§ [Relevant document: The Second Report from the Treasury Committee, Session 2003–04, on Child Trust Funds, (House of Commons Paper No. 86).]
§ Order for Second Reading read.4.31 pm
§ The Financial Secretary to the Treasury (Ruth Kelly)
I beg to move, That the Bill be now read a Second Time.
I am delighted to bring this Bill before the House. In doing so, the Government are fulfilling a manifesto commitment. The child trust fund represents a new and imaginative way of encouraging children and their parents to save for the future. We will ensure that, in future, all children will have the opportunities that are currently taken for granted by only a few.
There are four key objectives for the child trust fund: to help people to understand the benefits of saving and investing; to encourage parents and children to develop the savings habit and to engage with financial institutions; to ensure that in future all children have a financial asset at the start of adult life; and to build on financial education. This is an ambitious and long-term project. Nothing on this scale has been tried anywhere else in the world. Britain is leading the way in asset-based welfare, and we are convinced that that is the right thing to do.
The Government have already taken important steps towards ending child poverty. Only last week, the Chancellor announced an additional £1 billion a year of investment in Britain's children to advance our goal that not some, but all of them should have the best possible start in life, and that no child is left behind.
Welfare policy cannot however be seen merely as the meeting of immediate needs. It is time to take a longer-term view and to consider the wider factors that make a difference to young people's future opportunities. Evidence from the national child development survey suggests that the backing of a financial asset can have a significant impact on changing people's attitudes and broadening their horizons.
We want all families to have the opportunity to save for their children. Surveys show that only one third of the population saves regularly. Moreover, there is no tradition of people saving money for their children over the long term. We hope that the child trust fund will kick-start saving among families, and we believe, for two reasons, that that will be achieved—first, as a 1338 response to the initial Government payments and later age-related payments; and secondly, as a result of financial education.
We are particularly concerned about families on low incomes. The American experience with individual development accounts shows that incentives encourage people on lower incomes to save money, and our own pilots of the savings gateway—the interim report on which was published last week—show that people on very low incomes can make regular savings. That, too, was the conclusion of the financial services industry and of consumer groups. Recent research conducted by the Association of British Insurers found that 75 per cent. of parents who do not normally save for their children said that they intended to contribute to their child's trust fund. The National Consumer Council's research into the attitudes to saving of people on modest incomes in the 21-to-35 age group suggested that spontaneous references were made to the new fund by the participants.
We recognise, however, that it will be harder for families on low incomes to make contributions, and that is why the Government have decided to make an additional contribution to the accounts of those children whose parents are in receipt of the full child tax credit and whose income is below £13,230. The child trust fund is a good example of progressive universalism. It is a universal policy reaching out to all children, no matter what their financial circumstances, but it will target more resources on those children who need it most.
I welcome the conclusion of the Treasury Committee report published today, which says:
The Child Trust Fund is an ambitious, pioneering programme which seeks, through a significant long term investment by the Government, to provide a financial asset to all children when they reach the age of 18, and to change people's behaviour towards saving. Whilst those with higher income may make most use of the opportunity, we feel that this gives less well off families an unprecedented chance to build up a tax-free sum for their children.
§ Dr. Jenny Tonge (Richmond Park) (LD)
I thank the hon. Lady for giving way, and I apologise for missing the beginning of her speech. As a mother and grandmother, I am very interested in this issue. Can the Minister tell us the amount of money that will have accumulated by the time a child is 18? At the minimum level, having received £250 at birth and a few additions along the way, it will not amount to very much. Also, is she not worried that an 18-year-old might spend the money incorrectly?
§ Ruth Kelly
I shall answer the first part of the hon. Lady's question first. Table 3.1 of the proposals document that we published recently illustrates the impact of endowments at the age of 18, given growth in the fund. For example, if there were no additional savings, a child with an initial sum of £250 would, on a very cautious assumption, have accumulated £456 by the age of 18. However, a child from a poorer background who had received the full £500 endowment would, assuming that they had had no further 1339 Government top-ups or additional contributions, have accumulated £911 at the age of 18. I suggest that such a sum could have a significant impact.
§ Ruth Kelly
I suggest that the hon. Lady look at the research based on the national child development survey, which suggests that a sum as low as £300 could have a significant impact on someone's future behaviour. At the moment, the average young person between the age of 18 and 25 has zero financial assets, and that is something that we intend to change.
§ David Hamilton (Midlothian) (Lab)
As a grandparent of five grandchildren, I believe that this will be a very good way for grandparents to contribute to their grandchildren's future.
§ Ruth Kelly
I congratulate my hon. Friend on his good fortune, and I certainly suggest that he make contributions on behalf of his grandchildren. He is right to say that contributions can be made by a wider group of people, and not just by the child and the child's immediate family. Grandparents are perhaps the key people to the development of this policy.
§ Mr. Andrew Robathan (Blaby) (Con)
I congratulate the Minister on having four children under the age of six. No doubt she will be hoping to help them to save, and we should all encourage our children to do so. Regarding the amounts involved, however, what does she think average university fees will be in 18 years' time?
§ Ruth Kelly
The hon. Gentleman's question ties in with the point made by the hon. Member for Richmond Park (Dr. Tonge), who asked whether we would restrict a young person's use of the money at the age of 18. It is my judgment and that of the Government that the person best placed to make that decision is the child at the age of 18. It is right that the child should have the full chance to use that money in whichever way they think is in their own best interest. That may be to pay for further education. It may be to put down a deposit on a tenancy or a home. They may want to buy a van, for example, to start up a small business. It is not right for us to try and restrict people's opportunities, and at present they are restricted.
§ Ruth Kelly
I give way to the hon. Member for Buckingham (Mr. Bercow), whom I have come across several times in previous capacities.
§ Mr. John Bercow (Buckingham) (Con)
As a proud father of nine days, 14 hours and 32 minutes, I have a close personal interest in the matter, as the hon. Lady will understand. Given that on the most cursory examination of the Bill, it appears that no fewer than 16 of the 31 clauses allow for secondary legislation and order-making powers, will the hon. Lady, first, 1340 guarantee that we will have a draft of all those regulations before Report stage? Secondly, can she advise me whether the procedure in respect of those regulations will be the negative procedure of the House, or its affirmative counterpart?
§ Ruth Kelly
I can advise the hon. Gentleman that the regulations will be laid in draft for full consideration during the passage of the Bill. I cannot advise him on the detail of every regulation, as I have not considered the regulations in draft. I refer him to the comments made by the Association of British Insurers in its memorandum to the Treasury Committee, which stated:The manner in which HM Treasury has developed the framework for the child trust fund has been exemplary. Consultation has been held at each stage of the policy's development and the industry has been pleased that its comments have been taken on board".We are determined to get that right, and we have made significant progress.
§ Ruth Kelly
I give way to my hon. Friend the Member for Hastings and Rye (Mr. Foster), but this must be the last time before I make more progress.
§ Mr. Michael Jabez Foster (Hastings and Rye) (Lab)
Every hon. Member will probably claim parenthood or grandparenthood. In my case, my grandchildren, Billy, Thomas, Ashleigh and Ellie, are all aged five or under, but are too old to gain the benefit of the trust fund. There must be a starting point, but can my hon. Friend assure me that they will be able to benefit from the trust fund in terms of tax relief, if not in terms of bounty?
§ Ruth Kelly
We have considered the matter closely. It could well be that parents of children with siblings older than the child who benefits from the endowment will wish to take out a policy that mirrors that of the child trust fund. I suspect that if the demand exists, the industry will react to that and develop products that are almost identical. Under the current legislation, it is possible for children to benefit substantially from tax relief, and I imagine that any new accounts would use the existing reliefs in the system.
I turn to financial education. There is a real challenge for us as a Government to improve people's financial awareness. For some people, the child trust fund will be their first exposure to saving and investment. We have commissioned research to find out the best way to help such people make these quite complex decisions, and we will work closely with the Department for Education and Skills, the Financial Services Authority and other organisations that can help us design and deliver the financial support and information that people will need to manage their accounts.
I welcome the evidence from the National Consumer Council, which stated:This product actually presents an excellent opportunity to communicate risk issues to a whole generation of parents, in a very tangible way.
§ Mr. James Plaskitt (Warwick and Leamington) (Lab)
My hon. Friend mentions the importance of financial education, and the child trust fund will be the first time that many people encounter risk. Will she take on board the Select Committee's recommendation that there should be an easily understandable risk evaluation attached to all the wrap-around products that may head up the child trust fund once it is up and running?
§ Ruth Kelly
My hon. Friend will be pleased to hear that I have been studying the conclusions of the Treasury Committee report in great detail this morning. We want to communicate the issues to the best effect. That is why we will commission research, and of course that research will take account of the conclusions of the Select Committee report.
The Bill places a duty on the Government to make child trust fund payments to eligible children. It sets out the framework for operating the child trust fund and includes powers to make regulations covering some of the more detailed issues. In developing the child trust fund, our aim has been to keep the processes as simple as possible for all concerned; families, providers and the children themselves.
All children born since 1 September 2002 who live in the UK and for whom child benefit is claimed will be eligible for the child trust fund. Entitlement to a child trust fund will be linked to an award of child benefit, which nearly every parent in the country claims. That removes the need for a separate claim form and process for the child trust fund.
Child benefit cannot be claimed for children in local authority care, but the Bill ensures that these children will not miss out. Children in care include some of the most disadvantaged children in our society and the Inland Revenue is working with representatives of local authorities and central Government to ensure that appropriate arrangements are put in place for those children.
§ Bob Spink (Castle Point) (Con)
I am grateful for what the Financial Secretary has said about children in care, on which the Government are making progress. However, these children—unlike others—will not benefit from additional contributions and will be disadvantaged. Is there anything we can do to correct that problem?
§ Ruth Kelly
The hon. Gentleman makes an important point. We are working closely with children's charities and local authorities to think about the way in which the role of local authorities might develop in future. Certain local authorities are enthusiastic about the potential the policy offers them, for example, to make contributions on behalf of the children in their care. That will evolve after the policy has been put in place.
When the award for child benefit is made, the parent or guardian will be sent a child trust fund voucher and an information pack. The pack will include details of all providers, a step-by-step guide to the opening of an account and a clear and objective explanation of the stakeholder child trust fund account, which all providers are required to offer. Parents, or someone else with parental responsibility, can take the voucher to the provider of their choice to open an account.
§ Mr. Michael Weir (Angus) (SNP)
I came across recent cases involving the Child Support Agency where 1342 the parents were splitting the child benefit entitlement. Would both be entitled to a voucher? Might that lead to two small funds, rather than one large one, which might be disadvantageous to the child? How would that be dealt with?
§ Ruth Kelly
It is not the intention of the policy to have two separate child trust funds running concurrently for the same child. In fact, that will be prohibited; there will be a unique reference number for each child. The parent with responsibility will be provided with a voucher and can take that voucher to the provider of their choice.
The financial institutions that want to offer child trust fund accounts will need to be approved by the Inland Revenue. The details will be set out in regulations, but this is a straightforward process and one with which providers are familiar, as it will be based on the approval process for individual savings accounts. I am pleased to say that many providers have expressed enthusiastic support for the child trust fund and a number of organisations have expressed themselves delighted with the proposals.
Providers will be able to offer a variety of different accounts to suit the different preferences of parents. Their child's trust fund will be a wrapper, in the same way as an ISA can be wrapped around a variety of products such as cash, unit trusts or life insurance products. That will give parents choice and allow providers to offer a full range of accounts to suit the market.
The child trust fund is a long-term savings and investment policy. Historically, investments in equities have been shown to provide a better return than cash deposits. Over the last 18 years, for instance, £100 invested in the stock market would have yielded £321, whereas the same £100 deposited in a building society account would have produced £171. We want all children to have the opportunity to benefit from the generally higher returns on equities over the longer term. That is why offering the stakeholder child trust fund account will be a prerequisite for all financial providers that want to offer accounts.
The stakeholder account will follow the principles outlined by Ron Sandler in his July 2002 report, "Medium and long-term retail savings in the UK." He proposed that stakeholder investment products should be simple, low cost, accessible and risk-controlled. Stakeholder accounts will be equity based. To balance risk and return, providers who offer stakeholder accounts will be required to diversify investments so that investors are not unduly exposed to a narrow range of equities. Providers will be required also to apply lifestyling to the accounts, moving investments to less risky assets as the account nears maturity. Further details will be set out in the regulations.
Once the account has been opened, the financial provider will claim the amount and the initial Government payment—£250—from the Inland Revenue. Children in families on new tax credits whose income is below the income threshold will have a second payment of £250 paid directly into their account as soon as the tax credit claim for the year in question has been finalised. A further payment will be made when the child reaches seven. Again, a second payment will be made to families on low incomes. By making a payment when the 1343 child is seven, we can demonstrate the benefit of saving, as children and parents will be able to see accounts growing more quickly after receiving this Government contribution.
§ Mr. David Cameron (Witney) (Con)
In effect, the Financial Secretary is saying that if a family are earning £13,230, they will get £500 for a child, but if they are earning £13,231, they will get only £250 for a child. Does that not send the message that saving is bad for people?
§ Ruth Kelly
I do not follow the logic of the hon. Gentleman's position. The fact is that there has to be a cut-off point if payment is to be split into two elements. We have chosen full entitlement to the child trust fund and the income threshold of £13,230 to ensure that up to 40 per cent. of children will be in receipt of the £500 entitlement, and of the means-tested top-up at the age of seven.
Inevitably, some people will not get round to opening accounts for their children. There could be a number of reasons why, but we do not want those children to miss out, so if an account has not been opened 12 months after the voucher has been issued, the Inland Revenue will open one on their behalf and tell the parent or guardian that that has been done, and that they can now take over managing it. These accounts will always be risk-controlled, child trust fund stakeholder accounts, as those are likely to give the best return; and of course, they will be with an approved provider. The Inland Revenue will not be responsible for managing such accounts once they are opened. Parents will be told that they are free to move the account to a different provider, or to move to a different type of account, if they wish. We hope that the Inland Revenue will need to open only a small number of accounts, and that the number will diminish over time. We will monitor the situation carefully.
The Inland Revenue will also open stakeholder accounts for children in care. As such children will be in care when the account is opened, they will not be able to qualify for the additional Government payment by virtue of living in a family in receipt of full child tax credit. Nevertheless, they will automatically receive an amount equal to the initial and additional Government payments.
The child trust fund is not, however, just about Government payments. We hope that such payments will kick-start a savings habit, and that parents and other family members will also make their own savings. We want to see a change in attitude to saving for the long term, and we have decided that child trust fund accounts should have certain advantages to encourage this.
§ Mr. David Laws (Yeovil) (LD)
Can the Financial Secretary tell us what research the Treasury has done into how much additional saving the child trust fund will generate? What is her latest estimate?
§ Ruth Kelly
As I said at the beginning of my speech, the child trust fund has a number of objectives, one of which is encouraging the saving habit. Increasing the long-term level of savings in the economy through this 1344 vehicle is not one of those objectives. In fact, small additional contributions, from time to time, from a family member on a lower income could be a remarkably good result. On the other hand, if, on receiving the information in the child trust fund package, someone decides—because they have greater financial understanding and awareness—that they would be better off paying off a credit card debt with that money, that would also be a result. But the hon. Gentleman will see that in such scenarios, it is not possible to set meaningful targets for increasing the level of savings through this vehicle.
We would like to see a change in attitude to saving for the long term, so we have awarded certain tax advantages to these accounts. Parents, grandparents, friends and other relatives will be able to add up to £1,200 to the accounts each year, and all the proceeds will be free of tax. As a further incentive, income tax settlements legislation will not apply to child trust fund accounts. Given that such an account will run for 18 years, the settlements legislation could have caught large numbers of people in the later years of the account. Furthermore, the Government acknowledge that people on low and moderate incomes may be concerned that any saving may affect their entitlement to benefits.
The Government will keep under review the treatment of capital in income-related benefits, so that a sensible balance is struck between providing targeted state support and not unfairly penalising those who have acted responsibly by saving. I can announce to the House that from 6 April 2006, as a first step, we will increase the £3,000 threshold above which savings reduces eligibility to income support, jobseeker's allowance, housing benefit and council tax benefit to £6,000, in line with pension credit.
Before closing, I would like to say something about the charge account, which interests many Members. The Government want to ensure that charges are set at levels that are good value for savers, while also allowing efficient providers to make adequate returns. The independent research that we commissioned Deloitte to undertake, and the evidence that we received from the industry and consumer groups, will enable us to take a final decision on the charge cap early next year. Further details will be set out in regulations.
In conclusion, the child trust fund is a bold and ambitious policy. We hope that it will fundamentally change attitudes to savings, improve financial capability and extend opportunities across income groups by providing all children with an asset when they reach the age of 18. We all have an interest in creating a society that understands the benefits of saving. The child trust fund will help us to achieve that, so I commend the Bill to the House.
§ Mr. George Osborne (Tatton) (Con)
I suppose I should begin by taking part in this Dutch auction of interests. In common with the Financial Secretary, I have a daughter who will qualify for the child trust fund. I hope that I am not betraying any confidences in saying that my hon. Friend the Member for Wycombe (Mr. Goodman), who will be winding up for the Opposition, is hoping to receive a voucher next year, as is my hon. Friend the Member for Witney (Mr. Cameron). Indeed. 1345 it is a strange quirk of fate that the Minister who is introducing the Bill, the two Opposition spokesmen shadowing it, the Chancellor who dreamt it up, and apparently half the hon. Members in their places today, will benefit from it. The Parliamentary Commissioner for Standards would probably have a fit if he knew.
§ Mr. Robathan
May I say, for the benefit of the whole House, that the fact that my children are too old to qualify—albeit by only two years—is not the reason why I oppose the measure?
§ Mr. Osborne
Later in my speech, I shall come on to what can be done for children who, because they were not born after 1 September last year, do not qualify.
Let me make it clear from the outset that we greatly support the principle that the Bill is designed to promote. Conservative Members believe in the virtue of savings. We think that having savings, like owning one's home, gives people a stake in society, gives them independence, encourages self-reliance and bolsters the freedom of the individual against the overbearing state. In that sense, it is the most practical manifestation of liberty. That, of course, is why, when the Conservatives were in government, they encouraged wider share ownership and gave council tenants the right to buy. It is also why, when in opposition, we have been alarmed at the halving of the savings ratio and the spread of the means test.
Conservative Members did not stumble across a belief in savings through some focus group or seminar. It is rooted in a Tory tradition that stretches from John Locke and Edmund Burke to the present day. Any policy that has the prospect of increasing savings and the freedom that they bring is something to which we should give a fair wind.
Whether the child trust fund works in practice is another matter. For a start, we do not know many of the key details. Indeed, we are none the wiser after the Financial Secretary's speech on aspects such as the level of the charge cap or the form of the sales regime. Given that the Treasury started talking about child trust funds almost three years ago, it is astonishing that so much is still so unclear at so late a stage. It is particularly astonishing that the Financial Secretary admitted in her speech that she had not yet considered some of the regulations, even in draft. I welcome at least her promise that they will be available during the passage of the Bill. I hope that she meant the passage of the Bill through this House and not through the other place.
From what we know, it is clear that, despite their good intentions, the Government have fallen prey to their characteristic habits of over-complexity and means-testing—ironically, the very factors that have caused such a mess in the welfare system to date, and have contributed to the savings crisis that the Bill seeks to address. We have serious concerns about the detail, but it would be churlish to oppose the principle behind the Bill. As I said, Conservatives believe in the virtue of savings.
The Financial Secretary comes to the subject by a different route—the Institute for Public Policy Research. When the Government were desperately scratching around for something new to say before the last election, the IPPR did what it is supposed to do by 1346 helpfully supplying the child trust funds, dressing them up in a new-fangled theory called asset-based welfare. The IPPR is, of course, the king of the Blairite think tanks—not for it obscure meetings in shabby offices on the fringes of Westminster; when it held a seminar last year on the child trust fund proposals, it took place at No. 10 Downing street, no less.
What was said at that seminar? That may give us a clue about the thinking behind the Bill. The Financial Secretary knows, because she was there and said much of what was said. I know, too, because I have got hold of a copy of the minutes. [Interruption.] I can hear that my hon. Friends are excited about that. They will be interested to know that child trust funds are known in new Labour circles as athird way within the Third Way".I did not even know what the third way was, let alone that there were three different versions of it. By my calculation, if each way has three separate ways, there may be as many as nine ways in total: the House can see why I am on the Treasury team.
It is good to discover that someone is still talking about the third way. It is a bit like discovering a group of Esperanto speakers, or a Rubik's cube convention. The phrase "the third way" certainly has not passed the Prime Minister's lips for at least two years, and the Financial Secretary reminds me of one of those Japanese soldiers discovered on remote Pacific islands long after the war was over: she is still fighting a cause that her political masters gave up on long ago.
The minutes are full of other fascinating insights into the thinking behind the Bill. For example, a Mr. Kevin Rudd, apparently a leading light in the Australian Labour party, told the seminar:
The left has begun to realise that assets and wealth are important to people who want to 'get on'. It taps into deeply felt aspirations and should be harnessed to progressive ends rather than left to the clutches of the right".I suppose that we are the clutches of the right".
The minutes go on:
Kevin finished his presentation with a potential problem. The long-term nature of the Child Trust Fund could mean that it does not fit well with the electoral cycle.Oh dear! Thankfully, the Government have been able to solve Kevin's problem. They announced their child trust funds just two months before the last general election, and they plan to send child trust fund vouchers out to the parents of 1.8 million children just a month before the likely date of the next one. Gosh! There I was naively thinking that this was all about helping other people.
Ignoring the third way clap-trap and setting aside the cynical electioneering, I still, despite provocation, believe that the Chancellor has produced a policy whose ambition is not ignoble. We all want the savings habit to be encouraged in all parts of our society. However, I must raise four questions, here and in Committee: first, will they work and encourage saving; secondly, will they reach the right people; thirdly, will they be ready on time; and fourthly, will they help develop a lifelong savings habit? 1347 The honest answer to the first question—whether they will work and get people saving—is that the Government simply do not know. As the Financial Secretary said before the Treasury Committee, the child trust fund approach isnot one that has been tried … anywhere else in the world".She quoted Association of British Insurers surveys and examples from the United States about individual development accounts, but those are no substitute for proper research into whether the policy will achieve the objectives hoped for. All she could say was that she hoped that it would kick-start a savings habit.
Hope rather than research is a dangerous thing when expensive new legislation is being introduced. In the words of the Chairman of the Treasury Committee's Sub-Committee on the matter, it is a "leap in the dark". I take this opportunity to thank the Chairman of the Treasury Committee, the hon. Member for Dumbarton (Mr. McFall), who is here, and my hon. Friend the Member for Sevenoaks (Mr. Fallon) and his Sub-Committee for producing an excellent report to inform the Second Reading debate.
From my reading of the evidence in the report, and from having attended a session myself, I note that the Financial Secretary was strangely reluctant, when questioned by my hon. Friend the Member for Bury St. Edmunds (Mr. Ruffley)—I thought that they struck up some rapport at the time—to set any kind of target for how many people she wants to see saving under the child trust funds scheme, or even to hazard a guess. It is hardly a sign of confidence in her own policy that she refuses to predict how successful it will be.
The Financial Secretary must acknowledge that the policy will be regarded as a success only if most parents, other relatives and children themselves top up the funds with additional savings, however modest those top-ups might be. The policy will have failed on the Government's terms if it soon becomes clear that many trust funds become dormant, with the only content the Government's initial deposit and the money earned on it. Each dormant account will signal a failure of the policy to encourage the savings habit, but only time will tell how many such failures there will be.
If the Government cannot answer the first question about child trust funds—whether they will work—perhaps they can answer the second, which is whether they will reach the right people: lower-income families who do not use other vehicles to save for their children? The Financial Secretary was strangely reluctant to be drawn on that issue when she appeared before the Select Committee and was questioned on that point by the hon. Member for North Norfolk (Norman Lamb). Encouraging low-income families to save is clearly the principal purpose of the whole policy, but the Financial Secretary seems to have a grander purpose. She told the famous IPPR summit that one of her concerns was the current unequal distribution of wealth. She continued:What is more, there are signs that wealth inequality is increasing.She added that child trust funds arepart of the response to that situation.I do not want to disappoint her, but I fear that the Bill may have an effect exactly opposite to that which she intends. The unequal distribution of wealth—as she 1348 puts it—could be exacerbated by the policy. Middle-class parents who put in the maximum amount of£1,200 a year will give their child a nest egg that could be worth £34,000 by the time they reach 18, but children from lower-income families whose parents make no contribution will have only one thirty-fourth of that—around£1,000—in their trust fund.
§ Mr. Cameron
Will my hon. Friend consider the specific case of children in care? The Financial Secretary has confirmed that they will receive child trust funds, but they will not have anyone to put in contributions on their behalf. Given that the state is effectively in loco parentis and that those children do not receive child benefit, is not there a case for at least a portion of the child benefit that they do not receive going into their trust fund, so that they will benefit from the policy like everyone else?
§ Mr. Osborne
My hon. Friend has anticipated how I intended to spend a couple of hours in Committee. That possibility is worth exploring. In response to the good point made by my hon. Friend the Member for Castle Point (Bob Spink), the Financial Secretary said that local authorities might contribute, but no one receives child benefit on behalf of children in care, and we should at least consider whether some of the money saved in that respect by the Treasury could be paid into the child trust funds of children in care.
§ Mr. Weir
I am interested in the hon. Gentleman's argument and the figures that he has cited. However, the position is worse than he suggests. His figures assume that only one child in a family obtains a trust fund. A low-income family with three or four children will find it much more difficult to put extra funds in and the situation will be much worse in such circumstances.
§ Mr. Osborne
The hon. Gentleman makes a good point. I do not suggest that the objective of the policy should be to reduce the current unequal distribution of wealth, but that is the Financial Secretary's objective. It is difficult to see how the policy will do that. I understand that she will wind up the debate, so she can address some of those points then.
The great disparity in the potential value of the trust funds is one of the great concerns of the Child Poverty Action Group, and I am sure that it has made its points forcefully to the Financial Secretary. To address those fears—at least in part—will require a big effort from the Government and from the financial providers themselves to encourage low-income families to save. It will not be enough for the Government simply to open a child trust fund account for every baby, give them a voucher and hope that a thousand savers will bloom. People will have to be marketed to, targeted, coaxed and enticed by the financial institutions, and that will cost money. Putting it bluntly, those institutions will spend that money only if there is something in it for them.
That brings me to the charge cap, which is the single most important unresolved issue in the Bill. In other words, how much will the financial provider be allowed to take out of a trust fund? Clause 3, which deals with that point, could not be more vague. Like so much of the rest of the Bill, it will be left to regulations to determine. 1349 Given the amount of time that the Treasury has had to prepare the policy, it is extraordinary that we still have not been told what the charge will be.
In the Government's consultation paper, published two months ago, they said that thereis a high threshold of persuasion for any move from a 1 per cent. charge cap".For many accounts, that will mean a return of only £2.50 or £5 a year for a financial provider in the early stages, and I am sure that the Financial Secretary is aware that financial providers claim that it is not economic to provide child trust funds at that rate of return. Those that do so will inevitably focus their marketing on middle-class families, who are likely to top up their children's funds, and not bother with the more expensive and less lucrative marketing to lower-income families.
That is not just my judgment; it is also that of the Association of British Insurers, the Association of Friendly Societies, the PEP and ISA Managers Association, the Building Societies Association and the British Bankers Association—I have been busily engaged in the Pugin Room during the past couple of weeks giving tea to all those people. It is also the judgment of Norwich Union, the biggest long-term savings provider in the country and one of the biggest in the stakeholder pension market. The company said that if the charge cap is set at 1 per cent. it will not offer child trust funds. It is also the judgment of David White, chief executive of the Children's Mutual—someone whom the Financial Secretary knows well, as he has been intimately involved with the Treasury from the start in helping to draw up the policy. He told the Select Committee:If the charge cap on the Child Trust Funds were reduced as low as 1 per cent. … I am not sure, in our view, that there would be any providers in the market at all. I think the danger would be, at best, that you would force people to cherry pick at the rich end of the market … and the lower income groups would be left out.The level of the charge cap is important.
The consultation paper stated that
the Government will issue a report detailing the charge cap for the CTF … later this year.We could hardly be much later in the year; there are only two weeks left, so I should be interested to hear—perhaps in the winding-up speech—what has happened to the report that we were promised only two months ago.
§ Dr. Tonge
I was interested to hear how many teas the hon. Gentleman had had to give for the providers of trust funds. Does he agree that if the Government had not allowed most of our post offices to close, they could have undertaken functions under the Bill, which would have been much more convenient for people who wanted to invest?
§ Mr. Osborne
The hon. Lady makes a good point: many of the people to be targeted by the policy have no experience of dealing with companies such as Norwich Union or the Children's Mutual, or indeed with high street banks. Probably, their only contact with a financial institution—if we can call it that—is the post office counter.
1350 On the charge cap, I suggest that it is time for the Financial Secretary to swallow her pride and back off the 1 per cent. charge that the Government announced at the time of the Sandler report. Alternatively, she should radically simplify the way in which child trust funds are operated and sold, so that financial providers can make a return and it is worth their entering the market and trying to sell those products to low-income households.
That brings me to my third question, whether the child trust funds will be ready on time. Everyone in the industry agrees that the timetable is getting very tight indeed. The Government hope to start sending out the initial letters to parents later this year, and the first 1.8 million vouchers and information packs will go out in 12 months' time. Furthermore, the Inland Revenue must have ready a system for redeeming the vouchers, opening the accounts where parents fail to do so and policing the annual limits. That is a major administrative task. We all remember the hash that the Inland Revenue made earlier this year when the new tax credits were launched. The task is made much greater by the news that the Revenue has just sacked its IT provider, EDS. We must all hope that lessons have been learned from that fiasco earlier this year and that the Inland Revenue can cope, but that is not a hope born of experience.
The timetable is an even greater challenge for the financial industry. It is no good sending parents a voucher if there is no company around for them to open a child trust fund with. The financial institutions have only 12 months to design their products, set up their administrative systems, prepare their marketing strategy, train their work force and check that the whole thing works, yet they cannot even start that process until the Government decide what the charge cap will be and what the sales regime will look like, which may not be until early spring.
Again, every financial organisation and company that I have spoken to says that the Government are leaving it dangerously late. The Financial Secretary could make things a lot easier for the companies at a stroke: she could set the charge cap now, set out the simple sales regime now and abandon the ludicrously bureaucratic and outdated voucher system, which is set out in clause 5.
By all means, send parents—such as the Financial Secretary and myself—a nice certificate telling them that they can open a child trust fund, but why not let them do so by telephone or the internet? Why require parents physically to take or send the voucher to their chosen provider and then require that provider to store the voucher in its vaults for ever? This is not the 19th century; many financial transactions take place over the phone or online these days. The Government refer to fraud, but we are dealing with low-risk products, as their own money-laundering regulations make clear. No one in the industry understands why the Financial Secretary insists on this costly, complicated, bureaucratic and prehistoric paper trail that will make it even more difficult to get the systems ready on time—so much for e-Government.
By the way, while we are on the subject—I address the point made by my hon. Friend the Member for Blaby (Mr. Robathan)—why not let parents open child trust funds for children born before 1 September 2002, 1351 without the initial Treasury voucher, of course? Treasury officials have already confirmed to the Select Committee that the cost, in terms of extra tax relief, would be negligible. and it would help encourage savings for all children, not just newborn babies. Like the Financial Secretary, I have a child who will qualify and a child who will not, and explaining why one will get a huge lump sum at 18 and the other will not is going to be tricky.
The fourth and final question was whether child trust funds will help develop a lifelong savings habit. That is what we all want to happen, but we would have a far greater chance of developing that savings habit if child trust funds sat alongside other policies that encouraged lifetime savings. Sadly, they do not. What might 18year-olds do when they have been given the keys to their trust fund? Of course some, perhaps many—we will not know for 18 years—will blow the whole lot on a trip to Ibiza or a new hi-fi.
As the Financial Secretary said, and as the Select Committee accepts, it would be impossible to legislate to try to stop that happening, but the Government could make it a lot less likely by removing the positive disincentives to keep the savings—disincentives that have caused the savings ratio to halve in the past six years. Of course those disincentives have been created by the spread of the Chancellor's means test. The political debate in the House has tended to focus on the way that the pension credit discourages people from saving for their retirement, but the means test ensnares younger people too.
What is the Financial Secretary's advice to young people who qualify for income support or jobseeker's allowance? What are they to do with their child trust fund? If they keep it and it is above the modest £3,000 disregard allowed, their fund will quickly vanish as their benefits are reduced. The best thing those young people could do in those circumstances is to spend the trust fund immediately. What sort of message does that send about saving? Treasury officials told the Select Committee:We are aware of the implication and we cannot say at the moment what exactly we plan to do about it".That hardly inspires confidence that they have thought through the whole policy. The Select Committee is right when it says that the Government need to clarify how those different bits of the Chancellor's—
§ Ruth Kelly
The hon. Gentleman misses the fact that I reported to the House that we have increased the £3,000 threshold above which savings reduce eligibility for means-tested benefits.
§ Mr. Osborne
Of course, simply increasing the disregard does not solve the problems. The Government hope that people will put more than that sum into trust funds, so that they can use the money when they turn 18, but the problems will remain, and I have quoted what the Treasury officials said.
1352 What about a young student thinking about going to university? The Government's top-up fees will be means-tested, as far as we are aware, so hanging on to a child trust fund might involve paying the full whack of top-up fees the moment that students leave college. We will not know about that until the top-up fees Bill is published, whenever that may be, but we could find that the smartest thing that young students could do is spend the trust fund on drinks in the college bar. What sort of message would that send about saving?
My hon. Friend the Member for Witney highlighted the ultimate irony that although child trust funds are supposed to encourage saving, they are themselves an extension of the means test. All children will be means-tested at birth to determine whether they qualify for the£500 voucher, so the Chancellor will achieve his ambition of a cradle to grave means-tested welfare system.
We have many questions about the Bill. We want to know about means-testing and the scheme's key details, which remain a mystery. We have questions about whether trust funds will encourage people to save and how they will reach low-income families. We have questions about the tight timetable that the Government have imposed on themselves and the industry, and above all, questions about how the scheme fits in with an overall approach from the Chancellor that discourages saving. It is a shame that the scheme is over-complex and that it will extend means-testing because it is precisely those vices that have caused the current crisis in savings, which the Bill cannot address by itself. A far more radical lifetime approach to savings is required to deal with that crisis, but that will have to wait until the next Conservative Government are in power—owing to recent developments, that might be just around the corner.
The Bill demonstrates the Labour party?s recognition—at last—that promoting savings is important. It is long overdue, and although it might be a third way within the third way, it is none the less welcome. On the basis of the Government's important change of heart, and despite our many reservations about the specifics of the scheme, we shall not oppose the principle underlying child trust funds or vote against the Bill tonight.
§ Mr. John McFall (Dumbarton) (Lab/Co-op)
I am grateful for the opportunity to speak to the Child Trust Funds Bill. I am delighted to note that there is already one enthusiastic supporter of child trust funds in the form of the hon. Member for Tatton (Mr. Osborne). He said that one of his two children will receive a trust fund while the other will not. It will be his job to explain to them why one will receive a huge amount and the other will not, so the fact that he is signed up to, and enthusiastic about, child trust funds must warm the cockles of the Minister's heart. The hon. Gentleman came to a sitting of the Treasury Committee for a tutorial. I was going to give him a bare pass, but given the way in which his speech went on and descended into ideology and partisanship, I shall have to reappraise that. However, at least he came along to listen.
The Treasury Committee has undertaken an examination of this important Bill and I commend the work of my colleague, the hon. Member for Sevenoaks 1353 (Mr. Fallon), and other Committee members to ensure that we got the report out in time for Second Reading. That is an example of Parliament working at its best.
I am pleased to note that under the proposals, all children born from 1 September 2002 will be eligible for a child trust fund. The Government will provide children with an endowment of £250 and the children of families who receive full child tax credit will receive a further £250. It is good to note that the Government will make further payments when children are aged seven, and that they will encourage families to provide £1,200 every year with a tax break. The objectives of the trust funds are those to which the Treasury Committee has signed up: first, to help people to understand the benefits of saving and investment; secondly, to encourage parents and children to develop the savings habit and engage with financial institutions; thirdly, to ensure that in future all children will have a financial asset at the start of their adult lives to invest in the future; and fourthly, to build on financial education to help people to make better financial choices throughout their lives.
Hon. Members have asked whether the Bill will promote a savings culture. The Treasury Committee asked for submissions from many potential providers and took evidence from them. The Association of British Insurers viewed the Bill
as offering the possibility of creating a savings culture among the next generation and, in so doing, building a mass market for financial services.The Association of Investment Trust Companies said that it
wholeheartedly supports the creation of the Child Trust Fund",which
offers the prospect of a new 'asset-based' approach to welfare that could be extremely beneficial to many young people who might otherwise start adult life without any assets and consequently suffer from poorer life chances.The Building Societies Association said that it is
a strong supporter of the Child Trust Fund",as is the Association of Friendly Societies. The National Consumer Council also welcomed the Government's proposal, noting:
it is an excellent far-sighted policy, of particular benefit to low-income familiesthat
will eventually extend access to an accumulated asset to all young adultsand
may trigger additional individual private savings by parents.The Minister must be reassured by the fact that those potential providers give the proposal a fair wind.
The point was made in the evidence sessions that a small amount of assets can have a big impact. Research by Mintel has shown that 35 per cent. of parents with children under 15 are not saving anything for their children's future, and that 26 per cent. of parents save only rarely or occasionally—so more than 50 per cent. of parents in this country do not save at all or save only a small amount intermittently. We need to ensure that young people develop a savings culture. Given the problems that the Treasury Committee has considered with pensions, long-term savings, split capital investments and endowment mortgages, good consumer education and a savings culture has emerged as the 1354 important theme if we are to expand financial education. There is no better opportunity than the Bill to ensure that young people have that education.
§ Mr. Robathan
We all agree about the savings culture, but what does the Bill do to encourage the more than 50 per cent. of parents who do not save substantial amounts for their children to do that? Nothing in the Bill will achieve that
§ Mr. McFall
I have a quote on that subject, which I shall come to later.
The Financial Secretary told the Treasury Committee:if you look at figures on savings of young people under the age of 25 which is the best proxy we have for 18-year-olds, the British Household Panel survey suggests that the average young person has zero financial assets. Now that is across income groups.Only when we get to the 75th centile—the person three quarters of the way up the income distribution—are their financial assets a mere £400. The policy could make quite a difference to income distribution and a significant difference to the vast majority of young people's lives.
Research based on the national child development survey 2001 suggested that holding assets has a positive impact on health, the labour market and educational attainment. The amount of assets needed to achieve those outcomes was low, in the region of £300 to £600. The experience of individual development accounts in the United States, where about 20,000 people have the opportunity to benefit from matching schemes, is that assets accumulate over a certain period. The evidence is that incentives are beneficial in encouraging even poor people to put money away. That research makes it clear that even a small amount can induce a savings culture.
The middle-class subsidy has been mentioned. What amazes me is that such criticism largely comes from the official Opposition, who on this subject argue against the middle class.
§ Mr. George Osborne
Perhaps I did not make myself clear. If the objective is to reduce wealth inequality in our society, which is what the Minister claims, I cannot understand how the policy will achieve that. I am not against the policy or against the middle class, or any other class, receiving savings tax breaks, but the child trust fund will not achieve what the Minister sets out to achieve.
§ Mr. McFall
So I can take it from the hon. Gentleman that he is in favour of middle-class people getting child trust funds, and he is also in favour of low-income families getting them. What is the problem? There is no problem. He agrees that everybody should enjoy the provisions of the Bill. If there is evidence to show that even small sums generate and inculcate a savings habit, that can only augur well for the future.
We took evidence in our inquiry from Caroline Rookes, the business director of the pension and share schemes at the Treasury. She referred to the research that was being undertaken at the savings gateway. It was only at an early stage, but it was found that two thirds of those involved claimed that they would continue saving. Those are people on low incomes. Surely everyone on 1355 both sides of the Chamber should encourage those on low incomes to participate in such schemes to ensure that they develop a savings habit. That can only be good.
§ Mr. Hilton Dawson (Lancaster and Wyre) (Lab)
In welcoming the Bill, which I think my hon. Friend has deduced is supported by right hon. and hon. Members on both sides of the House, does he agree that the most disadvantaged group of children and young people in the United Kingdom are those in local authority care? While the White Paper makes some positive references and expresses good intentions towards those children and young people, we need to see something that is more positive in the Bill about the Government's intention to include this group in the overall group of people who benefit from child trust funds.
§ Mr. McFall
I agree entirely with my hon. Friend, but not everyone in the House agrees with child trust funds. It is a centrepiece of the Liberal Democrat programme that they do not agree with them. There was not room, given the 2,556 commitments that the Liberal Democrats made, to include child trust funds. Given their flexibility in response to Queen's Speeches, perhaps they will include something about the trusts next year. Then, we will welcome everyone on board.
§ Dr. Tonge
I shall ignore that rather idiotic approach to debate.
The hon. Gentleman was talking earlier about child development and the evidence that he is producing that the idea set out in the Bill is a good one. Does he agree that in terms of child development, whether children are lower class, middle class, upper class, or whatever, all the evidence shows that early intervention in a child's life in the form of child care and good nursery education is what matters? It outweighs any other consideration. Therefore, should we not he spending the money that the Government intend to expend on baby bonds on expanding much more rapidly the early years centres and children's centres?
§ Mr. McFall
I do not follow the hon. Lady's logic. She talks about early intervention, and this is the earliest intervention that we can make. The Government are saying that they are expanding provision for health and education. I would not like—
§ Mr. McFall
I shall examine the hon. Lady's logic.
I would not like to recommend a child trust fund if the Government were cutting expenditure on health and education, and intervention in those areas. That is the key. I have personal professional experience as a teacher. I taught in areas that were very much middle class, and in other areas that have been described as ones of urban development. I know from that experience that if we inculcate a habit in children in poorer areas, it lives on. I taught in the south side of Glasgow, an area which is extremely poor. A gifted music teacher ensured that an orchestra was developed at the school. It was a joy to 1356 travel to the school each day and see the kids going to the school with their drums, guitars or whatever. Why did they do that? The answer is that it was inculcated in them at an early stage. I am at one with that philosophy.
The Children's Mutual is one of the possible providers. The result of its survey in 2003 was that 79 per cent. of parents with children eligible for child trust funds are likely to top-up Government moneys. It says that if there is a small amount they will top it up and they will save. I suggest that 79 per cent. is a good start.
§ Mr. Weir
I am interested in what the hon. Gentleman is saying, but how realistic is that prospect? The research in the Treasury White Paper that he cited also reports that a large number of parents, when asked why they do not save for their children's future, simply said that they could not afford to do so. That will not change. The fund relies on a top-up to be effective, so I wonder how many families on low incomes or benefits will be able to give any amount of money to bring the fund up to a realistic level.
§ Mr. McFall
When the Government introduced their proposals, the Financial Secretary said that it was an ambitious programme. The hon. Member for Tatton said that it had not been tried elsewhere. I agree that it is an ambitious programme, and it is difficult to ask parents to save. However, the Children's Mutual, a possible provider, says that 79 per cent. of parents surveyed said that they would top up the fund, which suggests that there is an opportunity to make a good start. It is extremely important to introduce a savings culture.
The Financial Secretary answered a number of questions on financial education when she appeared before the Select Committee. Caroline Rookes of the Treasury said:We are going to work with and have started talking to voluntary and community organisations. We are going to be looking at resources in schools. There is a whole effort going into creating a financial education initiative to run alongside the account so that, at the end, it is probably true that children from poorer families will have less money but we hope that they will be provided with financial education and a better understanding of how to interact with financial services".A savings culture is therefore being developed, and I commend the Government on ensuring that financial education starts in schools. One theme that has emerged in the Treasury Committee in the past is that there is not enough consumer education in adult life, never mind for young people. It is therefore important to ensure that financial education is available in schools, which is why the Treasury Committee concluded:The child trust fund is an ambitious, pioneering programme which seeks, through a significant long term investment … to provide a financial asset … and to change people's behaviour towards saving.The Treasury Committee therefore gave the recommendation a fair hearing.
I mentioned that I had five points to make, the second of which concerns the extension of the scheme, not with Government endowments, but by making tax breaks available. I should like the Minister to look at that again, because in our evidence sessions I put it to Treasury officials that it would be invidious for a parent to establish a child trust fund for one child, but not 1357 another. The Government should keep open the opportunity to open a child trust fund for children born before 1 September 2002. They should not give endowments, but offer the same tax breaks for such funds. The Minister told the Committee that the extra tax relief afforded by the child trust fund is negligible. If that is the case, why cannot the Government consider extending the provisions of the Bill to children born before 1 September 2002? That is a relevant point, and I urge the Financial Secretary to give it consideration.
Thirdly, advice to parents is crucial, particularly for those with no previous financial experience. The Committee strongly endorsed the hierarchy of savings that the Minister elucidated when she appeared before us. In other words, any moneys must be used first, to pay off debt, and secondly, to provide for a rainy day. Only after such provision should they be used to make contributions to the child trust fund. We agree entirely with that hierarchy, but the information and advice for parents must be clear and unambiguous. The Treasury is sending an information pack to all parents, hut that message must be loud and clear.
My fourth point relates to what the hon. Member for Tatton said about the interaction between welfare and the Government's needs. An 18-year-old receiving jobseeker's allowance or income support will be in an invidious position if his benefit is disregarded because of the extra income provided by the allowance. The Financial Secretary has come up with one or two surprises already, and I hope that that point may be clarified today, but if that is not possible it must be clarified in Committee.
Pension credit has been mentioned. I am delighted to hear from the Financial Secretary that the disregard has been increased from £3,000 to £6,000, but it was pointed out that there is a barrier somewhere along the line. This scheme has the potential to have profound effects, but if the wrong message is given to those who will be adding to the savings—parents, grandparents and friends—that will do it no good.
The Financial Secretary told the Select CommitteeI do not think it would be appropriate for me outside the ordinary PBR/Budget timetable to make any further comment.She needs to have a word with our right hon. Friend the Chancellor. I should be interested to know the result of that conversation.
The fifth issue that exercised the Committee was the achieving of a balance between the costs that can be charged by the providers and the regulatory regime—in other words, the effect of regulation on the cost. I know the Government are very determined. The Financial Secretary told the Committee thatthere is a high threshold of persuasion for any move from a 1 per cent. charge cap for stakeholder products.I agree.
Like other Members, I have been lobbied on the I per cent. cap over the past year. In my capacity as Chairman of the Committee, I have taken a lot of evidence and spoken to a good many people. Moreover, as I said earlier, we have conducted inquiries about pensions misselling, split capital investment trusts and endowment mortgages. Here we have an industry that has not been doing too well in consumer terms, which is why the Treasury Committee has been considering how 1358 confidence in long-term savings can be restored. I think that the onus is on the industry to work with the 1 per cent. cap, and, if it cannot do so, to be entirely transparent about the reason. I have heard generalities so far, and it would take much more specific information to convince me that we should abandon the cap immediately—although I realise that some companies could experience problems.
The Association of British Insurers saw the possibility of the creation of a savings culture among the next generation, and hence the building of a mass market for financial services. That mass market is important in the context of the 1 per cent. cap. If the Government get it right and produce a Sandler-type product—a simple product—it will not require a huge amount of selling. Each year more than 700,000 vouchers worth £230 million will be made available to parents so that they can choose a child trust fund. This is a tremendous opening for the financial services industry.
As we stated in our evidence, given the low cost of demand generation and the certainty of high persistency rates, a cost-based price cap might be set at a lower level than for other stakeholder products. The Homeowners Friendly Society told us that it would be happy to meet the 1 per cent. price challenge, although it accepted that it could be difficult or impossible for some other providers. Some in the market are therefore already happy to accept that challenge.
I want to consider fortnightly reporting. The British Bankers Association noted that the fortnightly reporting requirements wouldplace additional burdens and require changes to internal systems capable of accommodating both fortnightly and current quarterly returns for ISAs.Fortnightly reporting appears a wee bit over the top. Perhaps the Financial Secretary could explain why the Treasury persists with it. If we want simpler products and to ensure that the price cap is sufficiently low, perhaps such regular reporting adds to administration. I hope that my hon. Friend will deal with that in her summing up.
The Treasury Committee considered the subject constructively. We applaud the Government for their ambitious initiative. We realise that by the time the young people who were born on 1 September 2002 are 18, the Government will have spent £4 billion on them. That is a great deal of public money, which has to be spent wisely and well. I am sure that the Government will do that, but they must provide the details of their scheme as the Bill progresses. Even more important, they must ensure that the implementation is right. With those cautionary words, I welcome the measure.
§ Mr. David Laws (Yeovil) (LD)
I hate to break up the emerging cross-party consensus on the Bill. However, Liberal Democrat Members believe that it is yet another of the Chancellor's well meaning but flawed initiatives. It represents more of the serial micro-meddling that he has introduced since 1997 and is not good value for money for scarce public funds. We shall therefore vote against the proposals.
1359 I agree with the comments of a right hon. Member after this year's Budget statement:We have more overcomplicated proposals that will do little to help future long-term saving, but they will extend means-testing to even more people. There is only one thing to say about this little scheme of the Chancellor's … all the money that the Chancellor is offering to those children will have to go towards paying their tuition fees".—[Official Report, 9 April 2003; Vol. 403, c. 291.]Those were the words of the then Leader of the Opposition. Conservative Front-Bench Members appear to have changed their position somewhat. Their former leader described the proposals as overcomplicated and said that they would achieve little, but the hon. Member for Tatton (Mr. Osborne) said today that the Bill was welcome and long overdue. I refer him to the former Conservative Chancellor, Lord Lawson, who represented Blaby. He had a good principle for his tax policy: simplicity. It has never been high on the current Chancellor's list of priorities.
The child trust fund is an ill-considered and under-evaluated initiative in the tradition of the film industry tax relief, which was established several years ago as a modest measure but now costs hundreds of millions of pounds. It is in the tradition of the many loopholes that the Chancellor has introduced in every Budget and pre-Budget report. All those tax loopholes seem to have only one thing in common—they cost a great deal of money and nobody, certainly not the Treasury, has the slightest idea of what they do, in practice, that is of value to the economy.
§ Mr. Cameron
Conservative Members are enjoying a lecture on consistency from the Liberal Democrats—that is always worth while. Has the hon. Gentleman analysed the incentive to save in relation to introducing a local income tax? Does he think that that would have an impact on savings?
§ Mr. Laws
No, I do not. I will not be detained by the hon. Gentleman, who is trying—most improperly, Mr. Deputy Speaker, as I am sure you agree—to encourage us to make a detour.
Several hon. Members referred to the Treasury Committee's report on the child trust fund. When the hon. Member for Dumbarton (Mr. McFall) talked about what was said by people who were consulted on that report, he cited favourable comments from certain bodies that appeared to be financial institutions. As someone who has worked in a financial institution, I suggest that we must not regard advice from that quarter as necessarily wholly impartial, because those institutions have an interest in seeing this product, like other financial market products, take off.
In order to persuade the House that our objections to the Bill are not simply party political, I refer hon. Members to one of the more independent memorandums submitted to the Treasury Committee—the memorandum from the Institute for Fiscal Studies.
§ Mr. George Osborne
The hon. Gentleman tried to pick me up on what other Conservatives have said. I am right, am I not, that there is a Liberal Democrat member of the Treasury Committee, who, I am told privately, might serve on the Standing Committee with us? That 1360 would be interesting, given that that Committee supports the principle of the child trust fund. I wonder how he will vote tonight.
§ Mr. Laws
The hon. Gentleman should not read too much into the Treasury Committee's report, given that one of its members, the hon. Member for Wallasey (Angela Eagle), said during its hearings:It appears … I am the only one that is enormously enthusiastic about thisproposal. Instead, I refer the hon. Gentleman—I am sure that as an assiduous reader he has already looked at it—to the memorandum submitted by the Institute for Fiscal Studies. That body is almost certainly the most independent and authoritative voice in relation to much of the UK's tax and economic and social policy, and cannot be considered to be speaking from any particular self-interest, yet it concluded in its memorandum that the child trust fund policy has not been satisfactorily justified. It went on to say:
It is far from clear that many families would be well advised to contribute additional funds to their Child Trust Fund account.It continued:
It is difficult to find a convincing explanation for why the Government has chosen to support young people using this policy.I should like to cover three issues. First, this is, as my hon. Friend the Member for Richmond Park (Dr. Tonge) said, a question of priorities. At this particular time, does this measure represent the best use of what is, as the hon. Member for Dumbarton acknowledged, a very large amount of public money? Secondly, does the substance of the proposals add up, and are they likely in practice to achieve the objectives that, according to the Bill, the Government desire? That is the specific matter that was commented on by the Institute for Fiscal Studies. Thirdly, I want to look briefly at some of the Bill's details. Although we oppose it in principle, we will do our best in Committee to take part in debates constructively and to suggest amendments that may move the Government's proposals in a more sensible direction.
We should start by considering how much the Government plan to spend on the proposals and whether that expenditure is justified. The context of today's debate was established last week by the Chancellor's pre-Budget report, in which he unveiled a public borrowing figure of £37 billion for the current fiscal year—a figure that is significantly above the 3 per cent. that the Government previously regarded as a commitment on public borrowing. In addition to that very high figure, the Chancellor unveiled future forecasts for public borrowing that indicate that he will need to borrow some £150 billion over the five years from 2003 to 2008. Against that background, it cannot be anything but obvious to every hon. Member that next year we are in for an extremely tight and difficult public sector spending review when the Chancellor sets the spending figures for the three years starting in 2005–06. It is therefore incumbent on us all to consider not only whether there may be some merit in each individual scheme brought forward by the Government, but whether the merit of a particular scheme is greater than the alternative uses to which the money could be put.
The Financial Secretary will perhaps confirm that the cost of the scheme over the next 10 years is likely to be some £3 billion, which consists of the £235 million up- 1361 front costs of issuing the vouchers to each child who qualifies; the introduction in 2009 of a top-up—the cost of which is yet to be quantified, but is likely to be at least £100 million—to children who have reached the age of seven; further administrative costs that the Government have yet to detail, but which will have to be incurred each year; and set-up costs in relation to information and communications technology. The explanatory notes to the Bill tell us that implementing the child trust fund will involve significant new one-off setting-up costs, mainly because of the need for IT support. I should be grateful if the Financial Secretary clarified the order of magnitude of those costs and whether they are still in line with the figure that was given to the Treasury Committee—that is, some £90 million a year.
At least two other costs will fall on the taxpayer: first, the tax relief on savings that will be triggered as a consequence of the measure—the Financial Secretary's evidence to the Committee suggests that she considers that that cost will be very small—and, secondly, the significant advertising campaign that will, as ever, be undertaken by the Government. Will the Financial Secretary give some idea of how much that will cost?
All those costs and all the money that flows from them will not make an iota of difference to child poverty. The Prime Minister said when he appeared at the launch of the child trust fund policy in April 2001:We are committed to extending opportunity to all. All our children—especially the most disadvantaged—should have the chance for a proper start in life".However, the investment that is going into the child trust fund will not make any difference to children's opportunities. It will not affect children at school or by directing additional money to their parents. It will be a barren investment that is locked away until they reach the age of 18.
§ Mr. Andrew Love (Edmonton) (Lab/Co-op)
The hon. Gentleman will be aware that, in his pre-Budget statement, the Chancellor announced other measures that will have a direct and immediate effect on child poverty. Is it not sensible that he should plan for the future, so that we can deal with child poverty in several different ways?
§ Mr. Laws
I am grateful to the hon. Gentleman for his sensible intervention—he makes a fair point. In some respects, the Government are seeking to push ahead with reforms that we very much welcome: for example, the children's centres that were announced—or perhaps re-announced—in the pre-Budget report. However, the point at issue for Liberal Democrat Members, and the reason why we do not believe that the expenditure on the child trust fund is justified in comparison with potential alternatives, is the slowness of the roll-out of some of the other measures that the Chancellor and the Government are promoting—specifically, children's centres. One of the best things that the Government have done over the past few years is to establish the Sure Start scheme, because intervention in the very earliest years is the only way in which we will really be able to challenge the enormous inequalities of opportunity in society.
My criticism of the Government is that, although they rightly start by targeting the areas of greatest deprivation, all too often, they make the mistake of 1362 thinking that the type of deprivation that they are seeking to tackle through the children's centres and the Sure Start schemes is restricted to the most deprived wards in the country. I represent a constituency whose deprivation levels would be considered average. None of its wards appears among the 20 per cent. most deprived in the country. However, there is a crying need in the most deprived wards in towns such as Yeovil and Chard for initiatives such as children's centres and Sure Start schemes, which are being rolled out in some parts of the country but not in others.
§ Dr. Tonge
I am glad that my hon. Friend is addressing this issue, and that he has congratulated the Government on what they have done on Sure Start, on nurseries and on early years education. That work is admirable and it is to be supported. He is right, however, in what he says about the children's centres. By 2006, they are expected to be serving about 650,000 children, which represents only 20 per cent. of the children in the most deprived wards. Would it not be much better to spend the money that the Government expect to spend on baby bonds on expanding those children's centres much more quickly, thus benefiting children here and now, rather than in 18 years' time?
§ Mr. Laws
My hon. Friend is right. I seem to recall that the Minister's own Parliamentary Private Secretary made a similar point in an article in the Financial Times only a few months ago, implicitly criticising the Government for their slowness in rolling out children's centres and Sure Start schemes to all the population. I was in a primary school in Yeovil on Friday, and the crying need for early years intervention was only too apparent. We need to tackle problems that arise when young people start at infant and primary schools without adequate educational support and other problems in society in terms of child poverty and poor parenting.
It was notable in that school that, in a cohort of sevenyear-olds, about 60 per cent. came from single parent families or from families in which one of the two adults was not the original parent. That shows the extent of the problems of inequality that need to be challenged in society today. I give great credit to the Government for taking on the challenge of addressing inequality, but it is far more important to finish that job before rolling out a large amount of expenditure into a project whose social and economic returns are extremely dubious, as I shall go on to demonstrate.
§ Mr. Dawson
The hon. Gentleman is dramatically understating the significance of the Government's approach to children's centres, and he would benefit from looking again at the Green Paper on children. Crucially, he is missing the fact that young adults, including those from socially deprived backgrounds, have enormous energy, vitality and purpose, which would be greatly assisted if they had their own assets behind them. Is this not an exciting opportunity that entirely complements the rest of the Government's programme?
§ Mr. Laws
I agree with the hon. Gentleman's first point, but not with his second. The issue that we are trying to address is that there is a widespread need for 1363 children's centres and Sure Start schemes throughout the country, and that they are probably the single most important thing that the Government are doing to challenge inequality of opportunity and to give children a real chance in life. That is far more important than giving money to people when they are born and locking it away in an account, creating a barren investment that can do nothing to tackle the sources of inequality.
§ Mr. McFallrose—
§ Mr. McFall
I am grateful to the hon. Gentleman for giving way. I would like to examine the Liberal Democrats' policy on this issue. Is he against the principle of the child trust fund, or against the fact that the Government are spending money on it now, when he thinks that they should spend it where it can have an immediate effect, such as in children's centres?
§ Mr. Laws
We believe that the overwhelming priority should be children's centres and Sure Start programmes, not child trust funds. I want to go on to explain our serious concerns about the detail of the child trust fund proposals. We share the view of the Institute for Fiscal Studies, which does not believe that the evidence behind the proposals so far supports the amount of money that the Government are going to put into the scheme. We do not believe that the amount of money going in will create an adequate return.
I want to consider briefly the four points that the Government have made in justifying the rolling out of the child trust fund. They state that the fund shouldensure that in future all children have a financial asset at the start of adult life".However, it is not clear from the background documents why it is so important to give people a financial asset at the age of 18—as the hon. Member for Tatton pointed out, the Government are about to persuade about 50 per cent. of our young people that, at that time, they should not only have a financial asset but take on a very large financial liability. The Government seem to be sending out a muddled message, saying that it is tremendously important for young people to have a significant financial asset while telling them that they should be extremely relaxed about getting into serious amounts of debt that they can pay back from their income in later life. That raises a fundamental question about whether savings at particular points in people's lives or careers make any economic sense, and whether the Government have any business interfering with the decisions that people make about their own priorities.
What will the students do with this financial asset when they get it at the age of 18? It will be obvious to many of them that they should use it to help to fund their university careers and to offset the debts that the Government are happy to encourage them to incur. Some students will no doubt use the money to fund leisure activities—a party, perhaps, on their 18th birthday, or a holiday—which seems to be of dubious value in terms of public policy rationale. The Minister 1364 said that some young people may choose to use the money to establish a small business, but, as the Institute for Fiscal Studies has pointed out, if that is the primary policy aim, we should consider what alternatives are available. Most assuredly, a tiny minority of young people will use the money for that purpose.
I shall fold the next two points together to make sure that I do not eat up too much of other hon. Members' time. They are the first two points that the Government make in justifying their policy. Their objectives areto build on financial education to help people make better financial choices throughout their livesand, linked to that,to help people understand the benefits of saving and investing".The Institute for Fiscal Studies has made the point not only in the initial consultation but in its paper to the Treasury Committee that it is not at all obvious that the best way to educate young people on financial literacy is to set up an account and pay Government money into it—indeed, it is not obvious why the young people who do not operate their account would achieve greater financial literacy.
That takes us back to the point about priorities that my hon. Friends and I have made. It is far more important to ensure that every individual in society has the basic numeracy and literacy skills to manage their own career and to make their way in the world, than to establish accounts such as these and to deliver financial education in a dubious way—it could be delivered far more effectively through the education system.
It is also unclear what kind of signal the Government are trying to send on what they call the benefits of saving and investing. One of the issues that the Select Committee dealt with was the fact that, for many families, particularly those in lower income groups, it will not make any sense to put money in a child trust fund and to lock it up for 18 years. Many of those people end up having to borrow large sums, often for short-term purposes, at extortionate rates of interest. It is not at all obvious why it would be sensible for those people to pick up the savings habit through the child trust fund, rather than through one of the other vehicles for savings.
That brings us to the most serious argument that the Government have advanced in relation to the child trust fund—that it should encourage parents and children to develop the savings habit and engage with financial institutions. The key question, which the Government seem unable to answer, is whether, as a consequence of being encouraged to develop the savings habit, parents and children will save more.
That was a point that several members of the Select Committee explored robustly with the Minister, perhaps wrongly, on the issue of targets, which the Financial Secretary shied away from. Perhaps I can direct her instead towards estimates, as I tried to do in my intervention, and encourage her to let us know whether there is any assessment of the effect that the measures could have on total saving. It is possible that all we will succeed in doing is make the Government save for people, rather than people themselves saving. That will hardly encourage people into the savings habit. 1365 In addition—the point was made effectively by the Institute for Fiscal Studies—it is unclear why many people, particularly those in lower income groups, should save in a child trust fund, when they can enjoy the same tax breaks through an individual savings account, with all the flexibility that that implies.
§ Norman Lamb (North Norfolk) (LD)
Is my hon. Friend aware that the Treasury official's evidence to the Select Committee was that, unless habits change, it is likely that middle income families, rather than low income families, would take advantage of the tax-free savings vehicle? The advice to low income families is, first, to pay off debt and, secondly, if they have money to spare, to save it in such a way that it would be available for a rainy day, and only after that to put money into a vehicle such as the child trust fund. Every indication is that low income families will not use it.
§ Mr. Laws
My hon. Friend is right. He has clearly read the submission from the Institute for Fiscal Studies, in particular paragraph 12, which states that the issue in relation to the child trust fundbecomes even more fraught since it is quite possible that the immediate beneficiaries of the child trust fund will be richer families who can substitute the endowment payment for saving that they would have made for their children, and so increase their current consumption.
§ Mr. Laws
I must make a little progress. I shall give way later.
In her evidence to the Select Committee on 3 December, the Financial Secretary shed some interesting light on the question whether individuals are likely to save more. She said:It is a fact that each child has a tax free allowance each year of, I think, £4,600 that very few people currently take advantage of, and they could in children's savings accounts, so quite why, if they do not take advantage of it at the moment, they would choose to take advantage of it through the Child Trust Fund, I do not know.That makes the point effectively. It suggests that even the Financial Secretary is sceptical about whether many people, especially those in low income groups, who are currently not saving and not taking up opportunities, will do so.
On the specific question whether there should be additional Government contributions while the child is aged between 0 and 18, the Financial Secretary went on to comment thatwhen you ask parents, the largest group of parents who come back with an answer say that they like the idea of there being additional top-ups rather than there being a one-off lump sum at the beginning, and that the account may not be reactivated, as it were, by the Government for 18 years.In other words, many of the people making representations on the matter to the Government fear that, if the Government do not reactivate the account by paying money into it, nobody else will.
The general conclusion that we will end up with little additional saving is underpinned by the Financial Secretary's estimate to the Select Committee that the extra tax relief on the child trust fund would have a 1366 negligible cost. The IFS pointed out, as my hon. Friend the Member for North Norfolk (Norman Lamb) made clear, thatFamilies looking for tax efficient savings vehicles would be well advised to exhaust their ISA contribution limits before using Child Trust Fund Contributions … ISA funds can be accessed at a time of unforeseen need.There is serious concern that the Government's proposal, however well intentioned, will advantage some higher income groups, not the groups that many Labour Members have in mind. Those upper income groups will be the only people who gain anything in terms of tax advantage from the child trust fund. Nobody else in society—none of the low income groups—will get a bean from the Government in terms of tax advantage to encourage them to save. The Government are relying not only on the savings that people will make in the child trust fund, but on the fact that, once people open such an account, they will be inclined to save—even though they will have no more financial incentive to do so than they had before.
§ Mr. Love
The House will understand the importance of inculcating the savings habit and the need to make up the £27 billion lacking in savings for our retirement, as well as the importance of financial education. All the studies show that that would do most to inculcate the savings habit. If the hon. Gentleman does not accept the Government's proposal as a way forward, does not he consider the matter important enough to propose some alternative?
§ Mr. Laws
I shall deal in a moment with the Government's role in encouraging saving. I hope that the hon. Gentleman will have picked up from my comments that encouraging savings is not always a good thing for low income groups, who could end up having to borrow at high interest rates and save at low interest rates. For all those reasons, we share the scepticism of the Institute for Fiscal Studies about whether a great deal of Government expenditure in this area will result in a tangible return, when an expenditure of £3 billion in other areas could result in a real return. That may be why the IFS stated, in relation to the Government's consultation:Prior to considering design issues, it would have been useful to have had a stage of the consultation process that invited comments on whether the new policy direction that is asset-based welfare is a good one to take.The Government have many questions to answer with regard to these proposals. They must decide to what extent they should be nannying citizens in relation to savings. On the subject of how the money should be spent at the end of the period of 18 years, the Chairman of the Treasury Sub-Committee asked the Financial Secretary whether children should be free at the age of 18 to spend the proceeds of the fund in any way they wished. The hon. Lady answered robustly:I think the question for the Government is who is best placed to make those choices. Is it really up to us to decide what is in the best interests of a young adult at the age of 18? … Far be it … from me to tell a young person that they should not use this asset to buy, for example, a computer … or perhaps to invest in a van".In that respect, the Financial Secretary is making herself the enemy of the nanny state, but I ask her to consider other aspects of the child trust fund, such as the 1367 limitation on the way in which the money can be used. Perhaps it could be far better used by parents making decisions for their own families, rather than the money being locked up by the Government. Is that nanny state attitude justified? I ask the hon. Lady to consider whether it makes sense to encourage some families to have very small financial assets to invest in equities—assets that are essentially risky. I understand the arguments for that, but that is not the behaviour that lower income groups would normally demonstrate with their own money. I ask her to consider also whether it makes sense that some parents aged 17 in England, Wales and Northern Ireland will not be able to take many decisions themselves—they will be able to do so in Scotland—because the Government will insist on managing their fund and that of their child.
Those are some of the fundamental objections to the scheme. It is clear that a series of amendments will need to be tabled in Committee, not least on whether there should be an allowance for draw-down either before 16 or, at least, for 16-year-olds who are going into the labour market. There seems no obvious reason why they should have to wait two more years before getting their hands on a financial asset that might help them in their job.
Another issue is whether the Government's insistence on the managed accounts being invested in equities, at least in part, makes sense. Some hon. Members have alluded to the interaction between the child trust fund and the benefits system, not only in relation to jobseeker's allowance but in relation to the issue, raised by the Select Committee, of the deprivation of capital for family members, a question that was not fully answered by the Financial Secretary at the time.
There are many reasons to object to the Bill and there are many better uses for the money that the Government will spend. There is inadequate justification that this expenditure of money will lead to the results that the Government claim it will. Even at this late stage, I hope that the Government will think again about using the money for a purpose that is so unclear.
§ Mr. Michael Jabez Foster (Hastings and Rye)
It is unusual for the Liberal Democrats to be against some kind of public spending; their usual position is to demand a doubling of the contribution. More important than that is the mean-spiritedness shown by the hon. Member for Yeovil (Mr. Laws)—who represents a town that is not one of the poorest in Britain—to my constituents in Hastings and Rye, the 27th poorest town in Britain. We have the highest levels of child poverty in the country, although we have benefited from children's centres and other measures introduced by the Government. I find it difficult to understand the idea that it is not beneficial for an individual to be a stakeholder from the very beginning. I suspect that the 1368 length of the hon. Gentleman's speech was indicative of the difficulty of his task of opposing something that is so obviously sensible and right for people on low incomes.
§ Mr. Foster
That is an unreal choice, because the Government are investing in children's services at a level way beyond anything for which the Liberal Democrats have ever asked. It is not a real choice to say that a children's centre—important as it is—should be "instead" of this once-in-a-lifetime opportunity for young people from modest backgrounds or poverty to receive something that is theirs and to which they can look forward for the future.
Middle-class families will provide for their children anyway, and I do not begrudge them the opportunity of doing so in a tax-efficient way. That is the proper thing to do, but the scheme will give poorer children an opportunity that the Liberal Democrats would deny them.
§ Bob Spink
Although I can, on balance, support the measure, it will increase the gap between rich and poor. The poorest people will end up with around £911 at the age of 18, whereas those from families with disposable incomes who can invest £100 a month will end up with a fund of between £35,000 and £40,000 at 18, thereby increasing relative poverty.
§ Mr. Foster
The hon. Gentleman is wrong, for this reason. The poorest will receive a higher contribution from the Government, which will push them above where they would have been otherwise. The middle classes will always look after their own and would make those contributions in any event. We are giving the poorest groups an opportunity to have something, whereas the better off will always act to achieve their own objectives. The gap will not grow and the scheme will enable everyone to save more towards whatever is needed at 18. This innovative scheme, making everyone a stakeholder, is to be welcomed.
I have three other points to make. First, I encourage my hon. Friend the Financial Secretary to hold firm to the 1 per cent. cost. The scheme is very cheap to operate. It is cheaper than the average stakeholder pension scheme as there is no possibility of withdrawal for at least 18 years; it is only a matter of collecting contributions. If the Portcullis pension scheme can offer 0.4 per cent.—I agree that it has a captive audience—it ought to be entirely possible for providers to offer 1 per cent. or thereabouts.
Secondly, although the scheme will be good in itself—its purpose must be to encourage parents to contribute in a tax-efficient way to their offspring—children themselves must be encouraged to save, which has not happened for a long time. I remember that, in the dark ages of the 1950s—under a Conservative Government—I was encouraged to contribute sixpence for a Princess Anne stamp and 2/6, or half a crown, for a Prince Charles stamp. That Conservative Government gave me no interest on the investment, so I was contributing to 1369 the repayment of the national debt without any help at all. None the less, that was an aid to saving, and I paid my sixpence each week, saving up a total of £18 by the age of 12.
Such a measure is required now, giving young people collectively an encouragement to save. The scheme itself will do that, because every child, in due course, will have a savings fund. I do not know if they will check in the pink pages to see how their shares are doing, but they will know that they have an asset for the future. If we could encourage youngsters to put cash aside in some form of savings scheme, it would be helpful.
§ Mr. Ian Liddell-Grainger (Bridgwater) (Con)
Does the hon. Gentleman agree that the ethos of saving has changed totally? When we were younger, saving was part of our pride in this country. Does he think that we might have to re-educate an entire generation of youngsters to save for the future, as they have not been encouraged to do so?
§ Mr. Foster
I entirely agree that the "me now" society, which developed some time ago and which we hope to dissuade people from continuing, changed the saving habit among ordinary people, who thought that they could borrow all the time to get what they wanted. There is a difficult cultural issue. I do not want to be over-political, but today's parents are Thatcher's children, which may be part of the problem. I agree that the objective is to try to get people into a different culture and to understand that there has to be a payment day. The scheme is a move in that direction.
Thirdly, I want to impress upon my hon. Friend the Financial Secretary the fears of my hon. Friend the Member for Dumbarton (Mr. McFall) and his Committee about the extension of the scheme to other children. I do not want to plead a special case for my four grandchildren, but they are aged five and below and none of them will qualify. The Financial Secretary said in her opening remarks that the scheme is for all children, but it is not for all children if 80 or 90 per cent. will not be included. The cost of extending the scheme to pay the cash would be unaffordable, but that is not my plea. I hope that, in Committee, she can deal with the problem of allowing certain young people, but not others, to enjoy tax benefits.
Extending the scheme to all would be a popular choice and an important one, for three reasons. First, it would be important for equity, as it is unfair that some young people should be treated differently from others. Secondly, it would be important for simplicity. Despite what the Financial Secretary said earlier, the existing schemes—I wonder whether she has investigated them—are rather complex. Thirdly, and perhaps most importantly, they are jolly expensive, often taking some 4 to 5 per cent. of children's funds. So it would be much more sensible to have one scheme—the child trust fund—that is clearly worked out, and to allow all children to benefit from it.
Given the excellence of these proposals, I very much hope that, in Committee, the Financial Secretary will feel able to extend them to all children.
§ Mr. Andrew Robathan (Blaby) (Con)
The hon. Member for Hastings and Rye (Mr. Foster) spoke about the Bill with great enthusiasm. I have to say that I share neither his enthusiasm nor his view that, although the middle classes will look after their own, we will have to look after "these poor people". I found that somewhat condescending, to put it mildly. I am afraid that his enthusiasm will not save him at the next general election, but never mind—I am sure that we will miss him.
I was rather more in agreement with the hon. Member for Yeovil (Mr. Laws). I hasten to add that I did not agree with everything that he said, and nor did he need to take 35 minutes to say it; nevertheless, many of the issues that he discussed needed to be raised. In a debate such as this, it is difficult to come out and say that one does not want to give a boost to the 1.6 million beautiful, bouncing, bonny babies; however, this scheme looks to me like a gimmick. The Financial Secretary spoke winningly—indeed, I almost wanted to believe that she was right—but notwithstanding her comments, at the end of her speech she seemed not to believe herself what she was saying. That was rather worrying.
The scheme will cost £4 billion over 18 years, but is it really a good way to spend our money? After all, this is a Government who are very capable of spending money rather than very good at spending it. They have raised taxes 60 times, and through the abolition of advance corporation tax they have raised £30 billion to £35 billion from people's pension fund savings. Now they want to take away money by taxing parents such as me, and to give a gift to new babies. I do not see the logic of that. How does that encourage prudence, saving and self-reliance?
This gimmick was first announced in 2000, before the last general election. In fact, the figure of £1,000 was then gaily bandied about, but now we learn that it will be only £250. Perhaps that is one reason why the Home Secretary is disappointed with the scheme. I question the principle of a gift that is unrelated to the actions of the individual. After all, it is not intended to help those in dire straits; it has no relation to what they—or, if they are babies, their parents—do. The Financial Secretary said that the scheme will kick-start a savings habit, but why should it? Why should giving back to taxpayers' children part of their own parents' money lead to—as she described it—a change in attitude to saving? Nothing in her speech led me to believe that it will.
My hon. Friend the Member for Tatton (Mr. Osborne) made a fine first speech in his new role. He rightly pointed out that members of the middle class—of course, most of us in this place are members of the middle class—such as himself, the Financial Secretary, the hon. Member for Yeovil and I all received a private, Oxbridge education. We understand about saving. I already have savings accounts for my two small children, who are aged seven and four, and I suspect that the Financial Secretary has such accounts for hers.
§ Mr. Robathan
Perhaps she is introducing this Bill, at the enormous cost of £4 billion, just in order to have them. But we know that most middle-class parents save for their children, which is very sensible. Furthermore, 1371 people in my position will certainly take up this savings account, because it is a good deal for us. Of course, from a personal point of view I applaud the Government's assisting me and my children, but is this the best way to spend Government money?
The hon. Member for Dumbarton (Mr. McFall) spoke of the 50 per cent. or more of parents who save nothing, or next to nothing, for their children, but nothing in the Bill will encourage them to save more. They probably do not have the money, as the hon. Member for Angus (Mr. Weir) pointed out; if so, how will they save for their children? As has been pointed out, the money will be locked up in an account to which they will have no access.
Returning to my point about the middle classes, this is a very patronising measure. It takes the view that poor people must save, and that the nanny state will make it easier for them. Yes, of course we want it to be easy for them, but we should encourage all members of society to save. We should not patronise them; we should give them opportunities, not handouts.
What will happen at the age of 18, long after the current Blair Government are just a distant, unhappy memory, lamented by none? The Financial Secretary was 18 more recently than I was, but I should point out that I know quite a few 18-year-olds. Many are leaving school and going on to university—of course, the Government want 50 per cent. of young people to go to university—and some are going on to work. What will these 18-year-olds do? The Financial Secretary will perhaps correct me if I am wrong, but according to some, if only the initial £250 has been invested, they will have some £400; at a growth rate of 5 per cent., they would have some £602. She said that at the age of 18, the children themselves should decide what to do with the money. They obviously will not be able to pay a year's tuition fees. With top-up fees, the figure might be anywhere between £2,000 to £10,000 a year. With a mere £400, £600 or £900 in their account, they will not be able to repay the student debt, which may be £10,000 or even £20,000.
The Financial Secretary suggested, rather sweetly, that one could use the money to buy a van and set up a business. As it happens, I have a business, which is included in the Register of Members' Interests. I am a farmer, and last year I bought a Land Rover, which cost me a grand. Since then, I have spent about £2,000 repairing it, so it was not necessarily a good buy, but my point is that although £400, £600 or £1,000 will perhaps help, it is not much when it comes to starting a business. It is a nice idea, and perhaps some people will be able to use it for that purpose; but not many will be able to do so.
Most of the 18-year-olds whom I know like to go to Ibiza. I do not know why—I have never been—but something goes on in the bars and on the beaches that 18-year-olds seem to like. Even those who are not rich want to go on holiday. According to today's copy of the Evening Standard, the last few seats are available for 1372 flights to Madeira. A Christmas holiday there costs £499; my own taste, however, runs more to Auckland for £539 return. But this is what 18-year-olds—
§ Madam Deputy Speaker (Sylvia Heal)
Order. I wonder whether the hon. Gentleman might return a little more to the subject of debate.
§ Mr. Robathan
Of course, Madam Deputy Speaker. I am trying to establish what young people of 18 want to do with their money, and I do not blame them for wanting to do such things. When I was 18, I wanted to travel, and I suspect that the same is true of the Financial Secretary and others. It is travelling to exotic parts with other young people that makes being young fun. We see that in the culture of gap-year students and of backpackers, and I do not blame them.
§ Mr. Michael Jabez Foster
Would it not be a good idea to give young people a choice? At the moment, if they have no cash they have no choice.
§ Mr. Robathan
We are all in favour of choice, but is the hon. Gentleman suggesting that young people should be able to say, "Can you give me some money, as I want to go on holiday?" If so, I doubt whether the Minister would back it. In a funny sort of way, however, that is effectively what the Bill proposes.
I applaud the intention of giving small amounts, but I do not believe that it will work to encourage savings. I suggest that matching funds are what really encourage savings. If a young person—or their parents—puts aside £100 and the Government match it with a further £100, that is truly rewarding actions and encouraging people to take a prudent look at life. We could encourage savings by not taxing pensions in the way that the Government have taxed them. What message does that send to people who have put some money aside?
We could also encourage savings by not having so many means-tested benefits. I am sure that I am not the only Member of Parliament whose constituents include pensioners who complain at surgeries that their savings count against them. They might say that they have a small pension or have saved £5,000—soon the threshold is to be £6,001—so they cannot get the minimum income guarantee or the benefits that they would otherwise receive. Many people rightly complain about that. The Government have discouraged people from making small savings.
What message does the Bill send out about savings? I suggest that it will turn people against the savings culture. The Government have discouraged savings and I understand that the savings ratio has halved under the Government and is now only 4.5 per cent. compared with 9 per cent. in 1997—[Interruption.] I am advised that it was 10 per cent.
The Bill will not address the problem of low savings, which is why it amounts to just a gimmick or stunt —albeit perhaps a not very expensive one. My hon. Friend the Member for Tatton suggested that it could have something to do with the fact that the vouchers will arrive shortly before the next general election. It seems to me to be an expensive way of giving back to some taxpayers a little of what the Government took from them in the first place.
§ Mr. David Cameron (Witney) (Con)
I am grateful for the opportunity to contribute to the debate and pleased to follow my hon. Friend the Member for Blaby (Mr. Robathan). I thought that he was perhaps a little tough on the Government. He is in favour of saving and I am in favour of encouraging it. He is probably looking more towards the lifetime savings product. Perhaps that could be done better than through the Bill, but if the Government come up with a simple and neat way of encouraging saving for young people, we should support it tonight.
I draw attention to my entry in the Register of Members' Interests. As my hon. Friend the Member for Tatton (Mr. Osborne) implied, it is important to declare that my wife has a baby on the way in February, so if the vote goes the right way tonight, I shall obviously be a beneficiary. I hope, in passing, that my paternity leave will last a little longer that that of my hon. Friend the Member for Buckingham (Mr. Bercow). He was in his place earlier today, just nine days after the great event, and made one of his very good interventions. We also have a son, Ivan, who was born in April 2002, so sadly he is going to miss the cut—though I shall return to him later.
§ Mr. Cameron
No. September 2002 is, I believe, the cut-off date.
My hon. Friend the Member for Tatton introduced our position clearly. We believe that saving is a good thing and that encouraging saving—if done simply—is a proper aim for the Government, as the Minister set out. Vitally, we believe that encouraging people to build up assets gives them independence, freedom and the ability to make choices for themselves rather than being too reliant on the state. As my hon. Friend said, the privatisations, council house sales and many other policies of the last Conservative Government did spread the ownership of assets, which is to be encouraged.
I do not want to be churlish—indeed, I want to avoid some of the churlishness that we heard from Liberal Back Benchers—but the Government have to examine the backdrop to the Bill. As my hon. Friend the Member for Blaby said, the Government did much to discourage savings. We have had 60 tax increases and advance corporation tax changes that sucked money out of people's pension funds. We have seen an enormous increase in means-testing. If they do not own their own home, a couple now have to save £180,000 to avoid a means test on becoming a pensioner. There are still anti-saving taxes such as inheritance tax, which bites far too early on, and the capital gains tax regime, though reduced and reformed, is hideously complex. That too discourages saving.
Instead of a broader, more sweeping approach, we have a range of small initiatives. I agreed with the hon. Member for Yeovil (Mr. Laws) that, in general, we should be promoting simplification, tax reduction and encouragement of independence. Again, in general, I fear that the Government are moving in the opposite direction. Nevertheless, it would be churlish not to welcome a relatively simple scheme that provides people with an opportunity to build up savings. As the hon. 1374 Member for Dumbarton (Mr. McFall) said, the need is quite clear when 35 per cent. of parents with children under 15 save nothing and a further 26 per cent. save only occasionally.
I have four small suggestions and one bigger one about how to improve the Bill. The first, as I mentioned in an intervention, is about children in care. They do not receive child benefit, but they will get child trust funds. As the Bill stands, however, no one is going to contribute on their behalf. Such children have the toughest start in life, with 18 years in care. The state acts in loco parentis, so it could contribute by using the child benefit that would otherwise be paid. The money could be put into the child trust fund so that when the children came out of care at 18, they would have some money to give them a decent start. If not, these children will be greatly disadvantaged by comparison with others. I hope that the Minister will reflect seriously on that point, which my hon. Friend the Member for Tatton promised to debate further in Committee.
§ Mr. Dawson
I commend the hon. Gentleman for that first-class suggestion. Does he agree that we often denigrate and overlook the potential and abilities of young people on leaving care? In fact, there could be no more important group to encourage into an entrepreneurial future.
§ Mr. Cameron
Absolutely. It is good that we have secured agreement on both sides of the House. The more hon. Members we can encourage to agree, the more pressure we can exert on the Minister to carry out this reform, which would not be too expensive and would give some of the most disadvantaged people in our society a better start in life.
My second point is means-testing. I know that it is a simple idea, but it is worth saying again that means-testing discourages saving. The Minister should have that stencilled on her desk. In my earlier intervention, I pointed out that a family on £13,230 would get the £500 voucher for their child while one on £13, 231 would get only £250. The Minister said that she could see the logic behind my argument that that might discourage saving. The logic is simple: someone who puts money aside and has some income from savings could well be placed beyond the threshold. The Chancellor now goes over more thresholds than Zsa-Zsa Gabor: there are thresholds all over the place. If people save a bit to have a little more money, they could be denied a benefit. That does put people off saving.
Means-testing applies to the child trust fund in two ways. The first is, as I have already mentioned, on the way in, where either £250 or £500 is to be provided. What do we say to families who are just above the threshold? What message does it send to them? There is also a concern, which was expressed to the Treasury Committee by the National Consumer Council, that companies selling these products might use the means-tested additional endowment as a signal and decide that it is better to market to the family with the £250 rather than the £500 vouchers.
§ Mr. Cameron
The Minister shakes her head, but the National Consumer Council, which is a serious 1375 organisation, was concerned about that point, which provides another reason why means-testing is unwelcome.
§ Norman Lamb
Will the hon. Gentleman say what he views as the solution to the means-testing problem that he identifies?
§ Mr. Cameron
We have to deal with the Bill as it is. If it were my Bill and my idea, I would opt for a flat rate. It is simpler to say that all children will receive the same sort of account and start with the same sum of money. As soon as means-testing is introduced, it creates unfairness and sends out a signal that saving is bad.
The second type of means-testing—on the way out rather than in—is perhaps the more serious. The Government's proposals are not wholly clear. When asked in the Treasury Committee about the problem of losing jobseeker's allowance because of the savings in an 18-year-old's account, Mr. Holgate said:We are aware of the implication and we cannot say at the moment what exactly we plan to do about it".I know that, theoretically, they have 17 years in which to make up their minds, and the Minister said that she would keep the point under review, but it would be better to say now what the intention is. If we want to encourage people to save, we have to send clear signals.
I am not entirely certain about my third point; perhaps the Minister will put me right if I am wrong. I understand that subscriptions to the funds can be only monetary, and that equities or gilts can then be bought or the money kept in cash. Donations cannot be made in shares, for example. The Minister could look at that point. In some cases, godparents, parents or relations might want to transfer some shares to a child, and if we want a share-owning democracy, which the Conservatives definitely do, we should encourage the movement of shares into the new funds.
Fourthly, I agree with my hon. Friend the Member for Tatton and the hon. Member for Hastings and Rye (Mr. Foster) that parents of children born before September 2002 should be able to open these accounts. By all means, do not give them the £250 or the £500, but let them open the accounts and save for their children. It will be difficult, as many hon. Members have said, to explain to one child why they have this nice little baby bond building up and to another why they do not. The Minister should be generous about that.
Those are my small suggestions. I have one big one. must, again, admit an interest, in that Ivan, my son, who is 20 months old, was born severely disabled. I have learned a lot from looking after him and coping with having a disabled child. I have learned as much again from parents of other disabled children coming to my surgeries to explain all the difficulties that they have in accessing funding, getting services and getting equipment. The Minister probably knows that in this country we do not support families who have disabled children very well. More children are surviving and living longer. The national health service has made huge advances in helping those children to survive birth, often with complex and difficult disabilities. But social services have not kept up. If the Minister has not read 1376 the Audit Commission report on services for families with disabled children, I recommend it to her. It is a superb piece of work, discussing patchy services and the lottery of provision depending on whom one knows, where one lives and how hard one pushes. It talks about equipment provision, saying how incredibly uneven it is and how often, for example—as I know from my own child—a wheelchair takes so long to arrive that by the time it does, the child has grown out of it.
Having disabled children means massive extra costs. As I said in an Adjournment debate, one problem is that many things are done outside the national health service by social services, and those families who do the most to try to help look after their child at home often receive the least. If a family packs it in all together, the state has to look after the child. If a family struggles to try to cope, there is not a lot of help.
Why do we not do something for those families—I say this selfishly, but I know that it will benefit others—through child trust funds? Disabled children with complex needs are living a lot longer now. Children, like my own child, who have cerebral palsy and epilepsy are living into their teens and twenties, and I hope that my son will. At 18 there is a real question about what to do and who is to look after those adults. Who is going to pay? My big idea is, therefore, to ask why we do not delimit the amount of money that can be put into the baby bond for families with disabled children. Let the contributions go as high as we like. Anyone who knows someone with a disabled child will know that everyone wants to help—families, charities and friends. If we could allow extra money to go in, many families would have an ability to help their child to live a much more independent life in adulthood after the age of 18.
The other change that the Government could make for those families would be to allow some dipping into the fund before the child reached 18. Families with disabled children have to make major purchases—equipment such as prams, chairs, stair lifts and bath hoists. There are huge costs, and some sort of trust fund that could be dipped into—topped up without the £1,200 limit that the Minister mentioned for the general trust funds—could work very well.
I think that there is something in those ideas, and I hope that the Minister will take them away. They go with the grain of both the Government and the Conservative policy of giving people more independence in their lives. They go with the Government approach of saying that with disabled children there should be more freedom about spending benefits, often in a lump sum—the individual payment concept under which the money is given and the person decides what support or equipment to purchase. They would help some of the most vulnerable people in society, people who are disadvantaged through no fault of their own. I do not think that all that would be complicated to do: we know a lot about who looks after disabled children because of disability living allowance, and it could be done in conjunction with that.
I hope that the Government will look at my ideas; I hope that my Front-Bench colleagues will. too. I offer the idea freely to all. The Government have been accused of promoting child trust funds as a gimmick. I think that that is a bit unfair, but if they want to make them more real, my ideas would be worth pursuing.
§ Mr. Michael Weir (Angus) (SNP)
I am probably one of the few speakers in the debate who is not claiming some benefit from it since both my children are far too old and I am, I hope, many years yet from being a grandfather.
The proposal has been a long time coming, since it was first announced back in 2001. The funds themselves will not be available until 2005. In principle, the idea of providing a capital sum for a young person reaching 18 has merit, but I am not convinced by the Prime Minister's argument that it is a way to tackle child poverty. The sad fact is that, despite the Government's claims, very many children in Scotland still grow up in poverty. Since 1999, there has been a 2 per cent. increase in child poverty, and since 1968, the rate of child poverty in Scotland has trebled, with the proportion of children living in poor households rising from one in 10 to one in three. Those figures come from the latest report of the Joseph Rowntree Foundation.
Against that background, I must ask how the measure will help those who grow up in poverty. The plain fact is, as many hon. Members have said, that the proposal will be of great benefit to those who are already well off. The chances are that their parents, rather than those of children who live in poverty, are already making some contributions for their future. The scheme allows families and friends to contribute up to £1,200 a year— £100 a month—to the fund. Few families who exist on low wages or benefits will be able to contribute that or anything like it, particularly if they have more than one child.
The hon. Member for Dumbarton (Mr. McFall) quoted from his Select Committee on the Treasury report the number of parents who are interested in the funds. The report, however, went on to note research on why parents do not currently save for their children's future, which came up with the completely unsurprising observation:The survey shows that one of the main reasons for not putting aside money for their children is that some parents just cannot afford to.The report also noted the views of the Child Poverty Action Group:Despite higher initial payments for children from low income families, the reality is that many families are too poor to contribute. The tax relief provisions will be of greater benefit to the better off, since they are most likely to be able to top up the fund.The hon. Member for Dumbarton and the Minister mentioned that 75 per cent. of parents surveyed were interested in the funds and would seek to contribute to them. I must ask how realistic that figure is. Many families simply do not have the funds. The way in which the funds are being structured will dissuade many families from attempting to contribute, because it seems that they are to be equity-based investments. I do not pretend to be an expert in equity funds—in any funds for that matter—but my experience is that such funds seek fairly substantial regular payments, not small weekly or monthly payments. Excluding many smaller building societies from being able to offer the funds—the Building Societies Association called that a -perverse" decision—will mean that many poorer families are excluded from the chance of taking out a traditional building society account into which small sums can be 1378 regularly paid in. It might not provide the returns that an equity-based investment would—in theory, at least, although many have not in the recent past—but it would give poorer families the opportunity to contribute to the trust funds. Almost every hon. Member who has spoken has noted that, if the funds are to be a success, families will need to contribute to them. Even a small contribution would make a big difference, but that would require allowing the use of traditional investment vehicles through building societies.
It all comes down to child psychology. I have two children, who are not so small any more, but I remember that seeing the money in their piggy banks or building society accounts grow meant something to them. The hon. Member for Hastings and Rye (Mr. Foster) mentioned reading the pink pages, but I cannot see many youngsters running out to buy the Financial Times. If they can see the amount in a building society book, it makes a difference.
The proposed structure of the funds will mean that many poorer families will not be able to contribute. I ask the Government to look again at that aspect of the trust funds, because broadening the base of the investment would be a good way to bring more poorer families into the scheme. As the trust funds are structured in the Bill, it would be the middle classes who will benefit most. That is not necessarily a bad thing—especially for the middle classes—but it is wrong to claim that the proposals will tackle poverty.
When I spoke to representatives of the National Union of Students last week, I was given a postcard that is part of its latest campaign against tuition fees. It is addressed to the Minister's ultimate boss, the Prime Minister, and it states:Students already facing decades of loan repayments in this post-grant era will, according to you, graduate with a total of up to £21,000 of debt.I did a quick, back-of-the-envelope calculation; to end up with a trust fund containing that sum at age 18, a family would have to put the best part of £100 into the fund every month for each child. The trust fund would be swallowed up by tuition fees and student debt for those who go on to university. I can see how the fund would be very attractive for parents and grandparents who wish to ensure that youngsters from relatively prosperous backgrounds have the money to go into higher education, but again it will not do much for those from less well-off backgrounds.
I fully accept that it is impossible to guess what a person will need at 18 when they are born. It would therefore be difficult, if not impossible, to design a fund that set out exactly how it was to be used. However, I was interested to note that the Select Committee Report said:People feel strongly that proceeds of the fund should be spent on a worthwhile purpose. Education is by far the most mentioned use for the fund, whether this be higher education or of a more vocational nature.When asked by the Committee whether the Government had considered an incentive for using the funds for educational purposes, the Minister said that they had not ruled out some sort of benign encouragement. That is an interesting phrase and perhaps the Minister could tell us when she winds up what is meant by it and what is being considered. 1379 I was very interested in the point made by the hon. Member for Witney (Mr. Cameron) about disabled children. I, too, have a disabled child and fully understand the points that he was making. Unfortunately, a trust fund set up on the basis he suggests would face exactly the same problems as those proposed by the Government—it would disproportionately benefit those who can put more money in, not those in the greatest need, who find it difficult to obtain the extra help that they need.
§ Mr. Cameron
The point that I was trying to make is that a trust fund would make it easier for other people to help a family with a disabled child. Often, friends, families and charities want to help, and a trust for the child, which could go on to be their trust after age 18, would provide an easy and neat way for people to contribute. Of course it would not help everyone straight away, but it would help many people and that must be a good thing.
§ Mr. Weir
I do not dispute that point, but I repeat that it is those with the family and friends who have the money to contribute who would benefit most. I have been involved with a trust in a professional capacity which was set up to help people with disabilities, and we were able to help the poorest, who needed that help, not those who were able to set up their own trust funds. The idea has merit and I do not write it off, but it faces the same problem as all trust funds. How do we ensure that those most in need are the ones who are helped most? There is no easy answer.
The interaction of the child trust fund with the welfare system could also cause a problem. If no further funds are contributed other than the initial payments, that will not be a great problem when the person reaches 18. Similarly if the person goes on to full time education after 18, there will not be a great problem. However, a problem will arise—as the Minister admitted—if someone has had money paid into their fund but unfortunately has to claim benefits when they reach 18. The Treasury anticipates that a payment of £10 a month could build up a fund just short of £4,000. That is more than the disregard figure for benefits at present, although I appreciate that the Minister has said that the disregard will rise to £6,000. That is welcome, but I do not know what it will mean over an 18-year period. Will it be up rated with inflation every year to ensure that the full value of the up rating still applies when a child with a trust fund begun in 2005 receives the benefit of it 18 years later? Otherwise, payments made to the fund could reduce or wipe out any benefit entitlement. It may be impossible to get round that problem entirely, because the trust funds are bound to create some unfairness in the benefit system and the Government will have to address that fact.
Many of the other points that I would have made have been covered by other hon. Members. I may have given the impression of being completely negative about the Bill, but that was not my intention. The idea has merit but it needs to be tweaked. More thought needs to be given to how we can help the poorer sections of society more. The fight against poverty should be the principle 1380 behind this. In their present form, the trust funds will not help, but there may be a way to start making progress.
§ Bob Spink (Castle Point)
The hon. Member for Angus (Mr. Weir) spoke well and made some good points. It is always a pleasure to follow him, but I wish to refer in particular to the speech made by my hon. Friend the Member for Witney (Mr. Cameron), who made an interesting and original contribution to the debate. I am sure that his cry from the heart for disabled children will have been heard by the House and will be considered carefully.
I approach the Bill with four key points in mind. The first is the principle; the second is the objectives; the third is the detail, including how the fund will work throughout its life and how we can help those born before the start date of 1 September 2002; and the fourth is the outcome, if the measure passes into law. The principle is good, but only in part. The objectives are sound and I congratulate the Government on them. The details are well thought out, as far as they go, but it will still take a lot of effort to make the system work and to ensure that the objectives are secured and the money not wasted. The outcome, of course, remains to be seen. I hope for the best, but I fear the worst, given the Government's track record on delivery. At this stage of the Bill's life, therefore, I would award the Government two out of four on those key considerations. Fortunately, that enables me to support the Bill, but I want to improve it, to ensure that the objectives are secured and that the outcomes are positive.
The child trust fund may help to encourage people to adopt a savings habit. As the savings ratio has fallen to disastrous levels we certainly need to do something to encourage people to rediscover Britain's savings culture and to make provision for a rainy day. Indeed, the Government's disastrous performance on the savings ratio is storing up a major problem for our future. The proportion of household resources in savings has fallen from 10 per cent. in the second quarter of 1997, when Labour formed their Government, to less than 5 per cent. in the second quarter of this year. As the Government claim that everyone is now much better off, how could they have got savings so badly wrong? They are driving down the savings of ordinary households to less than half what they were when the Conservatives handed over to Labour in 1997.
The principle behind the Bill is questionable, at least in part. It is a typical nanny-state, patronising, Government-knows-best measure, as the Liberal Democrats have rightly pointed out. It takes some people's hard-earned money and gives it to others, with no control over how that money will eventually be spent. The Government may of course have their eye on the election, another point on which we might question the principle. That may also be one of the reasons why they want to rush the Bill through.
The objectives of the Bill are not ignoble, however, so I shall make some positive points. The measure will help people to understand the benefits of saving and investing and building up funds for their future. Starting from the cradle, it gives encouragement to children and 1381 a mechanism to parents and grandparents to invest in their children's future. That is entirely helpful and laudable. In essence, the Bill is designed to change people's saving behaviour—it is social engineering, and I accept it. It will also help to engage more families and younger people with our great financial institutions. We hope that those institutions will not go the same way as blue-chip organisations such as Equitable Life; nevertheless, encouraging such engagement is probably a good thing.
The measure will ensure that all children have a financial asset at the start of their adult life. I cannot fault that, although I hope that, as there will be no control whatever over how the money is spent, it will be spent wisely. That will not always be the case of course, but the objectives are praiseworthy and I welcome them.
The Bill will help to develop financial awareness so that people make better financial choices throughout their lives. It will create habits and understanding that will be helpful for the long-term stability of society, and I welcome that, too. However, will the detailed scheme actually deliver those objectives? As always, the devil is in the detail.
The proposals are extremely complicated and extend the socialist principle of means-testing. Those factors may act as a major disincentive to save, thereby frustrating the Bill's objectives. I seriously question whether we need more means-testing, especially bearing it in mind that, as a result of Government policy, it will be extended to about 75 per cent. of retired people.
Labour's 1997 manifesto promised tax reform to promote savings—very laudable; yet the Chancellor, in his first Budget, levied a £5 billion a year stealth tax on pensions by abolishing the dividend tax credit payable to pension funds. At a stroke, the Government made a major tax reform, not to promote saving but to discourage it, hence the disastrous fall in the savings ratio.
Much work will need to be undertaken to ensure that CTF accounts will be available on time, in 2005. The Government need to ensure that the various products are safe and that the money will be underwritten so that people are not robbed of their assets, which is exactly what has happened to many of my constituents—and probably to many of yours, Madam Deputy Speaker—who took Government advice and put their savings into pension funds. They have been deserted by the Government.
Hon. Members may call me cynical, but I remain deeply sceptical about the fact that £250 per child is to be paid out only two months before the likely date of the next general election. As borrowing is rising to £37 billion, way above the 3 per cent. good governance rate that the Government told us about, and as the overall cost of the CTF will be about £4 billion, and there will be a significant advertising campaign, one must be cynical about the Government's motives, especially as they are rushing the measure through.
We do not yet have clear details about how the child trust funds can be held. Much work needs to be done on administrative matters. We have insufficient information about the impact of those resources on people's entitlement to means-tested benefits. Will 18year-olds be encouraged to blow their windfall? I realize 1382 that the disregard will be increased to £6,000, but I agree with the hon. Member for Angus that the figure must be watched carefully and indexed.
The scheme adds to the complications relating to various savings products. If the Government really want to promote a savings culture and improve the savings ratio—as they should—they should simplify the range of savings products available, rather than making the system more complicated. A simple system with a single tax relief on an indexed amount invested each year would be far better than the multi-level ISA and other systems that currently exist—but I digress.
I am deeply concerned about the flexibility of the scheme. What will happen to funds if, tragically, a child does not live until the age of 18? Such points need careful consideration.
I agree with the line taken by the Liberal Democrats: they say that the scheme is painfully thin on details and that its benefits to children are unclear. They make a lot of sense when they say that the Government should be using any available cash to help children get the best start in life. It is undeniable that getting a child's early development right is the best way to use the money that is available. They make a sound point, but we should implement both that early years investment and the Bill, to encourage a savings culture. The Liberal Democrat view does not address the difficulty of encouraging a savings culture and restoring the savings ratio to what it was in 1997 when the Conservatives handed over the economy to Labour. I hope that the Liberals will continue to push for more spending on early years, as that is certainly the more important of the two factors, but I believe that we can have both.
The outcomes of the Bill remain to be seen, and although I hope for the best, I fear for the worst. As the Government cannot even organise a simple system to distribute passports on time, and given their record on tax credits earlier this year, I am deeply concerned about their ability to deliver the long-running and complicated CTF system, especially as there is such a tight time scale.
In any event, young men and women of the future will need the endowment to pay for their education, if the Government get their way on tuition fees—although I hope that they do not. The bottom line is that the Government will give those young people someone else's hard-earned money and then take it back again through tuition fees.
Given that the pot of cash will be available to youngsters at 18, and given the scare stories that we will undoubtedly read about in years to come, with some youngsters blowing their money on holidays, fast cars or even drugs and booze, I can envisage the Government seeking in future to control the way in which the money is spent, perhaps indirectly by forcing up education fees or some other mechanism, so that the choice over the use of funds will be removed or constrained by this control-freakish Labour Government.
Like the majority of people in this country, I simply do not trust the Government. I remain deeply sceptical about the two-level payments. The initial endowment will be £250 for most children, but children from low-income families who also qualify for the full child tax credit will receive the higher payment of £500. The Treasury states that around a third of children will be entitled to the higher sum, although, again, I do not 1383 trust the Treasury forecast on that. Family fortunes can go up and down year to year, decade to decade—so youngsters who receive the higher level of public money, when they are born or when they are seven, may end up being better off than those who receive the lower amount of public money. That will not be perceived as fair or appropriate by anyone.
Of course, many issues need to be ironed out in Committee. For example, can we ensure that children born before 1 September 2002 will be able to benefit from the tax exemptions in a parallel fund, even though they will miss out on the lump sum payments? Other issues include children in care, and I am very grateful to the Financial Secretary for her earlier comments, so I will not pursue that issue. Of course, children who live overseas will need to be dealt with. We must consider the charging levels for administration—the charge cap—and the fact that marketing strategies may well be focused on the middle classes and higher income groups, rather than lower income groups. We will have to ensure that that is tightly controlled. We must also consider the scheme's impact on the take-up of child tax credit, since any household on an income below CTC threshold—currently, £13,230—will need to claim CTC before becoming eligible for the additional £250 CTF. The operation of the age-related endowments—the further payments into the CTF on the seventh birthday—also needs to be carefully designed.
Again, additional payments will be made to children in families with lower incomes, presumably at or before the seventh birthday. I should very much like the Treasury to provide evidence about how many children whose households fall into certain wealth categories when they are born or when they are seven years old will still fall into those wealth categories, rather than moving into a higher wealth category, by the time they are 18—and, of course, vice versa. There will be a very weak correlation between household wealth category at birth and the wealth category at 18—that is certainly my experience in my family and in my community—so the benefit received at 18 may be unrelated to financial circumstances when the benefit is paid. That would be seen as an inequitable use of public funds.
There is also an additional election bribe—I am sorry, rather than election bribe, I intended to say problem. Although accounts will not be available until 2005, children born from 1 September 2002 will be eligible for CTF accounts. Since CTC was not available before 6 April 2003, it cannot be used to identify entitlement to the additional endowment. Clearly, some fancy footwork will be needed during the Bill's detailed consideration in Committee.
Moving on to the accounts themselves, there are many questions. Providers will need to make a profit on the accounts, and the 1 per cent. charge cap should be very carefully considered. I am not convinced that that is the right level. Various types of account will be available, and some will be more successful than others. The CTF will be a wrapper in a similar way to ISAs, but we all know that the complication of the multi-layered ISA—with cash, equities and insurance—has led to a fall in the savings ratio. 1384 Some of my constituents are not familiar with the financial wrapper philosophies. Of course the Treasury Committee has reviewed that matter, and it was told that a low-income family investing £500 in a safe account but making no extra contributions might see their bond increase to only £911 in 18 years. A more financially aware family could invest only £250 in a more sophisticated way, contribute £40 a month and see their investment increase to £14,000 in 18 years. However, a family with sufficient disposable income and financial nous could invest the maximum of £100 a month in the stock market and in bonds and build up a fund worth about £35,000 to £40,000 in 18 years. That will not narrow but widen the unequal distribution of wealth in the country. Of course, many of the investment funds will involve displacement, rather than additional investment—as the hon. Member for Hastings and Rye (Mr. Foster) confirmed in his reply to my earlier intervention—so the savings ratio will not be improved.
Moreover, some of my constituents do not trust financial products, following the Equitable Life debacle and many of the problems in pension schemes whereby people could lose much of their life savings, especially given the Government's refusal to address those problems and rescue those people who have already suffered from the collapse of some private pension schemes. Clearly, as with any financial product invested over a long time, there will be an exposure to risk. We all thought that risk was very low in the major blue-chip companies, such as Equitable Life—the House has probably got my drift.
My bottom line is that the Bill has some merit but needs detailed work to make it sound. In any case, the principle of taking someone's hard-earned money, giving it to someone else in a lump sum when they reach 18 years of age to spend as they wish, with the Government adjusting education fees to ensure that they take back the money where they possibly can, represents yet another nanny-state, patronising, socialist intervention that may end in tears, so very careful work needs to be done in Committee.
We have had three such consultation exercises in the past two years. We have had announcements and re-announcements, and I suspect that the Government are proceeding with the scheme because it is superficially attractive, and they hope that it will help to secure the middle England socialist vote that they have destroyed by introducing tuition fees. The proposals are overcomplicated and therefore may be a net disincentive, rather than an incentive, to saving.
§ Bob Spink
The hon. Gentleman is absolutely right, but the Bill is designed to influence parents and grandparents. That may be a good thing, because parents and grandparents will be able to invest in their children's future, and there can be no greater or better investment. That is one of the reasons why I shall support the Bill tonight. On balance, it is a good Bill, but I hope that we can find ways to improve it, and in 1385 particular to widen its provisions so that those people who were born before 1 September 2002 can contribute to parallel funds.
One of the ways in which the Bill is not good is that it extends means-testing, which is quite wrong. I am also disappointed that the Chancellor has not sought to focus on other more appropriate areas of welfare reform. At the very least, if he wishes genuinely to promote a savings culture and improve the savings ratio, he should simplify savings products rather than complicating them further.
I have made several negative points, but I acknowledge that if we can get the initiative right it may be worthy and something that we can all support. I shall try my best to make the scheme work for my constituents and their children, and on balance I shall support the Bill.
§ Mr. Ian Liddell-Grainger (Bridgwater) (Con)
Just for the record, I should mention for the fourth time that the Bill is an election ploy.
Unlike my hon. Friend the Member for Castle Point (Bob Spink), I do not think that I can praise the Liberal Democrats, because it would not be in my nature to do so. However, the hon. Member for Yeovil (Mr. Laws) gave us a pretty balanced view, on the face of it.
§ Mr. Liddell-Grainger
I would not go as far as that.
The Bill is interesting because it addresses the whole ethos of saving, which I suspect changed in this country during the late 1950s and the early 1960s. There used to be an idea that saving for the future represented pride in one's family and oneself. One of the Bill's biggest problems is that, regardless of the amount given to children, the extent to which it will be topped up, and the amount with which they end up at 18, the ethos of saving no longer exists among families. I am not suggesting that the Government can do anything about that, because they cannot, but they could help people to save in the longer term. I remember Post Office savings accounts from when I was a boy, but sadly, they will disappear in the near future, although again that is not the Government's fault. Surely it must be up to the Government to require people to save for the future. An enormous amount goes out for health and education from central Government. Surely the Bill could, and should, push down to peoplenormal people like us, with parents, children, grandchildren and great grandchildren—the principle of saving for their future.
All Members of Parliament hold surgeries several times a month at which many people come to see us. We have all met families who we know will be unable to cope with the money that their children will receive when they turn 18. Such people might be on benefits or have enormous problems such as being single parents or having a disabled child. We know that children in such families will not be able to cope with their £900—perhaps more if money has been put aside—when they turn 18, and that they will face the biggest problems.
1386 The Financial Secretary should consider carefully the Inland Revenue's role in the scheme. Perhaps the most powerful organisation in the country will be responsible for setting up accounts for people who cannot, or perhaps will not, cope with the money. The Inland Revenue will administer the scheme, because although the Government say that that will not happen, it will administer it indirectly. Additionally, it will know the background to children's upbringing and development when they turn 18. Surely it could encourage a situation in which the Government could get a child to invest the money rather than blowing it on fast women and booze, as many hon. Members ably put it. The success of the scheme will boil down to the fact that an 18-year-old who is given money will have the inclination to spend it.
Why should children save? Let us consider the problems that will be faced by people who will turn 18 in 10 years. They will face problems with pensions, the stock exchange, individual savings accounts, long-term investments and interest rates. Interest rates are not rising, so although there is less inflation, which is good, they are investment is not worth while. What possible reason would children have to invest rather than spending the money that they received when they turned 18? That will be true of people from all parts of society. Will 18-year-olds who receive £35,000 because their parents have put money aside for them invest that money in the stock exchange or a long-term scheme? The answer is probably not.
That takes me on to capping. Any person with financial savings knows that it is important to watch charges on savings carefully. The Government are right to want to cap charges, but that creates a problem because people in financial institutions must be persuaded to come up with policies and a reason to save money on behalf of their clients—the children. It is interesting to note that there has been an enormous amount of feedback from people who are worried about the suggested level of capping. One of the people who gave such feedback was, rather pithily, a representative of Virgin Money—that is probably the one thing that people will not get. He said:How much will providers be allowed to charge? If the industry is allowed to raise charges substantially above the current I per cent. stakeholder level, the £250 the government is offering could soon be eaten up in charges.Surely that is the crux of the matter. Will the Government consider using the Inland Revenue not only to cap charges but to pay part of them? Given that the money will go round in a circle, surely it would be beneficial to the country for the Government to pick up the charges. Alternatively, a fund could be set up to pay for the charges that could use the same principle as the terrorism fund into which everyone pays to look after buildings in case of an incident.
The long-term ethos behind the Bill is to give children a start at the age of 18. Many hon.Members—some are in the Chamber but others are not—talked about children in care. As children in care do not receive child benefit, they will not be able to look forward to having more than £900 when they turn 18, but that represents a missed opportunity. Surely it would be better to pay 1387 child benefit for children in care into the child trust fund to build up an amount that they could use when they turned 18. Such children face the problem of leaving care with virtually nothing behind them. Although we hope that they will have a good education and be able to stand on their own two feet, they do not, as was said early, have the seed capital to buy a Land Rover for the farm.
The Bill could have addressed that problem, because the most vulnerable in society are those who could be most affected by such a measure—children in care are the most obvious category. Given the number of parents who have still not taken up tax credits—I am told that the figure is between 650,000 and 700,000 people—how do we know that people will take up the fund that they are given by the Inland Revenue? If children are not financially astute and aware and have not taken note of 18 years of statements about the investment, how will they know what to do in the future?
I shall move on to my final point, because I promised the Whip that I would not detain the House for too long. Let us consider how we could develop the scheme to secure people's futures. If children want to continue with their investment, who will advise them about the best route to take—the stock exchange, long-term investment, a bond or whatever? Children who want to continue to save and those whose parents continue to give them money will require advice. Given the Inland Revenue's unique ability to look into people's lives—I am not suggesting that there is a Big Brother syndrome—surely it could help people to invest in their long-term future and that of their families, which is important, because many people have children and indeed grandchildren. We have discovered today that the same is true of hon. Members.
The Bill has a lot going for it, such as encouraging long-term saving. However, it falls down because the Government have not thought through the ramifications of putting money in the pockets of people who will probably not have the financial ability to look after it themselves. What is the point of giving children money if they end up blowing it when they reach 18? The scheme should encourage people to save for the future so that they have a secure future.
§ Mr. Paul Goodman (Wycombe) (Con)
It is usual for any Member of the House with an interest in a Bill to declare that at the start of his or her speech. Although I have an interest in the Bill, I have difficulty declaring it at the start of my speech because it has already been declared for me. My hon. Friend the Member for Tatton (Mr. Osborne) made it clear that he, I, the Financial Secretary and the Chancellor—and, indeed, my hon. Friend the Member for Witney (Mr. Cameron) —have, or are expecting to have, children who will qualify for a child trust fund. [Interruption.] I hear rumblings from the far corner of the Chamber, so hon. Members might think that a cosy little club that favours the Bill outright is gathered around the Dispatch Box. My hon. Friend the Member for Tatton made it clear that we support the aim behind child trust funds to encourage a savings culture and the freedom, independence and dignity that go with that. That is why we will not divide the House and will try to improve the Bill in Committee. 1388 Although we are discussing one of the Government's flagship Bills and main measures, Opposition Members have made more speeches, with four Back Benchers, than Labour Members, of whom only two have spoken.
§ Mr. Goodman
I have not cast my eyes that widely. Rather than explore this avenue further, however, I urge all those who read the debate—I say this as the Financial Secretary's Parliamentary Private Secretary, the hon. Member for Stalybridge and Hyde (James Purnell), scurries back to his seat—to take note of my hon. Friends' contributions.
Many hon. Members followed the lead of my hon. Friend the Member for Tatton in suggesting that child trust funds should be open to all. The hon. Members for Dumbarton (Mr. McFall) and for Hastings and Rye (Mr. Foster) did so, as did my hon. Friend the Member for Witney. He made an extraordinarily creative contribution, in which he gave four small suggestions and one large one. In fact, he made so many small suggestions that I am not sure that I can remember them all. His large suggestion, which he also raised in an Adjournment debate a while ago, is something that we will want to consider in Committee, and I urge the Minister to do the same. Indeed, I hope that she refers to it when she winds up. In that Adjournment debate, my hon. Friend showed an accomplished understanding of the needs of parents who have to buy equipment and make difficult decisions when they are not always sure how to negotiate their way through the maze that confronts them. However, support for an aim and support for a Bill are not one and the same thing, which brings me to my main points.
I am sure that the Chancellor and Financial Secretary want us all to view the Bill as a Christmas present to a suitably grateful nation. The right hon. Gentleman, with the recent assistance of the Financial Secretary, has been preparing, packaging and gift-wrapping child trust funds for more than three years. First, there were the press reports; then there was a consultation document, followed by a second consultation document proclaiming the success of the first; then there was an announcement from the Chancellor proclaiming the success of the second consultation document; and finally, we have the Bill. It has taken three years for the Chancellor to get ready to give us the detail.
How many answers do we find when the gift-wrapping, the glitter and the tinsel are torn aside? The blunt truth is, not enough. Without clear answers, we cannot be sure whether the Bill is a Christmas present for anyone. It has four main flaws as it stands. My hon. Friend the Member for Castle Point (Bob Spink) was right to say that the devil is in the detail. The first flaw is that the Government have offered no convincing evidence that it will help the less well off to develop a savings habit, a concern that was widely raised. After all, the Bill does not tell us whether payments into child trust fund accounts will reduce a child's benefit entitlement when he or she becomes an adult. Imagine the reaction of a single mum on a low income, as mentioned by the hon. Member for Dumbarton, who finds that by topping up the fund she could reduce her child's eventual benefit entitlement or that if her child is 1389 in need before he or she is 18, as the hon. Member for Yeovil (Mr. Laws) mentioned in detail, she will not be able to draw on the fund to help that child. That is not much of an incentive to save. The Government have offered us no convincing evidence that they will be able to help the less well off to develop a savings habit.
The second flaw is that the Government have no convincing evidence that the Bill will help anyone to develop a savings habit except those who will probably save anyway. Labour Members need to understand that we have no problem with the middle classes saving. Indeed, we have no problem whatsoever with any income group saving. The problem is not ours but Labour's. The express purpose of the Bill is to help poorer people to pick up a savings habit. As we heard, a single mum on a low income who is worried that her child may one day need benefits or that she will not be able to tap into the fund on her child's behalf if in real need may not add a penny to the Chancellor's original £500. A middle-class dad on a higher income, however, who is unlikely to be in similar need —I pause in case any of my hon. Friends wish to suggest an example—may add the maximum amount of £1,200 each year, leaving that child with a nest egg worth £34,000 when the child reaches 18. As the Government have published no research, set no targets and drawn up no estimates, we have no reason to think that the Bill will help people to save unless they are likely to save in the first place.
The third flaw is that if the Bill is to help those on lower incomes, it must offer some certainty to the financial institutions that the Chancellor hopes will market child trust funds. We have no reason to think that it will make that happen because of the ambiguity and uncertainty that surrounds the charge cap, details of which are not in the Bill despite the White Paper saying two months ago:The Government will issue a report detailing the charge cap … later this year.If the Financial Secretary does not come clean about the charge cap, which we urge her to do, that leaves the Chancellor only three more days on which the House is sitting to make an announcement, unless he plans to slip out an announcement when the House is not sitting—but he would not do that, would he?
§ Norman Lamb
I am slightly confused about the Conservative party's position. Does the hon. Gentleman support or oppose the measure? He presents a good case against it. Will the Conservatives join the Liberal Democrats in opposing it?
§ Mr. Goodman
If the hon. Gentleman had been in the Chamber for the opening speech of my hon. Friend the Member for Tatton, he would have heard him make it clear, as I have, that we support the Bill in principle, but that we wish to examine the detail. I understand that the Select Committee report that the hon. Gentleman signed, although critical in detail, supports the Bill in principle. How will he vote?
If the charge cap is to be 1 per cent. and the institutions are permitted to make only £2.50 from each £250 fund, they will surely market their products not to those who do not save, but to those who do. Child trust funds will go the same way as stakeholder pensions.
The fourth flaw is that the Government have offered no convincing evidence that the Bill will deliver trust funds on time. The financial institutions have just 12 1390 months to haul their products, marketing, work force and systems to the starting line. They do not know what the charge cap will be, which worries them. They do know that the delivery mechanism will be the voucher system, which worries them no less. The initial letters to parents are due to go out later this year, which does not leave much time. The first vouchers and information packs are due to go out in just a year's time.
§ Mr. Love
I want to press the hon. Gentleman on the charge cap. A brief provided by the Nationwide building society, one of the major providers of such accounts, states:Nationwide believe that providing CTF within a tight price cap will be challenging but not impossible for efficient providers.Does that not undermine what he says about the charge cap?
§ Mr. Goodman
I do not think so. If the hon. Gentleman had been in the Chamber for the opening speeches, he would have heard my hon. Friend the Member for Tatton refer to the large number of teas that he has recently had in the Pugin Room with people from financial institutions who are dubious about the charge cap. I am not sure that the hon. Gentleman's example is representative.
§ Mr. Goodman
No. I have let the hon. Gentleman intervene once and I want to make some progress.
The financial institutions, parents and, ultimately, children will all depend on the Inland Revenue to get the child trust funds off the ground on time. The Revenue is still groaning beneath the burden heaped on it by the Chancellor of running not just the tax system but, increasingly, the social security system through tax credits. The Revenue is expected simultaneously to deliver child trust funds and, according to the Paymaster General,
a major review of our organisations dealing with tax policy and administration."—[Official Report, 2 July 2003; Vol. 408, c. 270W.]The Chancellor could ease the pressures on the institutions, the Inland Revenue and, not least, parents simply by delaying the launch. A few months' delay would make no real difference to anyone.
That brings us to one of the few things about the Bill that we do know. We do not know whether it will help the less well off to save, or offer certainty to financial institutions, or be ready on time. However, we do know that even if the funds are not delivered on time, the timetable must be delivered on time. The timetable dictates that 1.8 million vouchers must go through the letterboxes of the houses of a suitably grateful nation in the autumn of 2005.
What could be happening around about then, I wonder? I do not believe that this is a timetable for parents who are planning to save. Instead, it is a timetable for a Government who are gearing up for an election. There are two years until the autumn of 2005, yet the Chancellor of the Exchequer has had three years to get ready to give us details and answers about child trust funds in the Bill that is before us. The Bill was preceded by lots of third-way glitter and glitz, but 1391 though right in principle it gives the House few details and few answers. We shall try to help the Minister to find those answers in Committee. As they are not in the Bill, we cannot support the measure tonight.
§ Ruth Kelly
With the leave of the House, I shall reply to the debate.
I shall start with an apology. I should have welcomed the h on. Members for Wycombe (Mr. Goodman) and for Tatton (Mr. Osborne) to the Opposition Dispatch Box. I look forward to working with them during the passage of the Bill. I am sure that they will both make great contributions to our future proceedings. I was delighted that at the start of the debate they said that they would welcome it. I am slightly confused because the tune seems to have changed between the opening remarks of the hon. Member for Tatton and the closing remarks of the hon. Member for Wycombe.
§ David Taylor
Does my hon. Friend find it surprising, as I do, that the speeches I have heard in the Chamber and on the monitors from Conservative Members—[Interruption.] The monitors were invented in about 1932. Their speeches have consisted of carping and criticism, which seems inconsistent with their planned intention of studied indifference if there is a Division. Is not that surprising?
§ Ruth Kelly
I agree with my hon. Friend. I find it totally surprising. The only message that I gleaned from the winding-up speech of the hon. Member for Wycombe was that the Opposition are confused. Perhaps I can clarify a few points for them during my reply. Before doing so, perhaps I should say to the hon. Member for Yeovil (Mr. Laws) that I am delighted that the Liberal Democrats have forcefully started to welcome the idea of intervention in the early years to promote opportunity in later life. I am delighted also that they think that money should be earmarked for that purpose. Given their conversion to investment in the early years, perhaps that might be signalling also their conversion to top-up fees. I find it extraordinary that they say that the priority for taxpayers' money should be in the early years and yet they propose to raise taxes to fund higher education for those in their later years.
§ Ruth Kelly
I shall examine the objectives of the Bill as I progress.
There have been some excellent contributions to the debate from both sides of the Chamber. My hon. Friend the Member for Dumbarton (Mr. McFall), the Chairman of the Treasury Committee, made a powerful speech, as did my hon. Friend the Member for Hastings and Rye (Mr. Foster). I enjoyed several other 1392 contributions, and particularly that of the hon. Member for Witney (Mr. Cameron), who made a most thoughtful intervention.
I shall turn to the specific points that have been raised. The hon. Member for Tatton asked whether this policy will work. He continues to test just one of the policy's objectives, which is increasing the level of savings. The policy has four objectives: increasing the savings habit of parents as well as that of children; building assets so that every child at the age of 18 has the opportunities that only a few children now take for granted; encouraging the making of responsible choices; and increasing financial understanding and awareness, which applies to parents as well as children. The hon. Gentleman seems to recognise only the first point.
As my hon. Friend the Member for Dumbarton has said, evidence from the national child development survey suggests that an asset in the range of merely £300 to £600 could have a significant impact on future outcomes. Perhaps the policy could be justified merely by reference to only one of the objectives. If someone adds just £10 a month, he or she could accumulate, without any further Government endowments, £4,500. That is a significant asset at the age of 18.
There is the objective of promoting responsibility. Again, that is a difficult objective to judge. I would argue that if children, at the age of 18, have to deal with a sum of money that they, their parents and their grandparents have contributed to, it is much less likely that they would abuse that money than if they had not contributed to it. Research by Children's Mutual gathered over 2001–02 on its savings products suggests that most young adults have responsible plans for their savings. Indeed, 47 per cent. of young adults said that they would spend the money on education. Another 27 per cent. said that they would roll over the money into another savings account.
There must be a huge opportunity with this policy to increase understanding of the financial system, to build on financial education and to promote financial awareness. I was recently made a member of the Financial Services Authority steering group that examines financial capability. One of the issues raised several times at the group's first meeting was the opportunities afforded by child trust funds, a once-in-ageneration opportunity to increase financial education and awareness among children and, indeed, their parents. I cite evidence from the National Consumer Council that child trust funds provide an excellent opportunity to communicate risk issues to a whole generation of parents.
I return to the issue of savings. Let us consider the evidence that low income families will contribute to the fund. We have some direct evidence in the UK. Last week, the Treasury published an interim evaluation of the savings gateway, which afforded a Government match of £1 for every pound that was invested by a low income family. The earnings cap was set at £11,000. That would not be a wealthy person by any standards. The report's author, an independent researcher from Bristol university, concludes:
One of the key aims of the savings gateway is to encourage more people on low incomes to save money. From the evidence to date it is certainly achieving this aim.1393 She also points to further evidence from in-depth interviews, which showed that two thirds of people with incomes below £11,000 intended to continue saving regularly after the end of the Government match scheme now that they had developed the habit.
§ Mr. Laws
Does the Financial Secretary agree that there is a significant difference between the savings gateway, which she has just cited, and the child trust fund in terms of savings incentives? First, in the savings gateway there are matched savings for making savings. Secondly, it is possible to take the money out when someone wants to do so. Surely the child trust fund does not have those advantages.
§ Ruth Kelly
I shall come on to those points.
Survey evidence in the UK—for example, by the Homeowners Friendly Society—found that 62 per cent. of parents in the D and E socio-economic groups intended to make further contributions to the child trust fund. I shall cite again the National Consumer Council, which states:It appears that the prospect of a voucher with the child's name on it, provided by the Government, helps people feel they are being given a helping hand in meeting their personal financial needs. The child trust fund is regarded as providing a framework for giving their family a financial start in a way that they can see as beneficial to them.I shall cite further evidence about the development of a savings habit. Research carried out by McKay and Kempson on the impact of a windfall receipt among young teachers found evidence that such a receipt could kick-start savings behaviour. A finding directly relevant to the child trust fund showed that young windfall recipients, especially in their teens, were much more likely to be saving than peers who had not received such a windfall. Indeed, McKay and Kempson found that even very small windfalls were sufficient to cause them to start saving, with the median amount being only £57.
§ Mr. Weir
I am interested in what the Minister is saying, but does she accept that there is vast difference between the intention to put money into a fund and the reality? Will she address the point that I made earlier about the structure of the funds, and whether that will deter poorer sections of the community from investing in them?
§ Ruth Kelly
I intend to move on to the charge cap, as it has been raised by several hon. Members. We have yet to make an announcement on the level of the charge cap. The hon. Member for Wycombe rightly pointed to the fact that in recent proposals we said that there was a high threshold of persuasion for moving from 1 per cent. for stakeholder products. However, the fact of the matter is that we will base our decision on evidence. It would not be right for me, following anecdote, lobbying and numerous cups of tea in the Pugin Room, as I know the hon. Gentleman has been enjoying, to make an announcement now about the level of the charge cap. It is important that we should set it on the basis of independent evidence, which is why we commissioned Deloitte and Touche to produce research.
§ Mr. George Osborne
The Minister said that it would be inappropriate to set a cap now. However, the White 1394 Paper to which she has referred said that the Government would issue a report detailing the charge cap for the child trust fund later this year. It is mid-December and there are two weeks to go before the year ends, so when will the Minister make the announcement?
§ Ruth Kelly
The hon. Gentleman may be aware that we commissioned a range of research on stakeholder products and the level at which the charge cap should be set. When we made those comments, the Financial Services Authority told us that it would be ready to make an announcement about the appropriate sales regime in December, although it now appears that that date has slipped to the new year. However, to benefit the Bill's parliamentary passage and ensure that Parliament is kept fully informed, I intend to make the announcement on the charge cap for the child trust fund during the passage of the Bill. It is important that Parliament is kept fully informed.
§ Ruth Kelly
The hon. Member for Tatton and other Members raised the way in which older siblings are treated. and whether they could be given the same child trust fund vehicle as children who will benefit from Government endowments. We have looked at that extremely carefully, and I am disappointed to tell the House that the administrative burden on providers of allowing all children from previous cohorts to benefit from an identical tax-free vehicle is disproportionate to the benefits that would be offered. Providers would have to monitor and track the accounts of all children. We would require returns on all accounts, and the Inland Revenue would need much larger IT systems. There could be 10 million extra accounts, and it would certainly not be possible to deliver such a change in time for the launch of the child trust fund.
§ Mr. Michael Jabez Foster
Is that not a problem anyway? As time goes on, greater numbers will apply, so in 18 years' time people would have to deal with that volume of applications in any event.
§ Ruth Kelly
My hon. Friend is right—a greater number of children will have such accounts over time, but providers have made it quite clear that the scheme needs to be phased in. That does not preclude reexamination of the issue in future. but we would not be able to deliver the policy according to the present time scale if accounts were open to all previous cohorts.
I shall deal in more detail with the issue of fortnightly returns raised by my hon. Friend the Member for Dumbarton. We judged that a fortnightly turnaround was necessary to ensure that money is paid into the accounts as quickly as possible once they are open. We were particularly mindful of the fact that growth and interest should be maximised for all account holders. I did not want people to miss out because financial services providers were not making a return quickly enough to the Inland Revenue.
In conclusion, the Government are committed to an active welfare strategy founded on the principles of security, opportunity and responsibility. That 1395 framework underpins the proposals of the child trust fund. In future, all children will have the security of the backing of a financial asset at the start of their adult life. Having a financial asset will encourage a positive outlook on life and enable more young people to take advantage of opportunities. As for responsibility, developing the savings habit early in life will promote greater independence and self-reliance in adulthood. The child trust fund is a foundation on which we can build. There is a genuine challenge to meet in delivering financial education that will achieve greater understanding about saving and investment, what it involves and how to go about it. In future years, I am sure that the policy will evolve, not just so that local authority providers can use it to look after looked-after children to a greater extent, but, to take on board the point made by the hon. Member for Witney, so that we can assist in more creative ways the most vulnerable people in our society.
The child trust fund is the key to achieving a genuine change in people's ability and willingness to save for the future so that they can make the most of opportunities as they arise. It will go further and help to equip children to make better financial choices, not just about savings and investment but throughout their lives. The child trust fund is a leading example of progressive universalism, creating a policy that will benefit all children, while also making sure that greater resources go to those who need most help. I am proud that the Government are introducing this radical and far-sighted policy, and I commend the Bill to the House.
§ Question put, That the Bill be now read a Second time:—
§ The House divided: Ayes 297, Noes 39.1398
|Division No. 8]||[8:06 pm|
|Ainger, Nick||Browne, Desmond|
|Ainsworth, Bob (Cov'try NE)||Bryant, Chris|
|Allen, Graham||Burden, Richard|
|Anderson, Janet (Rossendale &||Burgon, Colin|
|Atherton, Ms Candy||Byers, rh Stephen|
|Atkins, Charlotte||Caborn, rh Richard|
|Austin, John||Cairns, David|
|Bailey, Adrian||Campbell, Alan (Tynemouth)|
|Baird, Vera||Campbell, Mrs Anne (C'bridge)|
|Banks, Tony||Campbell, Ronnie (Blyth V)|
|Barnes, Harry||Caplin, Ivor|
|Barron, rh Kevin||Casale, Roger|
|Battle, John||Caton, Martin|
|Bayley, Hugh||Cawsey, Ian (Brigg)|
|Beckett, rh Margaret||Challen, Colin|
|Beggs, Roy (E Antrim)||Chapman, Ben (Wirral S)|
|Bell, Stuart||Clapham, Michael|
|Benn, rh Hilary||Clark, Mrs Helen (Peterborough)|
|Bennett, Andrew||Clark, Dr. Lynda (Edinburgh|
|Belts, Clive||Clark, Paul (Gillingham)|
|Blackman, Liz||Clarke, rh Charles (Norwich S)|
|Blears, Ms Hazel||Clarke, rh Tom (Coatbridge &|
|Blunkett, rh David||Clarke, Tony (Northampton S)|
|Bradley, rh Keith (Withington)||Clelland, David|
|Brennan, Kevin||Clwyd, Ann (Cynon V)|
|Brown, rh Nicholas (Newcastle E||Coffey, Ms Ann|
|Coleman, Iain||Hopkins, Kelvin|
|Colman, Tony||Howarth, George (Knowsley N &|
|Connarty, Michael||Sefton E)|
|Cook, Frank (Stockton N)||Howells, Dr. Kim|
|Cooper, Yvette||Hoyle, Lindsay|
|Cousins, Jim||Hughes, Beverley (Stretford &|
|Cruddas, Jon||Humble, Mrs Joan|
|Cummings, John||Hurst, Alan (Braintree)|
|Cunningham, Jim (Coventry S)||Iddon, Dr. Brian|
|Cunningham, Tony (Workington)||Illsley, Eric|
|Darling, rh Alistair||Irranca-Davies, Huw|
|Davey, Valerie (Bristol W)||Jackson, Helen (Hillsborough)|
|David, Wayne||Jenkins, Brian|
|Davidson, Ian||Johnson, Alan (Hull W)|
|Davies, rh Denzil (Llanelli)||Johnson, Miss Melanie (Welwyn|
|Davies, Geraint (Croydon C)||Hatfield)|
|Davis, rh Terry (B'ham Hodge H)||Jones, Helen (Warrington N)|
|Dawson, Hilton||Jones, Jon Owen (Cardiff C)|
|Dean, Mrs Janet||Jones, Kevan (N Durham)|
|Denham, rh John||Jones, Lynne (Selly Oak)|
|Dhanda, Parmjit||Jones, Martyn (Clwyd S)|
|Dobbin, Jim (Heywood)||Joyce, Eric (Falkirk W)|
|Dobson, rh Frank||Keeble, Ms Sally|
|Donohoe, Brian H.||Keen, Alan (Feltham)|
|Doran, Frank||Keen, Ann (Brentford)|
|Dowd, Jim (Lewisham W)||Kelly, Ruth (Bolton W)|
|Drew, David (Stroud)||Kemp, Fraser|
|Dunwoody, Mrs Gwyneth||Khabra, Piara S.|
|Eagle, Angela (Wallasey)||Kidney, David|
|Eagle, Maria (L'pool Garston)||Kilfoyle, Peter|
|Edwards, Huw||King, Andy (Rugby)|
|Ellman, Mrs Louise||Knight, Jim (S Dorset)|
|Ennis, Jeff (Barnsley E)||Kumar, Dr. Ashok|
|Etherington, Bill||Ladyman, Dr. Stephen|
|Farrelly, Paul||Lawrence, Mrs Jackie|
|Field, rh Frank (Birkenhead)||Laxton, Bob (Derby N)|
|Fitzpatrick, Jim||Lazarowicz, Mark|
|Fitzsimons, Mrs Lorna||Lepper, David|
|Flint, Caroline||Leslie, Christopher|
|Flynn, Paul (Newport W)||Levitt, Tom (High Peak)|
|Follett, Barbara||Lewis, Terry (Wors/ey)|
|Foster, Michael (Worcester)||Liddell, rh Mrs Helen|
|Foster, Michael Jabez (Hastings||Linton, Martin|
|Foulkes, rh George||Love, Andrew|
|Gapes, Mike (Ilford S)||Lucas, Ian (Wrexham)|
|Gardiner, Barry||Luke, Iain (Dundee E)|
|George, rh Bruce (WalsallS)||Lyons, John (Strathkelvin)|
|Gerrard, Neil||McAvoy, Thomas|
|Gilroy, Linda||McCabe, Stephen|
|Goggins, Paul||McCafferty, Chris|
|Griffiths, Jane (Heading E)||MacDonald, Calum|
|Griffiths, Win (Bridgend)||McDonnell, John|
|Grogan, John||MacDougall, John|
|Main, rh Peter||McFall, John|
|Hall, Patrick (Bedford)||McGuire, Mrs Anne|
|Hamilton, David (Midlothian)||McIsaac, Shona|
|Hamilton, Fabian (Leeds NE)||McKechin, Ann|
|Hanson, David||McNamara, Kevin|
|Harris, Tom (Glasgow Cathcart)||McNulty, Tony|
|Havard, Dai (Merthyr Tydfil &||McWilliam, John|
|Healey, John||Mahon, Mrs Alice|
|Henderson, Doug (Newcastle N)||Mallaber, Judy|
|Henderson, Ivan (Harwich)||Mann, John (Basset/aw)|
|Hendrick, Mark||Marris, Rob (Wolverh'ton SW)|
|Hepburn, Stephen||Marshall, David (Glasgow|
|Hermon, Lady||Meale, Alan (Mansfield)|
|Hesford, Stephen||Michael, rh Alun|
|Heyes, David||Milburn, rh Alan|
|Hill, Keith (Streatham)||Miliband, David|
|Hinchliffe, David||Miller, Andrew|
|Hood, Jimmy (Clydesdale)||Mitchell, Austin (Gt Grimsby)|
|Hope, Phil (Corby)||Mole, Chris|
|Moonie, Dr. Lewis||Smith, rh Chris (Islington S &|
|Morley, Elliot||Smith, Geraldine (Morecambe &|
|Mudie, George||Smith, John (Glamorgan)|
|Mullin, Chris||Southworth, Helen|
|Munn, Ms Meg||Spellar, rh John|
|Murphy, Denis (Wansbeck)||Spink, Bob (Castle Point)|
|Murphy, Jim (Eastwood)||Starkey, Dr. Phyllis|
|Naysmith, Dr. Doug||Steinberg, Gerry|
|O'Brien, Mike (N Warks)||Stewart, David (Inverness E &|
|Olner, Bill||Stinchcombe, Paul|
|Organ, Diana||Stoate, Dr. Howard|
|Osborne, Sandra (Ayr)||Stringer, Graham|
|Owen, Albert||Stuart, Ms Gisela|
|Pearson, Ian||Sutcliffe, Gerry|
|Perham, Linda||Tami, Mark (Alyn)|
|Picking, Anne||Taylor, rh Ann (Dewsbury)|
|Pickthall, Colin||Taylor, Dari (Stockton S)|
|Plaskitt, James||Taylor, David (NW Leics)|
|Pond, Chris (Gravesham)||Thomas, Gareth (Clwyd W)|
|Pound, Stephen||Thomas, Simon (Ceredigion)|
|Prentice, Ms Bridget (Lewisham||Timms, Stephen|
|Prentice, Gordon (Pendle)||Todd, Mark (S Derbyshire)|
|Primarolo, rh Dawn||Touhig, Don (Islwyn)|
|Prosser, Gwyn||Trickett, Jon|
|Purchase, Ken||Turner, Dennis (Wolverh'ton SE)|
|Purnell, James||Turner, Dr. Desmond (Brighton|
|Quin, rh Joyce||Kemptown)|
|Quinn, Lawrie||Turner, Neil (Wigan)|
|Rapson, Syd (Portsmouth N)||Twigg, Derek (Halton)|
|Robertson, Angus (Moray)||Vis, Dr. Rudi|
|Robertson, John (Glasgow||Wareing, Robert N.|
|Robinson, Geoffrey (Coventry||Weir, Michael|
|Roche, Mrs Barbara||Whitehead, Dr. Alan|
|Rooney, Terry||Wicks, Malcolm|
|Ruane, Chris||Williams, rh Alan (Swansea W)|
|Ruddock, Joan||Wills, Michael|
|Russell, Ms Christine (City of||Winnick, David|
|Chester)||Winterton, Ms Rosie (Doncaster|
|Sarwar, Mohammad||Woodward, Shaun|
|Savidge, Malcolm||Woolas, Phil|
|Sawford, Phil||Worthington, Tony|
|Sedgemore, Brian||Wright, Anthony D. (Gt|
|Simpson, Alan (Nottingham S)||Wright, David (Telford)|
|Singh, Marsha||Wright, Tony (Cannock)|
|Skinner, Dennis||Tellers for the Ayes:|
|Gillian Merron and|
|Allan, Richard||Holmes, Paul|
|Berth, rh A. J.||Hughes, Simon (Southwark N)|
|Bottomley, Peter (Worthing W)||Jones, Nigel (Cheltenham)|
|Brake, Tom (Carshalton)||Keetch, Paul|
|Breed, Colin||Kirkwood, Sir Archy|
|Brooke, Mrs Annette L.||Lamb, Norman|
|Bruce, Malcolm||Laws, David (Yeovil)|
|Burnett, John||Moore, Michael|
|Burstow, Paul||Oaten, Mark (Winchester)|
|Cable, Dr. Vincent||Öpik, Lembit|
|Calton, Mrs Patsy||Sanders, Adrian|
|Campbell, rh Menzies (NE Fife)||Smith, Sir Robert (W Ab'd'ns &|
|Chidgey, David||Stunell, Andrew|
|Davey, Edward (Kingston)||Taylor, Matthew (Truro)|
|Foster, Don (Bath)||Thurso, John|
|Harris, Dr. Evan (Oxford W &||Tonge, Dr. Jenny|
|Abingdon)||Tyler, Paul (N Cornwall)|
|Heath, David||Webb, Steve (Northavon)|
|Wilkinson, John||Tellers for the Noes:|
|Williams, Roger (Brecon)||Bob Russel and|
|Willis, Phil||Richard Younger-Ross|
§ Question accordingly agreed to.
§ Bill read a Second time.