HC Deb 03 February 2004 vol 417 cc702-14

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Mr. Laws

I beg to move amendment No. 56, in page 2, line 31, at end insert— '(1A) Regulations shall not require account providers to provide equity-based accounts, and shall make provision for cash deposit accounts, including provision for such accounts provided by building societies.'.

Mr. Deputy Speaker

With this it will be convenient to discuss the following: Amendment No. 82, in page 2, line 31 [Clause 3], at end insert— '(1A) Regulations under subsection (1) may not impose a requirement that the charge levied by the account provider must be set at less than 1.5 per cent. of the total value of the relevant funds under management by the account provider, divided by the number of child trust funds held with the account provider.'. Amendment No. 57, in page 2, line 33 [Clause 3], at end insert— '(2A) An account is not a child trust fund account unless it permits subscriptions of amounts of no more than £5. (2B) The minimum amount in subsection (2A) may be increased by regulations if the Treasury is satisfied that the increase is no greater than is required to maintain the value of the amount in real terms.'.

Government amendments Nos. 36 to 39 and 41.

Amendment No. 59, in page 4, line 5 [Clause 6], at end insert— '(1A) An account may only be selected in accordance with subsection (1) if it is an account of a description which has been designated by the Financial Services Authority in a manner prescribed by regulations as a low risk account.'.

Government amendment No. 43.

Amendment No. 60, in page 4, line 20 [Clause 6], at end insert— '(6) Regulations shall designate a person to act generally in the stead of a responsible person in the management and oversight of provider risk and investment risk for child trust funds opened by the Inland Revenue under this section.'. Amendment No. 78, in page 4, line 27 [Clause 7], at end insert— '(2) No charge may be levied in respect of a transfer undertaken in accordance with the provisions of regulations under this section.'.

Mr. Laws

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

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

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

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

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

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

Last weekend, I received a letter from a company of investment managers and tax and trust consultants based in my constituency. In the penultimate paragraph, it reminded me of the quarterly performance of the funds managed by the group and stated: Stock market investing is risky. Please remember that the value of investments and the income from them may fall as well as rise and there is no guarantee that you will get back the amount of your original investment. Past performance is not a reliable guide to future performance. That final sentence relates to a matter of particular concern to many of us, because it seems that the Government have decided that past performance is a reliable guide to future performance, and that the very high returns in the equity market seen since the second world war will continue. Returns in the post-war period have sometimes been extremely adverse in some markets—for example, in the Japanese equity market. We also know that before the second world war, there were long periods when returns in the equity market were considerably less buoyant than those that the Financial Secretary and the Government allude to in the material that has surrounded the Bill.

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

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

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

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

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

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

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

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

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

Mr. Adrian Bailey (West Bromwich, West) (Lab/Co-op)

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

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

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

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

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

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

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

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

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

Mr. Weir

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

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

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

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

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

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

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

Mr. George Osborne

I shall speak about my remarkably prescient amendment No. 82. Before I do that, I want to point out that one of the most serious handicaps that hon. Members experienced in scrutinising the Bill is the absence of the detailed regulations on which most legislation greatly depends. Indeed, the success of child trust funds will depend on regulations. It is worth remembering that at the beginning of the process, the Treasury Sub-Committee stated: The Child Trust Funds Bill was introduced into the House without the relevant regulations covering important aspects including the proposed sales regime. We consider that these must be produced in time for the standing committee to consider them thoroughly. Of course, they were not produced. The White Paper promised them before the end of last year, but they did not appear then or during our Committee proceedings. Indeed, they appeared only yesterday—too late for any amendments that the hon. Member for Yeovil (Mr. Laws) or I could have tabled to be selected. That is a shame.

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

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

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The Financial Secretary has been right to listen to the arguments advanced by the financial providers and by me and others during the passage of the Bill. With a charge cap of 1 per cent. there would have been very few child trust fund providers, most of whom would probably have cherry-picked at the more prosperous end of the market. The Government were right to swallow their pride and get themselves off the hook that they had put themselves on last July over Sandler. I agree with what the Minister said in her written ministerial statement yesterday: The Government's decision on the charge cap is in the best interests of consumers, as it encourages as wide a selection of providers as possible to offer child trust fund accounts. A large number of providers will encourage competition and ensure the best value for consumers."—[Official Report, 2 February 2004; Vol. 417, c. 25WS.] I agree with every word of that.

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

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

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

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

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

Ruth Kelly

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

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

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

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

Mr. Laws

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

Ruth Kelly

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

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

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

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

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

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

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

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

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

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

Mr. Laws

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

Ruth Kelly

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

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

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

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

Mr. Laws

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

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

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

Amendment, by leave, withdrawn.

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