things that they should not do, to help.

With that in mind, I will start with the concept of asset-based mobility and why it matters. I am struck by the words of the Chief Secretary to the Treasury, who was in a different place—a different party, perhaps—when he talked about the importance of assets to social mobility. That is the first test that all of us would set for this proposal. Baby bonds and child trust funds were about social mobility. They helped people who did not have access to the resources that other young people did, in order to level the playing field and help them make the choices that others were making because they had access to such resources. The child trust fund was doing precisely that because of its universality, so it met the first test that we must set for the junior ISA, which is about reach. Will the junior ISA be able to reach everyone in our society and therefore be a motor for social mobility?

Roger Williams (Liberal Democrat, Brecon and Radnorshire)

I am listening closely to what the hon. Lady is saying about asset-based savings. Does she not realise that none of those trust funds has come to maturity yet, so we cannot demonstrate all the good outcomes that she would expect from them?

Stella Creasy (Labour, Walthamstow)

It is a marvellous experience to be able to introduce the hon. Gentleman to the concept of time and, therefore, the ability of the child trust funds to come to fruition. In 2020, the first child trust funds will do so, and I would be interested to discuss with the hon. Gentleman at that point whether he felt that the acquisition of £3,000, £4,000 or even £15,000 as a result of the child trust fund was likely to help young people make more choices in their lives at the age of 18. I wager that were he to ask that question of many of the 18-year-olds in his constituency, they might well offer him some strong evidence on that.

One of the central points about social mobility is building up such assets. We have evidence from the child trust funds, and from independent research. I direct the hon. Gentleman to the work of the university of Bristol, which is not far from his constituency; perhaps he can stop there on his way over to Westminster and talk to university researchers about their research into access to funding through the child trust fund by poorer families. We have all talked today about the evidence that the child trust fund was helping all families to save more, and we would all agree that that was a good thing. The crucial point, however, was that families on lower incomes were saving regularly, and that that was making a massive difference.

We know that there are about 4.5 million trust funds. The Children’s Mutual, which is responsible for about 1 million of them, has done some research about the people who have trust funds with it that shows that 30% of children in households with an income of about £19,000—well below the free school meals level that most people generally accept as a good measure of disadvantage—were receiving £19 a month in their child trust funds. Clearly, the child trust fund was encouraging families on lower incomes to make regular payments. Some interesting qualitative research showed that a lot of that was to do with grandparents putting money into child trust funds. That is a very good example. I am conscious that the Committee has had many discussions about how taxation policy can be used to influence behaviour, but if ever there was a good policy that reflected how taxation and Government action could be used to encourage particular behaviours, it is the child trust fund. It is important that we judge the junior ISA according to whether it encourages that level of regular saving by those groups.

Bridget Phillipson (Labour, Houghton and Sunderland South)

Does my hon. Friend share my bafflement that the Government seem to think that poverty and social mobility have little to do with money? The choices that people make are often determined by money. Allowing choices to be open for young people at the age of 18 would be of great benefit to young people from more disadvantaged backgrounds. As with many things in life, it comes down to money, and poverty is about money.

Stella Creasy (Labour, Walthamstow)

I completely agree with my hon. Friend. As I said earlier, I am struck that in 2008, the Chief Secretary to the Treasury agreed with us, too. He agreed that the key to social mobility is asset-based welfare. It makes me wonder what has changed the Government’s thinking in the past year and a half. Apart, perhaps, from access to ministerial cars, what has changed the belief that assets are part of social mobility?

For me, one of the tests is whether the junior ISA will have the same reach that the child trust fund has had. The universality of the child trust fund has encouraged take-up in a way that many other savings products have not. The first simple test is this: some 10,000 families in Walthamstow have a child trust fund, so will the junior ISA reach 10,000 families in Walthamstow in future?

Walthamstow has a high level of deprivation. Even on the Treasury’s equality impact assessment, only 2,000 families in Walthamstow will have access to the junior ISA but, assuming the impact of the junior ISA is equally distributed, as the impact of the child trust fund was equally distributed, some 2,000 families in Walthamstow would have access to the junior ISA. We can set a good test for the success of the junior ISA with that question of reach. Will it reach the same number of families, or will those families who benefit—that 20%, rather than 100%, of families—not be evenly distributed throughout our constituencies? Many Government Members claim to represent areas with high levels of deprivation, but will they see the drop-off in access to, and use of, these financial saving measures that many Opposition Members fear?

Roger Williams (Liberal Democrat, Brecon and Radnorshire)

I am interested in the way in which the hon. Lady is developing her argument, but in my experience—because of my age, I go back a little further than she does—families on smaller incomes were saving for their children before the child trust fund was introduced. People who save in future will not want to use the junior ISA; they will want to use whatever saving mechanism they think appropriate. The hon. Lady simplifies it by saying, “All saving is related to what the previous Government introduced or what the present Government plan to introduce in future.”

Stella Creasy (Labour, Walthamstow)

The hon. Gentleman is listening selectively to our argument, which is about the success of this product in encouraging a type of behaviour that Members on both sides of the House have said is a good thing to encourage. Many members of the Committee will know about my concern about the levels of debt and spending in our society. It is important therefore to encourage people to develop assets.

As I said earlier, I note the concern about social mobility and asset-based mobility, which have motivated many people in the hon. Gentleman’s party at some point in the past. Is he saying that it is no longer the belief of those within what is left of the Liberal party that asset-based mobility exists and that it is about having access to those resources?

The Opposition recognise that access to a pot of funding opens up choices and opportunities to people of all ages, particularly young people, when making key transitions in life. The more we do to help more young people to make those choices and to access those assets, the more likely they are to make choices that realise their potential which, after all, is what social mobility ought to be about. The test we should set for the junior ISA, if it is to be a successor to the child trust fund, is whether it has that reach and whether it has that ability to advance social mobility.

I am conscious of Members’ previous comments. I am looking forward to hearing what the hon. Members for Stockton South and for North East Cambridgeshire have to say, particularly about value for money, because, as members of the Public Accounts Committee, we spend much of our time on it.

Steve Barclay (Conservative, North East Cambridgeshire)

The hon. Lady quite rightly draws to the Committee’s attention the shocking value for money that has staggered new members of the Public Accounts Committee. Our reports over the past 12 months have all been on the record of the previous Government. I endorse her view that they reveal poor value for money and I thank her for drawing that to the Committee’s attention.

Stella Creasy (Labour, Walthamstow)

I fear the hon. Gentleman has pre-empted my comments about value for money and how we judge it. I am sure that the hon. Member for Stockton South will want to correct that opinion about some of the things that the Public Accounts Committee has been looking at. One way we judged value for money was the bang for our buck and the investment of taxpayer’s money in a scheme.

Steve Barclay (Conservative, North East Cambridgeshire)

Aircraft carriers?

Stella Creasy (Labour, Walthamstow)

Aircraft carriers are a good example of that, as is reform of the NHS, as we saw yesterday. We judge whether the money invested is money well spent and whether the money that we get from taxpayers delivers a return that we can judge to be an effective use of public subsidy.

James Wharton (Conservative, Stockton South)

I know that the hon. Lady has not been a member of the Public Accounts Committee for quite as long as my hon. Friend the Member for North East Cambridgeshire and me. Perhaps when she has been a member of the PAC a little longer, she will realise that many of the decisions taken by the previous Government that we have been examining in what is effectively a backward-looking value-for-money Committee were terrible. That is why we are in dire financial straits and why the Government are having to take some of the decisions that they are taking.

Stella Creasy (Labour, Walthamstow)

I am always happy to bow to the hon. Gentleman’s extensive wisdom and length of experience. He knows not how his contribution has enriched me this afternoon.

Ian Murray (Labour, Edinburgh South)

I would just like to make the point that the Government knew the state of the public finances when they promised to keep the child tax fund before the election. They knew the state of the public finances before they promised not to put up VAT and before they broke all the promises in their manifesto. While the hon. Gentlemen make a very good point, some of their remarks are very disingenuous.

Stella Creasy (Labour, Walthamstow)

My hon. Friend makes a fair point about the changing way in which Government Members have viewed the child trust fund and its efficacy. I would hope, were we able to look at the child trust fund in the Public Accounts Committee, we could explore it in more detail. When one looks at the child trust fund’s value for money, one can see that it compares incredibly well. If our amendments are not accepted today—and given that the Government are moving towards using the taxation process to try to influence behaviour—I hope that members of the Committee who are also members of the Public Accounts Committee will join me in proposing that we look at whether this is a value for money process that we should undertake. We might conduct an investigation into that. The hon. Member for North East Cambridgeshire shakes his head, yet normally he is vigorous in his support for the idea of doing investigations. I am surprised.

I would be interested to know whether there were any other examples—I genuinely cannot think of any—where the yield for the amount of money invested versus the return is so substantial. We are looking at £500 million, which is 0.5% of the education budget, yet there are child trust funds that could yield up to £50,000 for the individuals in question. I cannot think of another policy or small investment that the Government could make with such a return.

James Wharton (Conservative, Stockton South)

Will the hon. Lady clarify this point? I know we have focused on the poorest in society, but does she expect the yield for the poorest who have benefited from child trust funds to be in the region of £50,000 each?

Stella Creasy (Labour, Walthamstow)

I genuinely think that it is an interesting point about the amount of money that we will get and certainly we will see in 2020. I hope that that answers the questions from the hon. Member for Brecon and Radnorshire, too. However, every young person who is 18 in 2020 will receive a benefit from this scheme. Looking at an investment of £500 million, the return we get in terms of the value for money will be clear. Certainly I think we will see a much higher level of return than perhaps the hon. Member for Stockton South expects. For example, I note that some child trust funds are yielding a 30% return, and I am sure that he would agree that that is a substantial return on what is a small investment for the state. That is the critical point.

Tom Blenkinsop (Labour, Middlesbrough South and East Cleveland)

I am looking at the Government’s proposal for the junior ISA. Am I right in believing that, between the ages of zero and 18, I can have a junior ISA taken out in my name by my parents or guardians, and that, between 16 and 18, I can also be in ownership of an adult ISA? What would be the tax implications when I turn 18? Also, I could be the manager of a stocks ISA and a junior ISA at the age of 16. If a 16-year-old who is going through such things as GCSEs is in charge of stock options, is that a common-sense approach for young savers?

Stella Creasy (Labour, Walthamstow)

The hon. Member for Stockton South is nodding in agreement; I am sure that he was a young Gordon Gekko in his time. Certainly, the cavalier way with which his party plays with the public finances would suggest that he has taken many lessons from that character.

There is a critical point about the value for money of the scheme, so the question that we should ask on the junior ISA is about the returns that it is able to yield. My hon. Friend the Member for Middlesbrough South and East Cleveland is absolutely right to argue that there are some anomalies in the system. We might see that young people are able to put the money that they may have had in a child trust fund into a junior ISA, because they will have access to that funding. There is a crossover, and there is an interesting issue about the tax relief that might accrue as a result.

I would certainly ask the hon. Member for Stockton South whether he has a view about us spending £27 billion on pension tax relief when only 40% of people are in pension schemes. There is a question of the return from, and value for money of, investing in a product that only certain groups of society are able to access, as opposed to a scheme that all sections of society are able to access, with the state actively ensuring that that is the case. Is that an effective use of funding when compared with some of the other schemes? That is the test that I am trying to set. Is the junior ISA, with its limited reach, going to be as effective a use of tax relief—of public investment—as the child trust fund? I know that we spend £1 billion on tax relief for ISAs, but only 29% of people have one. That necessarily calls into question the measurements that we might make in the Public Accounts Committee about whether the money invested has delivered as great a return as we might expect. In the years to come, I hope that we will look at these schemes and ask whether they were effective by delivering on that investment.

Tracey Crouch (Conservative, Chatham and Aylesford)

Many of those who will benefit from the yield from a child trust fund in 2020 will be from groups other than those low-income groups for which the hon. Lady claims to be standing up. Does she therefore agree that the universality of the child trust fund could well have contributed to the increase in the gap between the richest and poorest members of society under the previous Government?

Stella Creasy (Labour, Walthamstow)

Actually, I do not, because one of the interesting statistics that we have seen is that of those 25% of families who did not start a child trust fund, and therefore had them start up automatically, 40% were affluent families. The scheme was a partnership between the state and the individual, and it was taken up by lower-income families in particular. It is right that we test the junior ISA accordingly. Without investment from the state, will it have the same impact?

I shall draw my comments to a close because I know that other Members want to get involved. These are the tests that we should be setting: will the scheme have the same level of reach; will it advance social mobility in the same way as the child trust fund; and will it deliver the same behaviour change delivered by the child trust fund to encourage saving among those young people and their families who previously had not been involved in a savings culture?

What are the alternatives? The amendments are important because if we all want Governments to make good policy that is based on evidence, rather than evidence that is based on policy, we need to be able to review the alternatives. We need to be able to say that the child trust fund, with that small investment from the state up front, delivers a disproportionate benefit compared with the junior ISA. I feel that there will be less saving in the future, and certainly among particular groups, because there will not be the same culture and encouragement that the child trust fund offered, and our society and young people will be all the worse for it.

Paul Blomfield (Labour, Sheffield Central)

I am pleased to have the opportunity to speak under your chairmanship, Mr Gale, about this important topic because it is at the heart of the debate about social mobility. The issues that we are discussing set the terrain on which we can enhance or undermine social mobility, and support those who face the greatest challenges in realising their aspirations. I say that as someone who represents a constituency that straddles the heart of Sheffield. In the east and in the centre, we have some of the poorest communities, while some of the wealthiest families live on the west of the city. Practically the only thing to unite them has been rejecting the Liberal Democrats at the recent elections.

Children born in the east and parts of the centre of my constituency face enormous barriers to reaching the position of those who live just two or three miles away. The lack of assets is one of those key barriers. Finding effective ways of asset-building is a challenge for us all. As I said in an intervention on my right hon. Friend the Member for Delyn, it is also a challenge in other countries. Having scrapped the child trust fund, we need to look carefully at its replacement. As my hon. Friend the Member for Scunthorpe pointed out, the child trust fund was acknowledged by experts as an effective way to encourage savings, particularly among lower-income families. For those Government Members who might be sceptical, I cite Professor Le Grand of the London School of Economics, who said:

“Encouraging a savings culture among Britain’s families is vital if we’re serious about tackling debt and borrowing. The Child Trust Fund, the most successful Government savings scheme ever, has made great strides towards helping families save”.

Unfortunately, the Government’s combination of policies hits families on a lower income with a triple whammy: removing this proven scheme that assists in the development of assets; withdrawing education maintenance allowance while trebling tuition fees at the critical point when young people move towards adulthood; and making it more difficult for families to save. One of the constituency issues with which I am dealing relates to a pension scheme that is struggling for a number of reasons, one of which is that those on the lowest incomes, who face pressures such as a reduction in real wages, are no longer opting into the scheme. We know from our constituents that in straitened times, people use their limited funds for the present and are less likely to save for the future. We need to look positively at schemes that encourage saving, particularly among those on lower incomes. It is therefore right that amendment 98 calls for a review of the issue of savings and the impact of the policy.

The challenge of asset-building is faced by a number of countries. The trajectory of the Government’s policy is in conflict with that in many other countries. I mentioned the United States in my earlier intervention. There is a growing movement in the US, led by the Child Savings Account Coalition, where, state by state, accounts are being initiated that involve public funds contributed by the state to back up schemes. Support is given through matching and initial bonds to encourage saving among those on lower incomes. Such schemes are being introduced in Singapore, Mexico and Korea at a time when the Government are scrapping the UK scheme.

We should look at those who are most in need and, as several of my hon. Friends have pointed out, the position of looked-after children is critical. Clearly, the Liberal Democrats took no account of the needs of looked-after children when they went for a sweeping manifesto commitment to abolish child trust funds. Given that they won so little else from their coalition partners on key policy issues, they might want to ask themselves why their partners were so willing to roll over on this issue. I shall give a hint: that was not because this is a progressive policy.

I am pleased that the Government have made a U-turn on their position, despite the fact that the Conservatives initially embraced the policy, but we need more detail on how the £5 million set aside for supporting looked-after children will be used. We know that it could make a critical difference. I highlight the point that my hon. Friend the Member for Houghton and Sunderland South made about the Government’s responsibility as corporate parents, which is also set out in the Barnardo’s report, which says of the child trust fund:

“For looked after children, this account was guaranteed and included additional annual contributions, recognising the role of the state as the corporate parent.”

Barnardo’s and Action for Children make the case that, as the corporate parent, the country has a responsibility to pay into savings accounts for these children, in the same way in which the Government hope that parents will pay into accounts for their children. The Government have indicated that they are moving in that direction, but it is unfortunate that they have not yet been able to spell out how they intend to do so, and I hope that the Minister will give more detail in her response to the amendments.

Ian Murray (Labour, Edinburgh South)

My hon. Friend makes an incredibly powerful argument, particularly about looked-after children. The Government’s capitulation on this issue highlights the great importance of giving the poorest and most vulnerable people in our society an asset lift. In essence, they have U-turned on giving children in care that lift, which shows the benefit that child trust funds had across society.

Paul Blomfield (Labour, Sheffield Central)

My hon. Friend makes an incredibly important point. It was unfortunate that the Government would not acknowledge the role that that asset lift could provide for a wider range of children who do not have the same advantages as those from wealthier families. It is a shame that child trust funds, which made a difference for many of those families, have been abolished.

My hon. Friend the Member for Wirral South talked about the critical importance of support in the transition to adulthood, which is much more difficult for looked-after children. The Barnardo’s report highlights the fact that 21% of looked-after children leave care as young as 16, while 16% leave at 17 and 62% at 18. The “cliff edge” transition into adulthood that it describes, without the same support and networks that other children have, means that those children need intervention and support. Initially, the Government did not acknowledge that, and it was clear from their proposals that the Liberal Democrats did not either.

I welcome the move to acknowledge the arguments that have been put forward powerfully by campaigners outside this House and by Labour Members, and I hope that the Government will provide greater clarity about how they intend to implement their proposals.

Justine Greening (Conservative, Putney)

Amendments 97 and 98 seek further information on the impact of the changes introduced by clause 40. Before I turn to the amendments in detail, I would like to explain briefly what the clause will do. I will address the questions on looked-after children, and the Committee will be aware that earlier this year there was a debate in Westminster Hall that focused on that topic.

There is no doubt that the Government have had to make some tough choices in order to cut the deficit that we inherited. One was stopping the child trust fund. We believed the scheme to be poorly targeted, and the debts handed over by the previous Government make it unaffordable. It is hard to escape the conclusion that it would be reckless to leave the fiscal deficit and hand it over as a debt to future generations—the very people we say we want to help.

Alison McGovern (Labour, Wirral South)

The Minister refers to debts being handed to the current Government. Now that the Government have been in power for a year, will she begin to refer to “the debts that my Government have created”, given that tax receipts have been falling and unemployment has been rising and that Government debt has thus become worse, not better?

Justine Greening (Conservative, Putney)

I am grateful to the hon. Lady for that intervention, because it gives me the chance to set out exactly what the Government are doing to tackle the underlying problem.

Debt is obviously what was left on the nation’s balance sheet by the previous Government, who borrowed like no Government before. The deficit is the nation’s P&L—its profit and loss. We were making a loss. The problem is that the deficit was structural. In other words, it did not matter what the economy was doing in terms of the economic cycle, because the Government were still spending more money than they received in taxation. It is that structural deficit that we seek to address. If we do not do so, we will continue to have to borrow every year. However, despite the fact that we are addressing the problem, the hon. Lady is correct that we will still have to continue living with the legacy of year-on-year debt that the Labour Government handed over.

The perversity in all of this is that the Labour party wants the deficit to continue. The most worrying thing is that even the shadow Chancellor seems to think that the structural deficit does not exist. That is deeply concerning, given that we are dealing with yet another clause that is part of what we are doing to sort out our public finances so that our children do not have to pick up this huge debt. It is baffling that the Opposition should set their face against pretty much any measure that would get our economy back on its feet and our public finances back into shape.

Several hon. Members rose—

Justine Greening (Conservative, Putney)

I give way to the hon. Member for Scunthorpe.

Nicholas Dakin (Labour, Scunthorpe)

The Minister sets out the Government’s position clearly. The Prime Minister and the Chancellor of the Exchequer—and, indeed, all Conservatives before the election—made it clear to the nation that they were aware of the problem, and that they would set out a way of dealing with the problem as they saw it. At that point, they were committed to a targeted child trust fund. Why, three days after the election result was announced, did they change their mind?

Justine Greening (Conservative, Putney)

I can point out a couple of straightforward facts. The first is that we are a coalition Government and, as was pointed out, the policy of one of our coalition partners was to scrap child tax funds. Another simple fact is that when the new Chief Secretary walked into the Treasury and opened his desk, he saw that a letter had been left for him by the previous occupant of that office; he was told in a simple but powerful phrase that there was no money. We need to get to grips with that situation.

Alec Shelbrooke (Conservative, Elmet and Rothwell)

Does my hon. Friend agree that the intervention by the hon. Member for Wirral South highlights exactly why the country is in this state, as the Opposition clearly believe that this huge financial mess can be cleared up in less than 12 months?

Justine Greening (Conservative, Putney)

It is like a parallel universe—we are debating the importance of savings when the savings ratio declined dramatically under the previous Government. People might have saved more if a Labour Chancellor had not told been telling them for a decade that there was an end to boom and bust. He gave no indication that they were ever to expect financial hard times.

Another factor that has emerged in this debate is that, to my mind, we are genuinely seeing a behaviour pattern emerging from the Opposition. They have an inability to stomach taking difficult decisions. They have a brilliant ability to complain about decisions and to put off having to make them. They would say, “Let’s pass a Bill to tackle half the deficit and, when we’ve passed that, let’s not actually have a proposal underneath it or set out where our £14 billion of cuts would be compared with the current Government’s £16 billion.” It is a bit rich for the Opposition to claim to have any credibility. One of the reasons they did less well in last month’s elections is because the public can see through their lack of economic policy, even if they are unaware of it.

Several hon. Members rose—

Justine Greening (Conservative, Putney)

I give way to the hon. Member for Wirral South.

Alison McGovern (Labour, Wirral South)

The Minister makes an interesting commentary. Will she respond to the point I made about how many more schemes will reduce things that benefit the poorest in our society if, as is happening now, tax receipts continue to fall because of unemployment?

Justine Greening (Conservative, Putney)

I draw the hon. Lady’s attention to the measure we are debating, which will put in place a new mechanism by which people can save. On her specific intervention, I draw her attention to the fact that, as a Government, we are tackling the structural deficit. She will know that that is a related but slightly different matter to the question of public finances during an economic cycle. A worrying problem that our economy had and that the markets could see clearly was that, even in the boom times, we were running a deficit. Therefore, the deficit was there whatever the economic weather. That is simply not sustainable. Any household—and everybody in Britain apart from the Opposition—knows that it is simply not sustainable to borrow, borrow, borrow and never have a plan to pay it back.

I will finish my remarks on why we need to be getting on with the fiscal deficit reduction with this point. The strategy of the Labour party in the good times is, “Let’s spend because we can afford to.” The strategy of the Labour party in the bad times is, “Let’s spend because we can’t afford not to.” The strategy of the Labour party in relation to the fiscal deficit when the economy is growing is, “Let’s not kill the growth.” The strategy of the Labour party when the economy had one quarter of flat growth is, “Let’s not have the fiscal deficit because we’re slipping back into a double-dip recession.”

There is never going to be a good time for the Labour party to start tackling the deficit and there was never going to be a good time for it to stop borrowing taxpayers’ money and passing on huge debts to future generations. That is what the markets can see very clearly. That is why, thank heavens, we have a different Government who are prepared to tackle that point. Those broad comments set out the reason why we need to get rid of the child trust fund, despite our sense that that was a difficult decision.

Several hon. Members rose—

Justine Greening (Conservative, Putney)

I give way to the hon. Member for Airdrie and Shotts.

Pamela Nash (Labour, Airdrie and Shotts)

The Minister referred to the Labour Government’s spending during the boom times. Is it not true that, between 1997 and 2007, when the recession hit, the deficit was vastly reduced by the Labour Government?

Justine Greening (Conservative, Putney)

If the hon. Lady looks, she will find that we were running a deficit during those boom years, which is one of the reasons why the markets were so concerned about the underlying economic policy.

Ian Murray (Labour, Edinburgh South)

Will the Minister give way?

Justine Greening (Conservative, Putney)

I shall make some more progress now. I suspect that we are not going to agree on the need to tackle the fiscal deficit and that the markets will continue to find the Opposition entirely incredible—or, as it were, uncredible—as an alternative. Based on the shadow Treasury Minister’s comments, I suspect that we will continue to be told that, in terms of what they would do and whether they would bring back the child trust fund, which they have spent all morning and afternoon defending so passionately, the Labour party will continue to have a blank piece of paper in place of economic policy. Despite their warm words and the fact the Opposition believe in the child trust fund so much, I suspect that they would still be entirely unwilling to make a commitment here and now to bring it back should they have the opportunity. I expect junior ISAs to be available from November 2011, and I reassure the Committee that it our intention that the scheme to support looked-after children will launch later this year.

Tom Blenkinsop (Labour, Middlesbrough South and East Cleveland)

Is it possible for a 16-year-old to own a junior cash ISA, a junior stocks and shares ISA, and an adult ISA all at the same time? What are the ramifications of that on the day of their 18th birthday? If they are managing a stock option ISA, how many hours a week will an average 16-year-old be able to spend monitoring their stock options?

Justine Greening (Conservative, Putney)

One of the key aspects of junior ISAs will be that people will have some choice. Unlike child trust funds, which were available to people from when the policy came in, junior ISAs will be available to all people who are under 18. There will be more choice for people than at present.

Looked-after children are a particularly important aspect of the provision and members of the Committee are right to address that issue. The Department for Education is taking the time to make sure that it pulls together the best possible scheme to support this vulnerable group of children, within the constraints of the public finances. As has been said, my right hon. Friend the Chancellor has made it clear that there will be investment for such a scheme. My right hon. Friend the Secretary of State for Education will provide further information to the House on the development of the scheme in due course. I want to make it absolutely clear that the Government are fully committed to supporting looked-after children through junior ISAs. As we have said, it is our intention for the scheme to be available this year. We want to make sure that it will be available as and when junior ISAs launch, so that it will be able to sit alongside them.

David Hanson (Labour, Delyn)

The Minister yet again has referred to the Department for Education, but she knows that its remit is for England. The previous contributions for looked-after children, under the child trust fund, were UK-wide. Will she guarantee that whatever scheme is introduced will be available to people in Scotland, Wales and Northern Ireland on the same basis that it will be available to people in England?

Justine Greening (Conservative, Putney)

It will be, so those ISAs will be available.

David Hanson (Labour, Delyn)

If that is the case, how is the Department for Education advancing a UK-wide scheme when it is an England-only Department? How will that manifest itself?

Justine Greening (Conservative, Putney)

We are in discussions with devolved Administrations in order to do just that. The right hon. Gentleman’s constituency is in Wales and there is nothing to stop his own party, which is in a minority Government, introducing a child trust fund or setting money aside to put into child trust funds, should it wish to do so.

David Hanson (Labour, Delyn)

Will the Minister acknowledge that the child trust fund was a non-devolved matter, organised by the then UK Government, and not the responsibility of the devolved Administrations in Scotland, Wales and Northern Ireland? The Minister is effectively taking away a UK-wide scheme and leaving it to the devolved Administrations to determine whether they will take it forward. The devolved Administration in Scotland is under SNP control and the devolved Administration in Northern Ireland are under the control of different parties. How will the scheme work on a UK-wide basis, given the Chancellor’s commitment?

Justine Greening (Conservative, Putney)

Unless the right hon. Gentleman’s Welsh Administration refuses to have junior ISAs, they will be able to have them. It is up to the devolved Administrations whether they want to take part. If they do not want to take advantage of the scheme, it is difficult for the Westminster Government to force them to do so.

Roger Williams (Liberal Democrat, Brecon and Radnorshire)

It may be that I do not understand the issue properly, but the right hon. Member for Delyn said that education is a wholly reserved matter. That is not exactly true. Some of the elements that the Department for Education delivers, such as the terms and conditions of the professions, cover all the devolved nations as well. I cannot therefore follow the argument that the Department for Education cannot deliver the ISA across the devolved nations.

Justine Greening (Conservative, Putney)

My hon. Friend makes an important point. The other aspect is to ensure that we get junior ISAs right and that we take the time, as we have, to work up the parts that relate to looked-after children. Officials from the Department for Education and the Treasury last met with Action for Children and Barnardo’s on 17 March, when charities raised a number of important issues, and it is right that the Department for Education should take time to consider those important matters. On the back of those discussions, robust proposals can be developed, before any further meetings.

Nicholas Dakin (Labour, Scunthorpe)

In answer to the question that my right hon. Friend the Member for Delyn asked about the reach of the ISA for looked-after children, the Minister was definitive in saying that it would be UK-wide. However, she then began to say that what the devolved Administrations did would be up to them, so I am little confused. Will she un-confuse me?

Justine Greening (Conservative, Putney)

The hon. Gentleman has invented an interesting word. The junior ISA is a national policy and we will work with the devolved Administrations to deliver the part of the policy that relates to looked-after children; as he will be aware, the responsibilities of local authorities in relation to looked-after children are another issue in the first place.

It is not a case of us simply deciding to take a different perspective on junior ISAs for the sake of it, or even in relation to the money involved. Part of the issue is that the devolved Assemblies have slightly different approaches to the roles and responsibilities of local authorities, in respect of looked-after children and the concept of the responsible adult. We need to ensure that any new looked-after-children version of a junior ISA fits in, so that it works effectively in the different Administrations.

Ian Murray (Labour, Edinburgh South)

I would like to unpack the argument made by my right hon. Friend the Member for Delyn. If the Scottish National party, in government, refused to enact the junior ISA part across the border—and they are unlikely to, because it has come from Westminster and the SNP does nothing that Westminster says, for reasons of political expediency—what would the sanctions be, and what would happen to people who wish to invest in Scotland?

Justine Greening (Conservative, Putney)

The hon. Gentleman is opening a debate that always happens about devolution. He is making the argument that we should perhaps not have devolved some of the regulations on looked-after children, and the responsibility for developing them, to the devolved Administrations. It is a debate that we can continue to have in the House, no doubt, and I am sure that different Members from different parts of the country have different views on where the balance should be struck.

On the policy landscape and the existing responsibilities that have been devolved down, I should say that the broader junior ISA policy will be nationwide. On looked-after children, however, the policy has to be aligned and worked up with the devolved Administrations. That is simply a matter of fact; we have to ensure that it is delivered alongside them. In many respects, it is important to do that anyway, and I hope that the devolved Administrations will engage with us, as I believe they are doing. Given what many Committee members have said, I think that they can see that it is important to ensure that we get this policy in place, so that looked-after children are supported.

Bridget Phillipson (Labour, Houghton and Sunderland South)

Just so that I am absolutely clear on this point, what is the time delay between scrapping the previous scheme and the new scheme coming in? I know that the Minister has mentioned the date, but will she confirm precisely what the time delay is? Does she anticipate that any looked-after children will be lost in that period? If so, what assessment has she made of the number of young people who could slip through the net between one scheme’s ending and the new scheme’s beginning? Will she have discussions with colleagues in the Department for Education to ensure that that does not happen?

Justine Greening (Conservative, Putney)

There is no time delay. My hon. Friend the Financial Secretary to the Treasury always said that junior ISAs would be brought forward this autumn. However, we will ensure that we aim to have the part of it that relates to looked-after children in place for the same launch, if you like, or the same time period. We will make sure that the two work in sync, so that we do not have any problems, as the hon. Member for Houghton and Sunderland South mentioned.

We are working with the devolved Administrations, because they clearly have a role in relation to looked-after children and the ongoing, day-to-day policy, to ensure that they are in a position to implement that policy once we have set out more details. Today, officials at the Department for Education are meeting the charities that were mentioned, to discuss how Government can best support this vulnerable group of children.

Members from all parts of the House want to provide much-needed support to looked-after children, and the Government have confirmed that we will do so through junior ISAs. I understand the frustrations of the charities, and I know that they want to see some fully worked-up proposals. They have played their role in pointing out the specific aspects that they want us to bring forward. We have to get this right first time, and those discussions are happening intensively.

Alison McGovern (Labour, Wirral South)

Will the Minister take the opportunity to put on the record how those discussions with devolved Administrations will move forward? Is she committing personally to meeting the relevant Ministers in the Welsh Assembly Government and the Scottish Government to discuss the matter? It is such a priority for us to get right.

Justine Greening (Conservative, Putney)

The hon. Lady will know that the lead Minister in the Treasury for this policy area is the Financial Secretary, who would have been here were he not on the Floor of the House handling a debate about the eurozone. I know that he is keen for this aspect of junior ISAs to work effectively. I will make sure that he writes to the hon. Lady setting out the meetings that he has had and plans to have, and the meetings that officials will have, working alongside the Department for Education, with the devolved Administrations. I assure her that when we work with the devolved Administrations on a whole range of policy areas, we are in contact with them very regularly, and this fits into that overall approach.

We have published a fair amount of information about the impact of junior ISAs in the tax information and impact note alongside the Budget, in which we stated that about 6 million children will be eligible for an account when it is introduced, and a further 800,000 will be eligible each year. As we said, we believe that over time 20% of children may have a junior ISA. Equally, the product is entirely voluntary, so we will work with providers to make junior ISAs easy to use and as broad as possible. For example, although this has not been raised today, they may be sharia-compliant, which is important for many of us who have diverse communities.

We are particularly concerned to make sure that junior ISAs are accessible to people on low incomes; that has influenced many of our decisions on their design. However, it is for parents to decide whether they want to invest in the product. Ultimately, the Government’s clear approach to our national deficit is a clear signal that we believe that we must live within our means. That is a signal that many people and families will take and apply to their own lives.

Amendment 98 refers to an analysis of the impact of clause 40 on children’s savings. The Budget and the Office for Budget Responsibility report both provide information on savings ratios, and HMRC publishes statistical reports on—among other topics—ISAs, the child trust fund and pensions. HMRC will publish statistical reports on junior ISAs after they are launched. That fact base will therefore be disclosed. The Government also commission a number of savings reports, including the wealth and assets survey and the family resource survey, so a range of data will be published that will enable people to see the take-up of junior ISAs. I do not believe, therefore, that either of the amendments is necessary.

To conclude, my colleagues in the Department for Education are working intensively with charities and across Government to develop with the Treasury junior ISAs for looked-after children. My right hon. Friend the Secretary of State for Education will provide more information on the scheme to help looked-after children through junior ISAs in due course. I have explained why we believe it is so important to encourage savings for children and to instil a habit of saving that will last a lifetime. I do not believe that the amendments are necessary and I ask the right hon. Gentleman to withdraw them.

David Hanson (Labour, Delyn)

We have had a full debate, which is important, and I am grateful to my hon. Friends for their contributions. We will support clause 40 because, despite our reservations about the ending of the child trust fund, we support the scheme as a replacement.

However, I remain concerned that we still have, several months down the line, a distinct lack of clarity on the replacement of the child trust fund, particularly for looked-after children. The previous child trust fund was a UK non-devolved Treasury-led matter, which has apparently morphed into a Department for Education-led matter that will potentially be discussed with the devolved Administrations. That is not the way to devolve issues in this Parliament. We have strict conventions for devolving issues, and this is not the way to do it.

We still do not have details on how much the payments will be, who will administer them, when they will be made and over what period of time, and how the £5 million will be distributed. I therefore wish to press amendment 97 to a Division to secure a legal requirement on the Government to finalise the scheme quickly. For the reasons given by my hon. Friends, we need to have a review of the impact of the whole Government savings policy by the end of this year, so I will also press amendment 98 to a Division.

Clause 41 - Gift aid: increase of limits on total value of benefits associated with gifts

Kerry McCarthy (Labour, Bristol East)

Clause 41 introduces the first of the gift aid measures that were announced in the Budget, which was presented by the Chancellor as

“a big help for the big society”—[Official Report, 23 March 2011; Vol. 525, c. 962.]

to use his words. It increases the limit on gift aid benefit from £500 to £2,500. As we all know, the Government are placing special emphasis on the role of charities as part of their big society agenda, with the voluntary sector expected to fill the void left by the Government’s cuts. That will not be an easy task, not least because charities themselves are being so drastically affected by the cuts, particularly with the loss of local authority grant funding. That loss is difficult to quantify, because the information has to be collated from all the local authorities across the country and the impact must be assessed on charities large and small.

The Association of Chief Executives of Voluntary Organisations has estimated that charities will lose £900 million in public sector cuts this year and £2.85 billion a year by 2014-15. The association established a commission on the big society and published a report, “Powerful People, Responsible Society”, which warned:

“If the big society is to be a success, the Government will need to ensure that it protects and promotes this sector—and does not allow over-rapid and poorly-managed public spending cuts to damage it disproportionately and irrevocably.”

In addition, Sue Ryder, among other organisations, is leading a campaign against irrecoverable VAT, which we shall discuss when we debate new clause 2. The Charity Tax Group has estimated that the new 20% rate will cost the charity sector an additional £150 million a year in irrecoverable VAT. This year, charities have lost the transitional relief for gift aid, which provided an additional 3p per pound to help them adjust to the reduction in the basic rate of income tax. That loss is estimated to cost them approximately £100 million. Moreover, many charities and groups, such as the National Council for Voluntary Organisations, have called for an extension to the transitional relief fund, arguing that the £100 million was not sufficient to help them adapt to the big society agenda and that it is dwarfed by the additional £250 million that the Government will receive from charities.

Meanwhile, the National Council for Voluntary Organisations reports that charitable giving remains at £700 million below pre-recession levels. In total, taking into account the consequences of all the tax and spending changes, plus the decline in charitable donations, ACEVO has identified a £4.5 billion funding gap. Clearly, that gap will make the charitable sector even more dependent on private donations. Presumably that is why the Government are so anxious to promote charitable giving.

Announcing the change that is proposed in clause 41, the Chancellor stated that the Government would

“encourage wealthy people in our society to give more.”

It is worth noting that recently published Cabinet Office figures show that the poorest 10% of society gives 3.2% of its income to charity, whereas the richest 10% gives only 0.8%, although the amounts that are given by the richest 10% are obviously higher. They could, however, be encouraged to give, as a proportion, a fair bit more.

Will the Minister elaborate on why she thinks that the measures in the clause will encourage people to give more? What estimate has she made of the impact? Will she clarify why the Government have chosen to introduce this measure first, which prioritises wealthy donors, while the new gift aid scheme to enable charities to claim gift aid on small donations more easily is being delayed until 2013? The focus on small donations might be more relevant to small local charities, which rely on lots of people in their community donating small amounts. That would have fitted well with the Government’s big society agenda. So often, the local small charities are hardest hit by cuts to the voluntary sector grant funding, because they are less likely to attract the substantial donations from the big donors.

The ACEVO commission on the big society concluded that the Government lacked “a credible plan” to make the big society a success in deprived areas, finding that nearly 60% of the public did not think it would work in the most deprived areas. I would appreciate the Minister’s comments. Is there a concern that the big society agenda, with what seems to be a focus—if the clause is an example—on wealthy donors, to the exclusion of smaller but more generous donors, will act to the detriment of communities to which the big society could be of the greatest benefit?

A research study by the South West Foundation into issues currently affecting small voluntary and community organisations, “Crisis and contradiction”, warned:

“The future for community groups is looking very uncertain. 56% of the small community groups who took part in this research have less than 6 months’ running costs in reserves, 49% are experiencing difficulties in raising funds for this year, 78% are having difficulties in raising funds for next year.”

In the light of such reports, does the Minister not think that the Government ought to have gone further to help small community groups, rather than introducing provisions such as clause 41?

The gift aid scheme for small donations is projected to cost the Treasury £50 million in its first year and £85 million in 2014-15, while the changes to inheritance tax to promote philanthropy are estimated to cost £25 million in 2012-13. It is unclear, however, how much clause 41 is estimated to cost the Treasury. Can the Minister tell us the estimated gain for charities’ incomes and how much it will cost the Treasury in gift aid if the measure works as a greater incentive to donate?

Undoubtedly, any additional donations or gift aid will be gratefully received by charities, but they do not seem sufficient to offset the increased bills this year, let alone the funding cuts. As ACEVO said in response to the Budget:

“We will also be making clear that in addition to the positive measures in the Budget, we need action now from the Government to get a grip on local cuts to the voluntary sector.”

According to a recent National Council for Voluntary Organisations survey, 55% of charity chief executives plan to cut staff and 35% plan to decrease the extent of their services by June this year. I would be grateful for the Minister’s comments, and to know to what extent the Treasury thinks clause 41 will help to mitigate the impact of charities’ reduced income from the Government.

Justine Greening (Conservative, Putney)

The clause increases the amount of benefits that charities can provide to their larger gift aid donors, increasing the cap fivefold, from £500 a year to £2,500. We are doing that because the increase in the benefit limit will help charities to build sustained relationships with their largest donors.

As the shadow Minister pointed out, if we look at the amount donated by the wealthiest people in our country and compare it to the proportion of income donated by people on more modest incomes, there is a disparity. Working with the charity sector, we have an opportunity to deliver, if we are willing to look innovatively and creatively at how we can stimulate more charitable giving and a sense of philanthropy, which we might have lost in many respects over time. Not only the tax system can deliver that—the hon. Lady talked about the Cabinet Office paper on giving, which came out earlier this week—but tax has a role to play, and the Committee can see that in the package we proposed in the Budget this year, which included a number of measures.

The hon. Lady also asked about the small bucket donations aspect of our policy, but that is a spending measure, and it takes a bit longer to bring into legislation because the law around it is slightly more complex. By contrast, this measure is a much more straightforward change, which we can introduce quickly in the Finance Bill. However, it will be of benefit, because charities will be able to mark their appreciation of donations from their largest donors with a gift or reward that is still proportionately small—no more than 5% of the donation—without disqualifying the donation from gift aid.

The background to the clause is that donations made to charities by individuals and companies are eligible for gift aid tax relief but only if any benefits that donors receive as a result of making those donations are within certain limits. For donations of more than £1,000, benefits are limited to 5% of the donation, subject to an overriding cap of £500.

Kerry McCarthy (Labour, Bristol East)

I may be pre-empting what the Minister is about to say, but she said that what she described as the “bucket donations” clause is a spending clause and therefore it will take longer to introduce. I appreciate that on the face of it clause 41 is not a spending clause, but if the underlying aim of the clause is to encourage more charitable giving and therefore more people will qualify for gift aid, surely there will be expenditure consequences. Will she go on to say what costs there will be to the Treasury, depending on how successful the measure is?

Justine Greening (Conservative, Putney)

In our consultation with charities, many of them told HMRC that the old £500 limit had hindered their fundraising efforts at a time when increasing charitable giving was more important than ever. It also became clear that there were misconceptions about how the gift aid benefit rules operated. For example, many charities felt that they could not offer to host a gala dinner for a major donor, to thank them for their gift and to stimulate more donations from others attending the event, without the whole dinner becoming some kind of a gift. Of course, that is not the case because those kinds of events are not benefits to the donors at all; they are also part of the fundraising process.

So charities are quite properly allowed money to pay for those events. To help them, alongside this measure HMRC also published in April some revised and improved guidance, which will help charities to understand how they can thank their donors in a way that means that they can still receive gift aid on the donation that they have received.

We expect that the impact on the Exchequer will be under £5 million, in terms of extra gift aid tax relief. During the course of this Parliament, however, the package that we announced at the Budget should see about £600 million more tax relief and support for charities. However, I must stress to the hon. Member for Bristol East that this is not just about getting more tax relief to charities. It is also about trying to make some changes in the tax system that will generally foster a system of philanthropy in Britain, which we can all benefit from.

We talked about clause 27 earlier in our deliberations. It is perhaps wise at this point for me to correct the record, because I spotted in Hansard that I was reported as saying in that debate that

“most donors simply make a donation and then enter into an arrangement with the charity.”––[Official Report, Finance Public Bill Committee, 19 May 2011; c. 321.]

However, I am absolutely sure that I said “most donors simply make a donation and do not enter into an arrangement with the charity.” Having clarified those comments, perhaps I have made sure that I have absolutely got on the record what I said at the second time of trying.

In relation to this clause, charities want to express their gratitude to donors in a small way. It helps them to develop a long-term relationship that will encourage the donor to continue making donations and contribute to the charity’s income over the years. However, there is a balance to be struck, between making sure that charities follow charity law and spend their donations on charitable causes, and enabling a charity to develop that long-term relationship with a donor. When a charity wants to say “thank you” to a donor who has given, say, £1 million, £500 is obviously a very small amount of money to help to promote that relationship between the charity and its donors. We think that increasing the maximum amount of benefits that may be given over a year to £2,500 strikes that balance more effectively. Also, it should ease the administrative burden on charities and donors who currently become involved in time-consuming paperwork to keep within the £500 limit. At the same time, it will ensure that the vast majority of any large donation—at least 95% of it—will be used for charitable purposes. Representatives of charities will continue to talk to HMRC about this measure and indeed other measures during the coming months through the new charity tax forum that we have established.

Charities are at the heart of the Government’s ambition to build the big society. We want to encourage people to give more to charities. The increase in the benefit limit will allow charities to foster long-term relationships with their largest donors, by letting them give a modest but meaningful recognition of their contribution. This is one part of a much broader philanthropy package that we brought forward in the Budget. I therefore beg to move that the clause stands part of the Bill.

Clause 42 - Enterprise investment scheme: amount of relief

David Hanson (Labour, Delyn)

I have a few questions on the clause, and I would be grateful if the Minister would respond to them.

Clause 42 increases, from 20% to 30%, the rate of income tax relief to which investors are entitled when they subscribe under the enterprise investment scheme for shares in qualifying companies. The new rate will apply to shares issued on or after 6 April 2011. The change was announced by the Chancellor of the Exchequer in the Budget on 23 March, subject to state aid approval from the EU. Will the Minister give an update on how that will progress with the EU, and how confident he is that they will approve the change?

What instructions have been given to officials with regard to the package of changes in this clause and clause 43, and their discussion with the EU? It has been suggested to me—though I cannot believe it is true—that the Government do not believe that most of this package will get through the EU, and that they have announced certain things that they might not get final approval for. I cannot believe that to be true, so I would welcome the Minister’s confirmation that everything announced in the Budget on 23 March will occur.

Will the Minister provide costings on the income tax relief? My assessment is that, according to Treasury information, the costing for this measure is £580 million of additional investment coming in, due to schemes, over five years. The cost to the Government, however, appears to be around £450 million, which means that we would gain a maximum of £130 million due to the influence of the clause. That £580 million will not all be new investment; some of it would have happened anyway.

I would like the Minister’s view on one more point. Before the Budget, his right hon. Friend the Chancellor of the Exchequer questioned whether venture capital trusts were simply tax loopholes; he is on record as saying that. Yet we find ourselves in a position where the Minister is extending that very tax loophole with the clause. Perhaps he could enlighten me as to how his right hon. Friend said one thing before the Budget, in which he passed certain measures, and is now extending that loophole considerably with clause 42, all—to my knowledge—without EU approval?

David Gauke (Conservative, South West Hertfordshire)

Clause 42 amends the rate of income tax relief to which investors in companies qualifying under the enterprise investment scheme are entitled. It raises the rate from 20% to 30%, and it is intended that this will apply to shares issued on or after 6 April 2011, subject to state aid approval, which I will come back to in a moment.

The enterprise investment scheme is designed to encourage investment into smaller, high-risk companies by offering a tax incentive to investors in qualifying companies. It has been in operation since 1994, with around £7 billion from private investors being contributed to qualifying companies. It is recognised as a successful scheme, and the Government intend to build on that. Small businesses are the lifeblood of the economy, and the ability to start and grow companies is vital for the country’s economic well-being. That is particularly the case now, given the need for a private sector-led recovery. The Government wish to encourage investment into start-up and small, growing companies. The plan for growth, published alongside the Budget, sets out our ambition to make the UK one of the best places in Europe to start, finance and grow a business. The reforms to the EIS and the VCT scheme announced in the Budget will help the Government to achieve that ambition.

The Government recognise that higher risk companies struggle to attract external sources of finance, and that private individuals need an incentive to invest capital in them. The current level of incentive at 20% of the amount invested up to a maximum of £500,000 a year, has produced a significant amount of investment over the existence of the scheme. The Government want that amount to grow and are offering a greater incentive for individuals to invest by increasing that relief from 20% to 30%. Those changes will be introduced through a Treasury order once state aid clearance has been granted.

It would be illegal to introduce changes without state aid approval, but we have already submitted notification of the changes to the European Commission and are currently waiting for its response. Once that has been received, the rate increase will apply to investments made after 6 April 2011. We believe that state aid approval will be received—we see no reason why not—and the scepticism of the right hon. Member for Delyn about the likelihood of that happening is not well placed. We want to increase the relief to 30%.

David Hanson (Labour, Delyn)

As the measure will be introduced by order, will the Minister indicate when he expects that to happen?

David Gauke (Conservative, South West Hertfordshire)

I cannot say much more than that we will introduce the order after we have received state aid approval. If he is asking when I expect that to happen, I hope that it will be relatively soon. I do not want to place a date on that at the moment as I am not in a position to do so. The matter is not in our hands. We are currently waiting for the response, and I hope it will arrive in due course.

The right hon. Gentleman asked whether the arrangements, particularly VCTs, encourage tax avoidance. We do not believe that to be the case, but the Government will continue to monitor the operation to ensure that investment is properly targeted. As we announced in the Budget, we want to ensure that the scheme is targeted at genuine risk capital investments, and in the context of the other steps that we are taking to make the UK an attractive place in which to do business. That is a sensible approach. We will continue to work with industry representatives to ensure that schemes operate in a satisfactory manner, and with the European Commission on the expansion of the scheme. In conclusion, the increase in the rate forms an initial part of the Government’s drive to encourage the entrepreneurship and risk taking that is vital to the country’s economic growth.

Clause 43 - Relief for expenditure on R&D by SMEs

David Hanson (Labour, Delyn)

I beg to move amendment 99, in clause 43, page 27, line 18, leave out subsection (6).

The same principles apply to clause 43 as to clause 42. The Government have made some announcements and I would be grateful if the Minister would confirm that he still requires state aid approval for clause 43. In response to my questions on clause 42, he said that he could not give a date or a time and that he had no definitive end date for when state aid approval might be given. The same principles apply to clause 43, and it would be helpful if the Minister would say whether it might take three months, six months, nine months, 12 months—when does he expect state aid approval to be given? That is important in itself.

In a sense, this is a probing amendment. I want to get to the bottom of what the Government announced in the Budget. Unless I am mistaken—these things do happen—clause 43(6) was not mentioned during the Budget on 23 March, and that aspect of the relief for expenditure on R and D and SMEs was not included. The Chancellor covered over the measure:

“In section 1058 (amount of tax credit), in subsection (1)(a), for “14%” substitute “12.5%”.

That part of the package was not mentioned in the Budget.

First, I want some clarity from the Minister about when state aid will be approved. Secondly, I want him to stand up and say to me—if I am wrong, I will withdraw it—that clause 43(6) was not mentioned at the time of the Budget. I would be grateful if we could have that on record so that we know that the package has been amended slightly since the Budget.

David Gauke (Conservative, South West Hertfordshire)

As we have heard, the amendment would leave out the provision in clause 43 that reduces the figure used to calculate a company’s payable credit under the small and medium-sized enterprise research and development tax credit scheme. Although the Bill reduces the figure that is used to make that calculation from 14% to 12.5%, the overall effect of the clause is to increase the value of the payable credit from 24.5% to 25%.

I appreciate that it is a probing amendment, but let me explain how the provision works. The amendment would further increase the payable credit so that it would be worth 28% of the original qualifying R and D expenditure. Although that might appear to the right hon. Gentleman to be more generous, the situation is not quite so straightforward.

As hon. Members will be aware, the SME R and D tax credit scheme is approved by the European Commission as a state aid. As such, it must comply with the Commission’s guidelines for state aid for R and D. The guidelines state that the aid intensity of aid given through the scheme must not exceed 25%. That is, the amount of aid given must not be worth more than 25% of the company’s original expenditure on R and D.

The amendment, which I appreciate is a probing amendment, would amount to aid intensity of 28% and would mean that the overall changes to the R and D tax credit scheme proposed by clause 43 would not be accepted by the Commission.

David Hanson (Labour, Delyn)

The key point is whether the reduction from 14% to 12.5% for SMEs was announced in the Budget as part of the overall package. I accept what the Minister is saying, but my point is that the clause would disproportionately hit SMEs.

David Gauke (Conservative, South West Hertfordshire)

It will not. I will have to give a slightly longer explanation of the calculation of the value of the payable credit, although I had hoped not to have to do so.

The Budget slightly increased the value of the payable credit. It was a technical change. Yes, it was not highlighted in the Budget document because it was a technical change that does not put SMEs in a worse-off position. I will run through it, because I hope the right hon. Gentleman will be satisfied if I explain it.

The payable credit is calculated as a percentage of the company’s total tax relief for R and D. In the Budget, the Government announced that the total relief for SMEs will be increased from 175% to 200% in 2011, and then to 225% in 2012.

The current rate at which the payable credit is calculated is 14% of the relief, which gives a cash value to the company of 24.5% of the original qualifying R and D expenditure: 14% times 175% equals 24.5%—I hope the Committee appreciates that I am showing my working. If the rate of relief increases from 175% to 200% without a reduction in the surrender rate, the cash value to the company will increase. To be precise, it will increase to be worth 28% of the original qualifying expenditure, as 14% times 200% takes us to 28%, which would exceed the permitted aid intensity limit set out in the Commission’s guidelines for providing state aid for R and D. That is why the Government propose to reduce the percentage figure used to calculate the amount of payable credit from 14% to 12.5%, meaning that the payable credit will be worth 25% of the original qualifying expenditure. That still represents an increase from the previous value of 24.5%, but importantly, the increase remains within the threshold set out in the Commission’s guidelines. I am afraid that the right hon. Gentleman tempted me into giving that explanation, but I hope that all becomes clear as a consequence.

David Hanson (Labour, Delyn)

I thank the Minister with responsibility for tax simplification for that explanation.

David Gauke (Conservative, South West Hertfordshire)

It is all really very simple, but it is a good thing, not a bad thing. Although the clause appears less generous, the change will increase levels of support for small businesses while remaining within the permitted limits. I am sure that hon. Members will accept that the measure is important for stimulating innovation in the UK, as it will support more than 6,000 small firms to the tune of £100 million. I urge the right hon. Gentleman to withdraw his amendment.

On his additional point, yes, state aid approval is required. Again, we have notified the European Commission of the change, and we await its response, but I cannot be more precise at this point. We anticipate that state aid approval will be granted.

Pamela Nash (Labour, Airdrie and Shotts)

On a point of clarification, will small and medium businesses carrying out research into HIV/AIDS vaccines be worse off as a result of the change?

David Gauke (Conservative, South West Hertfordshire)

No, they will not. The interrelation with vaccine research relief is not being changed. Any reduction in the rates of VRR is being made to ensure that in combination with the increased levels of SME research and development relief, the aid given by the UK Government to a particular R and D project does not exceed the aid intensity thresholds set out by the European Commission under the framework for state aid for R and D. It is not necessary to reduce the rate of VRR payable credit as well.

When the rate of VRR relief was last changed in 2008, the European Commission did not require the rate of the payable credit to change as well. However, the hon. Lady is right to raise that point. Businesses doing research in that area will not be left worse off by the changes that we are making in the clause. With those points, I hope that the amendment will be withdrawn and that the clause can stand part of the Bill.

David Hanson (Labour, Delyn)

I beg to ask leave to withdraw the amendment.

Clause 45 - Company ceasing to be member of a group

Roger Gale (Conservative, North Thanet)

With this we may discuss the following: Government amendment 112.

That schedule 10 be the Tenth schedule to the Bill.

David Gauke (Conservative, South West Hertfordshire)

The amendment responds to comments on the Finance Bill clause from numerous corporate groups and their accountants, who asked that the provisions of schedule 10 be made available to companies in respect of transactions undertaken before the passing of the Finance Act. It will allow a group of companies to elect to apply the provisions of the schedule from 1 April 2011. I announced the fact that the Government would introduce the amendment in a written statement on 4 April.

The degrouping charge ensures that tax is paid on gains when, instead of selling an asset directly, a group of companies sells a company that owns an asset. Otherwise, tax could be lost, either as a result of normal commercial arrangements or through tax avoidance. Business identified the degrouping charge rules as one of the most complex and burdensome aspects of the capital gains rules affecting corporate groups.

Clause 45 and schedule 10 make a number of significant changes to the way that degrouping charges are applied. The changes are intended to simplify the operation of the rules for groups acquiring or disposing of subsidiary companies. The changes made by schedule 10 will mean that when a group disposes of a company’s shares such that it leaves the group, any degrouping charge will be treated as additional consideration for the disposal. That will ensure that shareholder reliefs such as the substantial shareholdings exemption will also apply to the degrouping charge.

There is a new facility for claims to reduce the amount of a degrouping charge where tax is charged on the same economic gain both through the degrouping charge and through a chargeable gain on the shares. It will be a useful alternative way to avoid unnecessary degrouping charges where the substantial shareholdings exemption is not available and using the associated companies exception is either burdensome or impractical. We have clarified the rules for the associated companies exception to degrouping charges, in line with expectations following the decision of the court.

The combined effect of the changes to the substantial shareholdings exemption and others outlined above is that companies will face fewer degrouping charges when they are planning an acquisition or disposal of a company. Every corporate group that makes an acquisition or disposal of a trading business will find something in schedule 10 that is useful. The improved interaction with the substantial shareholdings exemption will remove tax barriers that get in the way of assembling the assets of a trade ready for sale.

The changes improve the targeting of the rule, ensuring the aim of preventing tax avoidance is still achieved, but without the potential for double taxation. This amendment provides that these benefits are available straight away if a group would find them useful. There is protection to ensure that a company cannot be disadvantaged by an early commencement election made after it has left a group, since such a company would need to consent to the making of the election. I urge the Committee to accept this amendment.

David Hanson (Labour, Delyn)

I have one question. I am grateful to the Minister for his explanation, but we touched in discussion of an earlier clause on the question of intangibles and he said he would return to the question on clause 45. I want to be clear about what he means in relation to that. I am concerned that intangibles, such as goodwill in a business—for example, when purchasing a hotel—could be disadvantaged by this clause, or are not consistently addressed by this clause. There is an inconsistency in that old goodwill—pre-2002—will be treated as a corporate capital asset and therefore will not suffer a degrouping charge, where post-2002 goodwill could be subject to degrouping charges, so for some businesses the simplification is not as useful as it is for others. I would welcome clarification on goodwill being dealt with as part of this clause.

The rest of the debate is in Hansard.