Official Report of the Grand Committee on the Child Trust Funds Bill

HL Deb 18 March 2004 vol 659 cc139-96GC

(First Day)

Thursday, 18 March 2004.

The Committee met at quarter past three of the clock.

[The Deputy Chairman of Committees (Lord Brougham and Vaux) in the Chair.]

The Deputy Chairman of Committees (Lord Brougham and Vaux)

Before I put the Question that the Title he postponed, I remind your Lordships of two points of procedure: noble Lords will speak standing, and the House has agreed that there will be no Divisions in Grand Committee. Unless, therefore, an amendment is likely to be agreed, it should be withdrawn.

If there is a Division in the Chamber—and I believe that there will be—I ask the noble Lord who is speaking to come to the end of his sentence very quickly. The Committee will adjourn and then resume after 10 minutes.

Title postponed.

Clause I agreed to.

Clause 2 [Eligible children]:

Baroness Noakes moved Amendment No. 1: Page 1, line 13, leave out "2002" and insert "1988

The noble Baroness said

It is my pleasure to start this Grand Committee, which we hope that we will get through with as much dispatch as possible. In moving Amendment No. 1, I shall speak also to the other amendments in the group. They all concern the position of children born before 1 September 2002 who are therefore ineligible for child trust funds under the Bill.

In another place the issue of children who will miss out by being born too early was debated extensively. Although the Government have provided a power in Clause 2(7) for the date to be amended later, it is clear from their more recent response to the report of the Treasury Committee in another place that they have no intention of using that power in the near term. That means that child trust funds will be launched without the ability to provide similar savings vehicles for older children. We do not know what evidence of unmet demand the Treasury will require before it moves its position.

We fully accept that child trust funds should not qualify for the Government's contribution. The policy is already expensive enough without that. We do not believe that all families will want to open an account for their ineligible children, but we think that those families that want to treat their children equally so far as savings are concerned should be allowed to do so.

The Children's Mutual has provided much helpful briefing to many noble Lords, I am sure, for our consideration of the Bill. It told us of its concern about families who do not like to differentiate between their children. It believes that those families are just as likely to ignore the savings opportunity created by child trust funds if they cannot contribute in a similar way for all their children. The Minister may say that that is an irrational response, if similar look-alike products can be created, but families are not always motivated by the cold logic of economics. They will be influenced as much by perceptions as anything else.

The amendments would extend the scheme a further 14 years so children of around 16 and a half will be covered when the child trust funds are introduced. In practical terms, that is about as far as one would go to make the child trust fund in any way worth while. Amendments Nos. 24 and 35 allow parents to open an account and do not require the Inland Revenue to send out masses of vouchers that are not needed—that was one of the objections made in another place. Amendments Nos. 46, 50 and 57 ensure that no government contributions need be made to the accounts. I beg to move.

Lord Newby

As noble Lords will know, the Liberal Democrats oppose the Bill. Therefore, in dealing with the amendments, I shall try to follow two principles. No doubt noble Lords will trip me up if I get them wrong. First, I shall oppose amendments that increase the scope of the Bill. Equally, however, I shall support and move amendments that I hope will make it easier for families, particularly poorer ones, to invest. In that way, to the extent that we will have child trust funds, they will work to the benefit of poorer families in particular, who are most in need of additional investment products. Therefore, in following my principles for at least the first group, I do not support these amendments.

Lord MacGregor of Pulham Market

As I made clear on Second Reading, I am very doubtful about the efficacy and cost-effectiveness of the whole proposal in achieving two objectives on which we all agree; namely, greater financial education and the encouragement of many more young people to save, particularly in the longer term. Having said that, I accept that the Bill will be enacted, so what one is trying to do in Committee is to improve it wherever possible, even if one is somewhat diffident about the proposal as a whole.

I think that I declared an interest as a non-executive director of a financial provider at Second Reading, but I have not talked to anyone in the company about the Bill. I want to make it clear that, although that helps me to have some knowledge in the way in which I approach the matter, I express entirely my own position and views.

I support the amendments. I would add only two points to those made by my noble friend Lady Noakes. The first is that, as I recall, during the Select Committee inquiry on the Bill in the other place, a Treasury spokesman indicated that to extend the measure in such a way would have negligible cost. Will the Minister say a bit more about exactly what "negligible" means? It would certainly be helpful. If the cost is negligible, there is a strong case for the measure; clearly, it could have only a favourable impact on families.

Secondly, it has been said that there are other ways in which parents, and particularly grandparents, can save for their children and grandchildren, but no other product can offer quite the same wrapper as the one about which we are talking, in terms of tax. Therefore there is a clear advantage. I agree with my noble friend Lady Noakes that families will be concerned not to put additional money into the scheme. Those who have children eligible for the £250 of government money will not wish to put money into the scheme to advantage one child over the other older children.

I therefore support the amendment, and hope that the Minister will now look on it favourably.

The Parliamentary Under-Secretary of State, Department for Culture, Media and Sport (Lord McIntosh of Haringey)

The noble Baroness, Lady Noakes, has very fairly stated the purpose of the amendments. They indeed take the initiative that we propose of the child trust funds and apply it retrospectively, in effect, for a period of 14 years. There is nothing wrong in principle with that, but we take the view that we have put forward a proposal that, as the noble Lord, Lord MacGregor, rightly said, is an innovative approach to financial planning, education and saving. We think that what one does with a new proposal is take a deep breath and start; one does not take 14 steps backwards and then start.

I acknowledge that there was some support for the idea at Second Reading; the noble Lord confirmed that. I acknowledge that the proposal is not expensive, in the sense that it is not proposed that there should be an initial payment from the Government.

[The Sitting was suspended for a Division in the House from 3.23 to 3.31 p.m.]

The Deputy Chairman of Committees

As all noble Lords are present, we may as well carry on.

Lord McIntosh of Haringey

I was about to say in response to the noble Lord, Lord MacGregor. that there is no enormous expenditure immediately because the amendments do not provide for the initial government payment of £250 to £500. However, Amendment No. 4 provides that there could be later payments. It may not intend to, but it does because it allows the possibility of seven year-old payments, for example. It had to be put in that way in the Commons because otherwise the amendments would not have been accepted. So there could be substantial costs if Amendment No. 4, which seeks to remove subsection (2), was interpreted in that way.

But that is not a significant point in my argument. I question whether these proposals would provide a strong incentive to parents to save on behalf of their children. The IPPR research into child trust fund payments was positive about starting the ball rolling because there is an initial payment by the Government. However, under the proposals in this group of amendments, the only incentive would be the tax advantage—and that would be only for parents with higher incomes. I do not believe that that is a particularly desirable way of approaching an initiative which is intended specifically to encourage saving among those families which are less likely to save—in other words, poorer families.

In any case, there are plenty of savings and investment plans for children already available, many of them with tax incentives. There could be more if there were a greater demand. Even so, there is only about a 50 per cent take up for them and it is difficult to see how these proposals would stimulate a much greater demand.

In addition, these amendments would add substantial complexity and costs for the Inland Revenue. Amendment No. 3 would remove the flexibility in the Bill to build on the foundation of the child trust fund. So the amendments are undesirable for those reasons as well.

It sounds as though I am 100 per cent against these amendments, but I am not quite. The Financial Secretary said in the Commons that we will monitor the demand for child savings against the existing provision. If there seems to be a gap in the market, and if further regulation is needed, we shall consider what to do about it.

I thank the noble Baroness, Lady Noakes, for introducing the amendment as she did. It has not fallen entirely on stony ground. There is the possibility of reconsideration which would not require amendment to the Bill at a later stage if necessary.

Baroness Noakes

That felt fairly stony to me. Perhaps I may probe the Minister on what the Treasury would have to be convinced about if it was to activate the power in subsection (7). It has been left rather vague. The Minister referred to a gap in the market and unmet need was referred to in another place. I am unclear as to what would convince the Treasury that it was worth extending the vehicle in the way that I suggested—that is, without a government contribution.

Lord McIntosh of Haringey

The fundamental point is that there is already a range of products available for savings for children. As someone involved in the area, the noble Lord, Lord MacGregor, is more expert on this subject than I. Many of those products, including more obviously National Savings and premium bonds, have tax advantages no greater or less than the tax advantages which would be available from a shell CTF fund, but the take-up of those products is only 50 per cent.

If the market were to change in such a way that no longer were there vehicles available to make tax-advantageous savings for children, at that point we would think about it again.

Baroness Noakes

I thank the noble Lord for that additional information. I shall not prolong the debate, but the noble Lord referred to Amendment No. 4—

Lord McIntosh of Haringey

I am sorry, I meant to refer to Amendment No. 3.

Baroness Noakes

The noble Lord spoke of the amendment involving a cost. I am afraid that I do not understand that because Amendments Nos. 46, 50 and 57 have been designed to ensure that the Government do not have to put any money into these funds. It they do not cover all the possible ways in which the Government could make a contribution, then we shall look at that again.

Part of the problem is that the Government see this as a matter of creating a fiscal advantage even though it has been accepted that the pot would be relatively small; that is, the amount of additional savings going into this route would not generate very much income able to escape tax, given the child's personal allowance. The point made by organisations such as Children's Mutual is not a fiscal one, rather it is for having an identical vehicle. The child trust fund will exist for post-2002 children. The Children's Mutual and others believe that parents like to treat their children equally. If they have pre-2002 and post-2002 children, the question is whether they would be able to put in equal amounts. The Children's Mutual believes it likely that parents will choose not to use the child trust fund at all if they cannot treat their children equally, which would be disappointing for the Government. So I do not want us to become hung up on the apparent fiscal advantages because I am not sure that I am trying to argue for that. Rather, I am arguing for an equivalent savings vehicle. I am not persuaded that either premium bonds or National Savings come close to offering that.

The other products often advanced as possibilities, such as ISAs and stakeholder pensions—an extraordinary proposition—simply do not meet the case either. There are a number of features about the child trust fund, in particular locking the money in until the age of 18, which are attractive for generating savings from grandparents and non-parent donors.

I shall not press the amendment—I could not do so in Grand Committee anyway—but I hope that the Government are prepared to look at this again because there are real reasons, not tax-avoidance reasons, for trying to extend this scheme. That is why we have put forward this proposal. It is a genuine attempt to widen the scope for encouraging savings.

Lord McIntosh of Haringey

I do not want to prolong the debate any more than does the noble Baroness, but has it occurred to her that the market could well introduce savings or investment plans which would mimic the child trust fund, thus providing equity between older and younger children in families looking for such a product?

Baroness Noakes

We will have to watch what the market chooses to produce to see if that happens. However, I have been advised that it is difficult to mimic all the features of the child trust fund, in particular the lock-in until the age of 18, which is regarded as an especially important feature. That has been my advice, but if the Government have other advice and providers come in with products, then we shall see.

Lord MacGregor of Pulham Market

Is not another advantage the £1,200 per year limit attached to the child trust fund, which I do not think is available elsewhere.

Lord McIntosh of Haringey

Perhaps not, but it could be.

Baroness Noakes

We believe, on all kinds of grounds, particularly that of making sure that savings are properly encouraged among families—an aim, as the Minister will be aware, that is deeply ingrained in my party—that this is an important issue. However, for today, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Baroness Noakes moved Amendment No. 2: Page 1, line 14, after second "child" insert "or would be so entitled if a claim were made

The noble Baroness said

In moving Amendment No. 2, I shall speak also to Amendment No. 26. They concern the position of children whose parents do not claim child benefit. Under Clause 2, one of the ways in which a child becomes eligible is if someone is entitled to child benefit in respect of a child". I understand from the Explanatory Notes that "entitled to" means that child benefit has been claimed—it does not mean that you are allowed to claim it but that you have actually claimed it.

I understand that the take-up of the child benefit— one of the very few non-means-tested benefits—is high, at around 98 per cent. That still leaves 2 per cent of children born each year—around 1,400—who would be deprived of child trust funds if their parents had not, for one reason or another, claimed child benefit. My amendment probes why that is the case.

I am sure that it is much simpler for the Inland Revenue to drive the child trust fund system from child benefit claims, but is it right? Why should children lose out because their parents, whether through ignorance or otherwise, have not put a claim in for child benefit? In other respects, the Bill falls over backwards to make sure that children get their funds, so this rigid adherence to the child benefit element is rather difficult to understand. Can the Minister say something about the categories of children who are likely to be excluded by this rule? I beg to move.

Lord McIntosh of Haringey

In answer to the last question, our understanding is that the 2 per cent who do not claim benefit are virtually entirely wealthy parents who do not consider it worth while to claim benefit, those for whom the difference is not significant. That really goes to the heart of the argument. The noble Baroness, Lady Noakes, is right that "entitled to" means that child benefit has actually been claimed, and she is right that that applies to 98 per cent of children. So, clearly, to replace the phrase "entitled to" by "eligible for" would add only, or almost entirely, wealthier families. I would not worry so much about that except that it would do so at very considerable administrative effects for a very small purpose.

Under the "entitled to" regime, there is no need for any claim to be made because the voucher is issued to the parent with the child benefit itself. That becomes an automatic procedure. The publicity—the marketing—for the child trust fund will take place together with the publicity for child benefit, which has been enormously successful.

How would the system work under the amendment? How would the Inland Revenue contact parents who had not claimed child benefit? You would need to have a separate claims process and a separate inquiry process, all for the benefit of 2 per cent of parents who do not really need it. On this issue, both on principled and on practical grounds, this is stony ground.

Baroness Noakes

I thank the Minister for his response which was not, of course, surprising. I was probing to see whether there was evidence that it was wealthy rather than ignorant parents who did not claim child benefit. I do not think I have ever seen any evidence or research into that, which was why I was probing, although I have heard assertions. I will allow the Minister to consult with his officials.

Lord McIntosh of Haringey

If I have anything I can say to the noble Baroness about evidence, I will certainly do so.

Baroness Noakes

That is extremely kind of the Minister. I look forward to seeing anything that his officials can dredge up for him, because that would be interesting.

I can imagine a scheme, which would not be particularly difficult, in which registrars of birth would be given a notification of child trust funds. But we did not design the scheme, and if the Government wish to confine the system in this way, I do not think we will be pressing this amendment at a later stage. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 3 not moved.]

3.45 p.m.

Baroness Wilcox moved Amendment No. 4: Page 2, line 27, at end insert— ( ) No regulations may be made under subsection (7) unless a draft of the regulations has been laid before and approved by both Houses of Parliament.

The noble Baroness said

In moving Amendment No. 4, I shall speak also to Amendments Nos. 48, 49, 59 and 91. These reflect the recommendations of the Select Committee on Delegated Powers and Regulatory Reform report on the Bill. All the amendments refer to specific subsections of the Bill where the regulations are to be made by negative procedure. In these circumstances, the Delegated Powers Committee has been of the opinion that the issues in question are of significant importance and that the affirmative procedure is therefore preferable.

I shall briefly outline the specific issues, the first of which is the power under Clause 2(7) to substitute an earlier date for 31 August 2002 in Clause 2(1). It concerns which children will be eligible to receive CTFs. The Delegated Powers Committee considered that this power should be constrained by an affirmative procedure because of the, implications for public expenditure and the political sensitivity of the issue of eligibility". We thoroughly agree with that conclusion and are happy to see it included in the government amendment to Clause 28.

The second and third amendments focus on the initial Inland Revenue contribution to the fund under Clause 8(1 ) and the supplementary Inland Revenue contribution for children from low-income families under Clause 9(2). Again, the amount of money to be made available should be a matter for affirmative procedure, especially in view of the fact that it can be altered. The Delegated Powers Committee commented that only a future change in the amount should be subject to affirmative procedure, and the Minister has picked that up in the government amendment to Clause 28. We would prefer, however, for any regulation setting out the amount for contribution to be subject to affirmative procedure. At the moment the regulations that we have are only in draft form and could therefore, in theory, be changed when laid before the House as regulations. We see no reason why any regulation under Clauses 8(1) and 9(2) should not be subject to the affirmative procedure.

Our fourth amendment in this group makes clear that any regulations under Clause 10(1) or (2) should also be subject to affirmative procedure as recommended by the Delegated Powers Committee. These subsections propose regulations providing for any additional payments on top of the initial government contributions. We know that the Government intend to make a further contribution at seven, but that is not made explicit either on the face of the Bill or in the regulations. There may also be supplementary provisions for children on low income within this secondary contribution, but again the details are as yet unspecified. We strongly support the recommendation that these regulations be by affirmative procedure. That has been reflected in the government amendment to Clause 28, for which we are grateful.

Our final amendment in this group picks up the point made by the Select Committee on Delegated Powers and Regulatory Reform at paragraph 15. Subsection (2) of Clause 28 states: (2) Any power to make regulations or an order under this Act includes power to make any incidental, supplementary, consequential or transitional provision which appears appropriate for the purposes of, or in connection with, the regulations or order". That is not strictly a Henry VIII power, because the power is in relation to regulations and orders under the Bill. This power is significantly wide-ranging, however, as it refers to any regulation which makes, incidental, supplementary, consequential or transitional provision"; and that may include commencement orders which are subject to no parliamentary procedure.

This is a framework Bill, and we must take in good faith the draft regulations that fill out the detail, and which we will later have no power to amend. That is not an ideal situation, therefore I do not think it is too much to ask for any regulations which exercise the power under subsection (2) of Clause 28 to be subject to affirmative procedure.

I thank the Minister for his comments on Second Reading, where he stated: This morning, the Select Committee on Delegated Powers and Regulatory Reform published a report on the Bill, for which I am grateful. I understand, on first reading, that it has made a number of suggestions for substituting affirmative for negative resolutions in the Bill. At this stage, I see no difficulty in our complying with its proposals".—[Official Report, 26/2/04; col. 352.] However, we feel that the amendments which the Government have subsequently tabled under Clause 28 do not go quite far enough in meeting our concerns. They have picked up the recommendations on Clause 2(7) and Clause 10(1) and (2). We believe, however, that there is considerable merit in extending affirmative procedure provisions further, to all orders under Clauses 8(1) and 9(2) and to any orders which use the broad power to make any incidental, supplementary, consequential or transitional provisions. I beg to move.

Lord Newby

We are sympathetic to the amendments, but, with affirmative resolutions or any kind of secondary legislation, the key is an ability to see the regulations in draft. As we know, having an opportunity to vote them down in the House is a very rarely used sledgehammer. It has been extremely useful and helpful to see draft regulations so far on the operation of the CTFs. I would be grateful if the Minister could assure us that, as the scheme is rolled forward, that principle will be followed. Draft regulations should be published in good time, so that all those who will be affected by them—particularly the CTF providers, which made a lot of very sensible comments on the draft regulations that we have seen to date—have a chance to see them in future.

Lord McIntosh of Haringey

That last remark looked a gift horse in the mouth. I thought that we were doing pretty well to have published the regulations in advance of Committee. Of course we will publish future regulations as soon as we can, but it is a requirement that we should consult on regulations before they are finalised. What the noble Lord, Lord Newby, is asking for will be achieved anyway; we always consult on the content of regulations with everyone concerned. One cannot consult unless one has made the regulations public in the first instance.

I shall respond to the opposition amendments and speak also to my amendments in the same group. I am grateful to the noble Baroness, Lady Wilcox, for the way in which she introduced her amendments. However, as she reminded us, the Select Committee on Delegated Powers and Regulatory Reform published a report on the Bill on the morning of Second Reading. She rightly said that I saw no difficulty in complying with its recommendations. That is precisely what we have done. The report recommended that the regulations relating to extending the category of eligible children, the level of the subsequent. initial and supplementary contributions, and the amount of any further contributions should be subject to affirmative procedure. That is precisely what Amendments Nos. 93 and 94 do.

The noble Baroness acknowledged that her amendments go further and state what she would want to be subject to affirmative procedure. It has been—all credit to the Delegated Powers Committee—the practice of government ever since the committee was set up that we should comply with its recommendations. For the sake of good order and the procedures of the House, to add unnecessarily affirmative procedures that have not been requested by the committee is not a particularly good idea. I hope that we will be satisfied with compliance with the committee's recommendations, rather than extending them.

Baroness Wilcox

I thank the Minister for his reply. Of course, I am disappointed that the power of my argument did absolutely nothing to move him forward. I feel rather sorry to have lost so early in the game. I cannot really understand why he has not agreed to extend the affirmative procedure provisions. The fact that it has not been recommended by the committee is not enough. I feel that I shall go back and see whether I can phrase my arguments better next time round.

Lord McIntosh of Haringey

No—they were very well expressed.

Baroness Wilcox

I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 2 agreed to.

Clause 3 [Requirements to be satisfied]:

Lord Newby moved Amendment No. 5: Page 2, line 31, at end insert— ( ) 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.

The noble Lord said: Under Amendment No. 5, child trust fund account providers will not be required to provide equity-based accounts and building societies, in particular, will be able to offer cash-based accounts.

The reason for the amendment is that the Government have required all bodies which offered CTFs to offer stakeholder equity-based CTFs. At the moment, more than a quarter of all building societies, mainly the smaller societies, do not have the authorisation from the FSA to offer regulated investment products. Therefore, as things stand, they cannot offer the equity-based CTFs without taking action.

The building societies affected by this are regionally based societies with a good reputation and, typically, a very substantial market share in their local areas. They are leaders in the provision of accounts for children and, as mutuals with no shareholders, they tend to pay higher than average interest rates. They are the logical places where many less well off families might go to open CTFs but, as matters stand, those families will be deprived of the opportunity.

Why is this? It is because in order to offer the stakeholder CTFs—which, by definition, will be provided not by the mutual but by another financial institution—the mutual will have to apply to the FSA to extend the regulatory permissions under which it operates. This will impose additional costs and an ongoing burden of compliance which, given the 1.5 per cent charge cap, will mean for these societies that it will not be worthwhile incurring the additional regulatory burden. I understand that of the 17 societies in this category, as matters stand today, only one is planning to extend its permissions.

In the debate at Report stage in another place, on 3 February, the Financial Secretary to the Treasury said that this problem would be dealt with by "depolarisation". She subsequently confirmed that in a letter to the Building Societies Association on 18 February. The letter basically said that the FSA is considering the proposals for demutualisation and is consulting on it, and that this will solve the problems of these building societies.

Unfortunately, that is not the view of the building societies themselves. They believe that they will still have significant additional compliance costs and that they will be unable to make financial sense of offering the stakeholder equity-based products, and therefore will not offer any CTFs at all.

What I find bizarre about the situation is the Government's obsession with equity-based CTFs. Although as a parent you can choose one or the other—an equity-based or a cash-based CTF—such a choice is, in a sense, denied to the provider who has got to offer an equity-based CTF.

I know the arguments only too well that, over an 18-year period, cash invested in shares in the UK will do better than an investment in a deposit account, but one has to consider the motivation of parents and grandparents, particularly those from lower income households, who are not familiar with the Stock Exchange and read horror stories about boom and bust. They do not necessarily have in their minds an 18-year rolling average and are content to put their money in a cash-based deposit.

I remind the Committee of a point that my colleague David Laws made in another place: although shares have done very well in the United Kingdom over the past decade, it is not a uniform and inevitable situation. In Japan, for example, the NIKKEI index peaked in 1987 at 38,000, while this morning it was under 11,500. Therefore, in the unlikely event that you had invested a child trust fund in Japan in 1989, you would still feel pretty sick. Your child, who would be reaching payment age in three to four years, would feel that something had gone seriously wrong.

I do not suggest that we will have the kind of inflation and depression that has prevailed in Japan. However, the argument that what goes down must come up within a set timeframe so far as concerns the Stock Exchange is not an immutable law of nature. It is a subsidiary argument as regards why we believe that the requirement that all providers should offer an equity-based product is misguided. I hope very much that we might persuade the Government to think again on the issue. I beg to move.

4 p.m.

Baroness Noakes

We support the sentiments expressed by the noble Lord, Lord Newby. We have a great attachment to equity markets. We think that they should be encouraged and promoted, but not that they should be compulsory sources of investment. The thinking behind the amendment is similar to our Amendment No. 7, which would remove the requirement to offer a stakeholder account as defined in the regulations. It is a serious flaw that there should be such a compulsion to have a stakeholder account, which has some disadvantages, and that such an account is defined by reference to equity. To that extent, we support the noble Lord, Lord Newby.

I wish to raise one specific question that has been put to me. It relates to single pricing, which is within the equity component of a child trust fund. This may not be the right place to raise the matter, but it is as good a place as any that I could find to discuss single pricing with the Minister. It has been put to us that stakeholder child trust funds cannot offer investment trusts that are traded, because, when they are traded on the stock market, they are by definition dual-priced. The Association of Investment Trust Companies is particularly concerned about that. It believes that, if the equity component remains as currently drafted—that is, using single pricing—CTFs will have to exclude investment trusts. It would be helpful to know whether the Government accepted that interpretation. If not, could they explain how investment trusts could fit into the draft regulations for stakeholder child trust funds? The industry is particularly concerned about that matter and hopes that the Government would be prepared to reconsider it. Investment trusts, because of how they spread risk and involve an element of gearing, provide a vehicle that should be considered by those putting together investment portfolios for vehicles such as child trust funds.

Lord McIntosh of Haringey

The issue is not choice or no choice. but whose choice? We provide that parents should have the full range of choice, whether stakeholder funds, equity-based funds or cash funds, from any provider that they choose to go to. The noble Lord, Lord Newby, appears to be concerned about the choice available to providers; we are concerned about the choice available to parents.

It is the case that the draft regulations for the child trust fund require that child trust fund account providers include a stakeholder pension, which is equity-based, as part of their product range. The stakeholder account will be equity-based, as the Government want all children to have the opportunity to benefit from the generally higher return on equities over the longer term. We debated this on Second Reading. I said that in any given 18-year period since 1918, equities had done better than cash. The noble Lord, Lord Newby, used the word "fanciful" about his Japanese example, and I must say that I take it as a little fanciful.

There is, of course, the risk of a loss in value, but there will be a requirement to diversify funds and to move them out of equities to less risky assets as the account nears maturity. We can debate that when we are considering later amendments.

The fact that we require all CTF providers to offer a stakeholder account should reduce the chances of providers automatically providing only cash deposit accounts to lower income families. You have a choice—you cannot have all choices available to everybody without some building societies offering a more limited range of options to parents. The noble Lord, Lord Newby, confirmed that, saying that all but one of the building societies that he is concerned with would not wish to offer stakeholder pensions. The parents who go to these providers because they know them or for whatever other reason will have less choice than others who go to providers who offer the full range.

I think it is more important for parents to have choice than for providers to be marginally inconvenienced. I have made it clear that the CTF regulations will not preclude building societies or anyone else acting to acquire the permission if they felt there was sufficient market opportunity. That is a commercial decision for them. On those grounds, I do not support the amendment.

The noble Baroness, Lady Noakes, said that this was a good a place as any to discuss single pricing. She is right that the draft regulations currently refer to a requirement for single pricing for the stakeholder account. It is part of the overall stakeholder suite, which has key aims of simplicity and transparency. We require single pricing of the top-level fund to achieve these aims, but we are still examining whether it is necessary on sub-level funds—that is, funds investing in funds. I think that that is part of what the noble Baroness was talking about.

We have had feedback from the Association of Investment Trust Companies, and we will be speaking to it about this in due course. If there is any feedback I can give the noble Baroness on that point, I will do so as soon as I can. Meanwhile, I am not able to accept the amendment.

Baroness Noakes

I thank the Minister for dealing with my comment on single pricing, and I will discuss it further with the Association of Investment Trust Companies, which raised the issue.

The Minister kept referring to parents having choice. If he believes in markets, there will be lots of choice out there. Surely having choice does not mean that every provider has to offer at least one product or that every provider has to offer choice. That is not what the Government have created in their scheme. Instead, each provider must offer a particular variety of funds which has some disadvantages and some unattractiveness to certain natural providers in this marketplace. So I do not understand the Government's argument about choice.

Lord MacGregor of Pulham Market

I agree. I did not follow the Minister's argument about choice—it did not seem at all logical. What matters to the parents is that they have a wide range of choice, irrespective of who the provider is. If there was a part of the country where the local building society was the only society offering a cash CTF, that may be so, but there is no part of the country where that applies. In every part of the country parents will have the choice to go for either a cash-based or an equity-based CTF and, in that sense, it does not matter to them who is the provider.

The Minister is almost saying that if you want to buy children's shoes you have to go to a shop which provides every range of children's shoes; you would not be allowed to go to a shop that provides only its own shoes. I cannot follow that argument because the choice is there.

From the provider's point of view, the Minister might argue that there would be a restriction on choice if these particular local building societies were allowed to offer only their own products. It may well be that some parents will prefer to go to such building societies because, as the noble Lord, Lord Newby, pointed out, they know the local people involved and so on. That would seem to restrict the range of choice. As far as I am aware, we do not require every ISA provider to provide every type of ISA; we give them the choice and individuals can choose.

Where are we heading on this? What is the analogy? I do not follow it. I hope the Minister will think again.

Lord McIntosh of Haringey

The noble Lords, Lord MacGregor and Lord Newby, and the noble Baroness, Lady Noakes, are certainly more sophisticated investors than I am. I am sure they will recognise that we are speaking about a very large number of parents and families who have never made any investment decisions in their lives at all. Far too few families make investment decisions. It is one thing to explain the difference between a stakeholder product and a cash-based product—it is a universal argument which applies to everyone, and anyone with a certain amount of financial education, which is what we are talking about here, can understand the issue—but it is another thing to say that such parents and families would welcome the opportunity to make choices between different providers when some of the providers do not have the full range. They have got to consider that as well, and that seems to raise an obstacle to choice.

Most people who have never invested before will look to someone in whom they have confidence or who has perhaps been recommended to them. Under those circumstances, the protection that they have is that whoever they go to will offer them the full range of choice. It is very different from sophisticated and mature markets. We are talking about extending investment to large numbers of families who have never invested before. What we are proposing will give greater choice to parents.

Lord Newby

I think the Minister is trying very hard but he has certainly not persuaded me in regard to choice. The more he talks about families who are not sophisticated investors and who might have one account with one building society, the less persuasive he is. If I am in that category, I have got a building society account and I have got my book. That is what I hold on to as my investment. I understand that. Suddenly along come child trust funds and I think that I can just about afford to put a little money into one of them and I go to people with whom I am familiar.

Under the current rules, 16 of the mutuals providing for these people will not offer any choice because they will not take up the equity-based products. They have made that very clear. So, in that situation, I have to look beyond that one possible account and I am suddenly faced with a huge raft of choice from unfamiliar institutions, possibly not based in the town in which I live. I would have to contact them by post and so on. In those circumstances, if I was a marginal investor I might not invest. Therefore, in reality, choice is not being extended in the way in which the Minister states.

I shall not press the amendment today but I have not been convinced by the Minister's arguments. We shall think carefully about whether we should return to this issue on Report. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Newby moved Amendment No. 6: Page 2, line 33. 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."

The noble Lord said: In moving Amendment No. 6 I shall speak also to Amendment No. 13. They are different, but because they deal with the same principle I did not degroup them. Amendment No. 6 proposes to reduce the minimum amount that child trusts funds can accept from £10 to £5. Amendment No. 13, which is probably less clear in its intent, deals with an issue relating to the charge cap.

On the question of the minimum amount, I realise that there is a trade-off between the charge cap and the minimum. If we want to make these accounts accessible to poorer families, there is no point in setting a contribution cap that is too high. It is a matter of judgment whether £10 or £5 is too high. I am sure that the Government consider £10 to be a sensible sum. From my experience of inner city institutions trying to collect funds, £10 is a substantial amount and can be a deterrent to some people I think that this view was shared by the Building Societies Association in its representations to government. The £10 minimum will prove to be a disincentive for a raft of families and it is therefore too high.

There is a specific issue concerning the way in which child trust funds will be available—and where—which relates specifically to people at the bottom end of income. Supermarkets have been very successful at introducing financial services products in recent years. I understand that, to a large extent, those products have been taken up by people who have not had bank accounts, insurance policies and so forth before. The supermarkets have been very good at reaching exactly the kind of people that CTFs seek to target.

Have the Government had specific discussions with the supermarkets—the Tescos of this world—about whether they are thinking about introducing CTFs? Would the Minister consider speaking to them about that? In terms of accessibility, supermarkets are by far the most promising. Everyone goes to the supermarket. If people have a spare fiver—under my rubric—they might put it into a child trust fund. Perhaps people could even get bonus points on their loyalty cards if they are investing in child trust funds That could be an innovative way of broadening the scope of child trust funds which I am not sure that the Government have pursued.

Amendment No. 13 relates to the 1.5 per cent charge cap. The issue is the extent to which the 1.5 per cent cap will give providers of CTFs the resources to market them as effectively as they might wish. Again, if I am that notional parent considering whether to invest in my child's CTF, the extent to which I might do so will be influenced by the effort made by the providers to persuade me. It is like any other form of marketing. The Association of Friendly Societies has suggested—even within the 1.5 per cent charge cap overall—a way of making it easier for providers to market child trust funds at the point when parents are most likely to be thinking about investing in them. That is when the child is born, when the voucher arrives or possibly when there is a top up. Instead of having a fixed rate 1.5 per cent charge for each of the 18 years, it could be skewed towards the first year or two. More costs could be chargeable then so that the providers could spend more on marketing at that point.

The great advantage of these funds is that we know exactly how long the money will be in the fund. Therefore, actuarially, the sums can be done about the maximum that needs to be got back over that period. Recently we had a discussion with the Minister and his officials. It was explained that the Inland Revenue would send out an explanation about CTFs and the scope for additional contributions when the voucher was issued, and that it would be a persuasive document.

From personal experience, the document that is least likely to persuade anyone of anything is one from the Inland Revenue. One would be predisposed not to treat it as a marketing document. Unfortunately, for many people, the predisposition would be to chuck it away unread. The idea that the Inland Revenue is best placed to market CTFs is fanciful. I beg to move.

The Deputy Chairman of Committees

There is a Division in the House. Therefore we need to adjourn for 10 minutes.

[The Sitting was suspendedfor a Division in the House from 4.21 to 4.31 p.m.]

4.31 p.m.

Lord MacGregor of Pulham Market

As far as Amendment No. 6 is concerned, I must be consistent. At Second Reading, I argued that the 1.5 per cent charge cap might deter a number of providers from coming forward. Of course, we must remember—I am sure that the Minister will deploy this argument—that child trust funds will involve a huge number of individual and small operations, such as subscriptions and so forth. They will involve a great deal more back-office work in administration than many other equivalents, such as stakeholder pensions.

Even since Second Reading, we have seen more providers pulling out of individual stakeholder pension schemes, and even threatening to pull out of group pension schemes where there are only a small number of people in the company. Now it is a very real issue even for the stakeholder pension. Even with the 1.5 per cent cap, I suspect that that could be an issue.

The noble Lord, Lord Newby, said that it was a matter of balance and judgment, but if one went down to £5 and said that it was compulsory—not voluntarily down to £5 with perhaps a compulsory at £10, but compulsory at £5—1 think that would be a considerable disincentive. We have often quoted the Children's Mutual, which is probably likely to be one of the greatest providers in this area. It accepts that it is a real challenge to get down to 1.5 per cent. This could be the straw that breaks the camel's back.

As regards Amendment No. 13, I suspect that there may be technical grounds for saying that this does not achieve the objective. However, I have a lot of sympathy with the general principle and, in particular, with the illustration given by the noble Lord, Lord Newby. He made a point about the need for marketing to parents in the early stages of an individual child holding funds.

There is a very real problem for companies. The charge for the first year will be £3.75, which will not take companies very far in terms of the costs of setting up an individual fund or in terms of marketing. That will not be possible within that charge limit and so there will be a big cash-flow problem for individual providers over the 18 years. I have a great deal of sympathy with the noble Lord's suggestion to front load some of the charge.

The noble Lord is right about marketing. In my constituency, on one occasion I sent a congratulatory letter to an elderly couple who were celebrating their diamond or golden wedding anniversary. One does not often get thanks from constituents but when I bumped into them about two years later they said that they had been meaning to tell me how grateful they were for my letter. But I was astonished to learn that they had left it unopened on their mantelpiece for a year because the stamp on the letter made it look like an official document. They did not want to open it in case it contained something worrying.

I suspect that the comment made by the noble Lord, Lord Newby, about the use of the Inland Revenue as a marketing device falls into that category. I have sympathy with that point. I hope that the Government will monitor this issue very carefully. It may be necessary to provide greater flexibility in the charging and the phasing of the charging in order to bring in enough providers.

Baroness Noakes

We have some sympathy with the amendment's objective of reducing the minimum subscription. On the other hand, we find it very difficult to accept it because of the costs placed on providers and the currently proposed 1.5 per cent cap. Although a 1.5 per cent cap is not nearly as scary as a 1 per cent cap, as was originally mooted, the industry is not falling over itself to say that it can do what it has to do within that. As my noble friend Lord MacGregor said, the Children's Mutual says that it will be tough to do it within the cap.

The noises coming from other parts of the industry are that they are not convinced they can do it within the cap. It is a cause of some concern. I find it difficult to separate the issue of the charge cap from that of the minimum subscription. That is why, in a moment, I shall return to the issue of whether we need to have stakeholder compulsion. It is stakeholder compulsion—the compulsion element at the core of the child trust fund—that is driving all of these problems.

I have some specific points on the charge cap. The industry still has concerns about this issue, the first of which concerns the sales regime. Perhaps the Minister can say when the industry will be given details of the sales regime. It is waiting for information from the FSA. Until we have details of the sales regime, potential providers will not be able fully to cost what they are required to do in order to cope with child trust funds.

Secondly, who will decide what is and is not included in the charge cap? A number of practical issues have arisen in stakeholder pensions regarding what is and what is not included in the cap. There have been a number of difficult discussions with OPRA about the issue. I do not know the details, but the industry tells me that that is the position. The industry would like to know whether the rules on the charge cap will be consistent with those for stakeholder pensions; which bit of Government will decide these details; and with whom the financial services industry will have to deal in this regard.

The final specific point is again on positive money-laundering regulations. Perhaps the Minister can say whether the money laundering regulations will be applicable to, for example, third parties who contribute to child trust funds. He will be aware that onerous requirements in the money laundering regulations will have a significant impact on providers' costs and may further diminish the attractiveness of providing child trust funds. So we also seek some clarity on the money laundering regime.

Lord McIntosh of Haringey

I think and hope that the issue on Amendment No. 6 is simply a misunderstanding. Any provider can accept £5, £2 or twopence ha'penny if they want to; it is a question of what they are obliged to accept. Our understanding is that providers—to whom, clearly, the noble Lord, Lord Newby, has been talking—are very reluctant to be obliged to accept a contribution as low as £5. I think that that is the point made by the noble Lord, Lord MacGregor, and I do not think that I need to pursue that matter any further.

On Amendment No. 13, the noble Lord, Lord Newby, suggests that we should allow higher charges in the earlier years. We carried out research to consider the benefits and disbenefits of that. We will publish the results of the research once the charge cap for all stakeholder products is announced later this year, after the FSA has considered the sales regime. There will therefore be an opportunity to consider the matter again. It could be changed by regulation; an amendment to the Bill would not be needed.

The noble Baroness, Lady Noakes, asked about the publication of the sales regime. The FSA aims to publish its consultation paper on the sales regime at around the end of next month. It will need a three-month consultation period. Allowing time for analysis of the responses to the consultation, it aims to publish its final rules in October this year. At that stage, it will announce the conclusions of the research on the issue dealt with in the amendment tabled by the noble Lord, Lord Newby.

The noble Baroness, Lady Noakes, asked what was in the cap, and whether we were using the same definition as for stakeholder pensions. We are still considering what is in the charge cap, alongside the consideration of other stakeholder products. We shall clarify the matter as soon as possible.

The noble Baroness's third question was about money laundering. We are working with the FSA on how the child trust fund requirements fit into existing money-laundering rules. We do not think that it is a very suitable vehicle for money laundering. If I were involved in money laundering, I would not use child trust funds: the amounts are rather small; there is a lock-in until age 18; and only the child can have access to the fund. I doubt whether it is a serious problem.

Baroness Noakes

I think that the noble Lord misses the point. It is not a question of whether the trust appears attractive to money launderers; it is whether the money-laundering regulations are likely to kick in, which means getting information about people from whom you accept money.

Lord McIntosh of Haringey

I understand that, but we have a joint money-laundering steering group, which will give guidance in good time for the implementation of the child trust fund. In other words, the matter is being looked at, and we understand the problem that the noble Baroness raises, but the steering group will consider the issue.

On the original amendments, I hope that I am right in thinking that there was a misunderstanding about obligatory lower payments and possible lower payments.

Lord Newby

I am grateful to the Minister. There was not a misunderstanding. Both amendments are probing; they relate to issues covered by regulation rather than primary legislation. The point of both amendments, as I made clear, is that I fear that the child trust funds will become another way for middle-class parents to save for their children without paying tax. If the child trust funds are to achieve the Government's intentions, they must be attractive to parents not saving for their children at present— predominantly lower-income parents. If the majority of child trust funds have a £10 minimum payment, and if the majority are so circumscribed in terms of cash availability that they are not properly marketed, lower-income parents will not take them up in the numbers that the Minister wishes.

I am afraid that I do not accept the Minister's points. With those comments, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

4.45 p.m.

Baroness Noakes moved Amendment No. 7: Page 2, line 34, leave out subsection (3).

The noble Baroness said

I will not take a lot of time in introducing this amendment because I think we have covered a lot of territory already. To summarise, it would delete Clause 3(3). These regulations, in effect, force child trust fund providers to provide stakeholder accounts. As I said earlier, we do not believe that compulsion should be an element.

We have a number of concerns, some of which we have already outlined. While we have nothing in principle against stakeholder accounts, we worry that they have come to mean something along the lines of "This is something the Government believe is good for you". With that comes the danger of undermining the basic principle of caveat emptor, which should be reinforced in the financial services industry. People should not expect products to be guaranteed or risk-free.

With the stakeholder element, the Government are pushing people towards accounts which have a relatively high degree of risk attached. Admittedly, they have the prospect of higher-than-average returns but they are risky. We are concerned that the way in which the legislation is constructed, with every provider having to have a child trust fund account and every trust fund account having to have the equity component, we are taking the investing public in a direction which the Government—or the one after them—may well live to rue.

We have talked about other problems such as having to provide the equity component. The noble Lord, Lord Newby, talked about some providers simply not being able to do that, thereby depriving some elements of the community of known and trusted providers. We have also talked about the stakeholder requirement which has the 1.5 per cent cap built into it. I heard what the Minister said about how some of these issues would be resolved, but what I actually heard was uncertainty. There is uncertainty about the sales regime because of not knowing until October what will happen and what that would do to costs, not knowing what was in the cap until later and not knowing whether the money laundering regulations would have to be used by providers in relation to collecting the additional funds. All those factors make the stakeholder element an extremely unattractive proposition.

The Government accept that if providers offer a stakeholder element, they can offer a non-stakeholder account side by side. As I understand it—and I hope the Minister will confirm this—that non-stakeholder element has no restrictions on what it can be invested in. It has no charge caps, no minimum subscription restrictions and is a very different product.

The industry may well develop so that there is a tiny stakeholder product in a drawer somewhere that it does not really push, while it has a variety of child trust fund accounts that it does want. Do the Government have the balance right? That is why we propose in our amendment to remove the provision which insists that a stakeholder component must be offered. I beg to move.

Lord Newby

The amendment seeks to achieve in a different way what I was discussing in Amendment No. 5, so I have a lot of sympathy with it. To reinforce the noble Baroness's point, let us say that a financial services provider has a number of child trust funds; if one is subject to a price cap and another is not, but in most other respects they are broadly similar, which will the provider market? Which will it be able to market, unless it cross-subsidises them? The noble Baroness has pointed out a number of potential pitfalls. This is unlikely to achieve what the Government want any more than stakeholder pensions have done.

Lord McIntosh of Haringey

I do not have anything very much to add to the debate on this amendment; we tried to group the two together because we thought it would save time.

I shall remedy two omissions in my response to the previous amendment. The first is how the dreadful Inland Revenue strikes fear into the heart of the population so that official envelopes are not opened. I think that the noble Lord, Lord MacGregor, and the noble Lord, Lord Newby, have forgotten that for a very large number of people, the Inland Revenue is responsible for distributing benefits not for collecting tax. Therefore, perhaps the dreadful reputation does not apply in the sense of the brown envelopes that we receive and would prefer not to open.

I failed to reply to the point about supermarkets. For reasons of commercial confidentiality. I do not think that we can say whom we have been consulting, but the noble Lord, Lord Newby, would not be justified in assuming that we had not consulted very widely indeed on potential suppliers of the products.

The basic argument about stakeholder accounts remains the same. The decision that we are making here is not affected by the money laundering issue or the charge cap issue. We want any parent or family going to a given supplier to have the full range of options available. I shall not go into the choice argument again; it did not go down very well anyway. That is the fundamental reason that we oppose the amendment, as we did Amendment No. 5.

Baroness Noakes

Although we could have debated all the amendments as one group, it has been useful to debate the individual elements. The Minister will be in no doubt that the Opposition feel considerable unhappiness about how the Government have approached the child trust funds that have to be offered and their components. We have serious concerns about whether the Government will achieve their own aims, either because the scheme will be so difficult and expensive to operate that providers will not come forward in large number—what kind of choice would that give families?—or because providers will go out of their way to promote non-stakeholder funds. That would be in their commercial interests, so I cannot see that they would be driven in any other direction.

Therefore, for several reasons, and from almost whichever way one looks at the matter, the requirement to have a stakeholder account at the heart of the policy seems flawed. The Minister will not be surprised to learn that we shall return to the matter on Report. In the mean time, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Baroness Wilcox moved Amendment No. 8: Page 2, line 44, leave out "as" and insert "in accordance with the provisions of section (Early withdrawal. etc, for disabled children) or as otherwise

The noble Baroness said

My Lords, in moving Amendment No. 8, I shall speak also to Amendments Nos. 36, 68, 79 and 86. They focus on adapting provisions for child trust funds for children who are disabled. They would do so in two specific ways: by allowing parents access to funds for specified purposes before the child is 18, and by allowing a higher maximum annual contribution rate for supplementary contributions from friends and family.

In a moment, I shall look at the positive benefits that we believe the provisions would bring. First, I wish to extend my thanks and admiration to my honourable friend David Cameron, who provided the impetus behind the amendments and debates on disability in Standing Committee and on Report in another place. He has personal experience of living and caring for a young child with severe disabilities. His contribution during discussions of the Bill in another place was extremely constructive and highlighted some of the pressures and strains, both emotionally and financially, for families who care for severely disabled children.

I have listened to the well thought-out and argued points made by Members from both sides in another place on the issue. I appreciate that there was much sympathy for what my honourable friend was trying to achieve by tabling the amendments that he did in Committee and on Report. I emphasise to the Minister that I have read the discussions on disabled children, and we on these Benches have given much thought to the points raised in objection. Consequently, we have tried to hone our amendments somewhat in returning to them here.

The issues, as I mentioned in my opening comments, are twofold. We believe that parents should be able to dip into the CTFs of their disabled children for specific purposes, as listed in our proposed new clause. Those purposes are,

1. "(a) the purchase or hire of equipment for use by the child in respect of their disability,
2. (b) payment for nursing, night or child care,
3. (c) payment for respite care or temporary residential care, and
4. (d) payment for any specialist medical or palliative service in respect of the child's disability".

We expect this to be only a safety valve or backstop provision. It is not intended to replace the money that parents of disabled children can claim from the NHS and social services. However, those provisions could be an invaluable help, on one or two occasions, to improve the quality of life of parents and their disabled children.

Noble Lords are probably asking themselves two key questions. First, why should we single out disabled children for special provisions in the Bill? Secondly, are the proposals that the amendments outline actually workable? I shall endeavour to convince Members of the Committee on both the advisability and workability of our amendments.

I have consulted David Cameron and others experienced in caring for disabled children, and the statistics speak for themselves. We have roughly 360,000 disabled children whom we can identify because they claim disability living allowance. That means that they are an easily distinguishable group; we would not be faced with problems of fraud or wrongful claims, as we know who those children are. We also know that nine out of 10 disabled children are looked after at home. That is an immense strain and effort for working parents, who must find the time, emotional strength, dedication and money to look after their disabled children. The Barnardo's report Still Missing Out?calculated that it cost on average more than three times as much to raise a disabled child compared to an able-bodied child. Families receive statutory support from the NHS and social services; however, that provides the bare minimum, and, according to a recent report from the Audit Commission, it can often be a postcode lottery. Some disabled facilities grants, such as those for stair-lifts, hoists or refitting the house to cater for a disabled child, can also often be means tested.

Our amendments would be an added way of providing additional support to complement that provided by social services and the NHS. We believe that they would be a great extra help to parents and children. First, we would allow a higher maximum contribution rate for disabled children holding CTFs. Friends, relatives and the local community are often keen to help families with disabled children struggling to pay for essential equipment—a bath hoist, for example—or perhaps a flight to America for an expensive operation. It is true that there are already accounts that can be opened, but the joy of CTFs is that every child will have one. Why not allow flexibility for larger contributions for disabled children? It has been claimed that that will favour richer families. I do not think that that is the case. We have already mentioned means-tested facilities; even families on modest incomes may not be eligible for some grants, and being able to contribute more every month would be a massive help.

The major criticism of our amendment seems to be that it goes against the very principle of CTFs—that is, providing a considerable asset to every child at 18. In another place it was claimed that disabled children would therefore have less of a fund at 18, or that parents might misappropriate the money from their children's funds. We have tried to provide against that by ensuring that the government contributions and the interest thereof remain intact, and that parents can dip into only the extra funds that they or others have contributed. We also envisage regulations providing for a method by which parents are obliged to inform the Inland Revenue on what they used the withdrawn funds for. Parents generally want what is best for their child. Parents of disabled children give sometimes 24 hours a day to care for their children: they are hardly likely to want to steal from them.

Our amendments are not meant to provide an alternative to social services and NHS facilities. But the sad fact is that there are waiting lists for provisions for disabled children. A new wheelchair may take months to order and arrive only when the child has grown out of the current model. Moreover, parents may reach cracking point because they have not been able to take a day off. Under subsection (7) of our new clause, we have proposed four specific purposes for which parents may withdraw money. The NHS will still provide what it is obliged to give disabled children, but our amendments might enable children and their families to make their lives more bearable from time to time.

I should like to cover a few minor points in conclusion. It has been said that at age 18 disabled children often require significant funds to try to achieve the transition to a more independent life. That is as may be, but some disabled children will never be able to live an independent life. They do not need a fund intended to cater, in the case of able bodied children, for university fees, driving lessons or a house deposit. It is up to the parents of these children to make the decision in each individual case as to when their child might best benefit from the money in the CTF. Our amendments make explicit that all children must be consulted in any early withdrawal as far as this is possible.

We do not believe that this will be expensive to administer—we are not talking about a huge number of disabled children. Nor do we believe that the fact that CTFs are equity-based products and subject to lifestyle is an impediment to adapting the funds for the sort of early withdrawal facility which we are advocating.

We have the chance here to make a significant difference to the lives of disabled children and their families. How frustrating for them to see money sitting in a CTF when they are desperate for an extra thousand pounds to fund an expensive operation which is necessary to help preserve the life of their child. We have consulted with Mencap, Barnardo's and the Disability Rights Commission, and they support the intention behind our amendment. I beg to move.

5. p.m.

Lord Newby

Obviously we are keen, as a matter of principle, to see how the plight of disabled children might be ameliorated. However, I revert to the point which I made right at the beginning of our proceedings about our attitude to amendments. We will as a general principle oppose amendments that seek to extend the scope and complexity of the provisions. I am afraid that this amendment would certainly do that.

We should also ask what is the purpose of the child trust fund. I do not think that this amendment fits in with the four purposes of the child trust fund—to help people understand the benefits of saving; to encourage the savings habit; to provide a financial asset at the start of adult life; and to help financial education and financial choices. Unfortunately, I fear that this amendment, although it has some attractions, simply does not fit in with the Bill's purposes.

Despite the comments of the noble Baroness, Lady Wilcox, that not many people are involved and that it is not very complicated, potentially quite a few people will be involved, and the proposal would be quite complicated to administer for all involved, not least the providers of the child trust funds. Therefore, we will not support these amendments.

Lord McIntosh of Haringey

I think that we all recognise the sincerity of David Cameron's contribution to the Bill's passage in the Commons. We all recognise the constructiveness of his interventions. I start from that point of sympathy.

The new clause would allow parents or other responsible people access to the CTF account of disabled children so that they could apply the funds representing contributed funds for the child's benefit, for example, for special equipment or for nursing care. I noticed what the noble Baroness, Lady Wilcox, said about having honed the amendments. She did indeed, and I congratulate her on that. Amendment No. 68 would also allow a higher annual limit for contributions to a disabled child's account compared with that of a child who was not disabled.

At Committee and Report stages in another place, the Financial Secretary acknowledged the motives behind the proposals and the need for them to be given careful consideration, specifically with regard to Amendment No. 68. She was committed to considering further the arguments for a higher limit. I continue with that commitment. She also gave a commitment to consider in further depth the arguments for allowing parents of disabled children early access to their child's account. That is what the new clause and Amendment No. 8 would do. They set out the conditions that would have to be satisfied.

As part of our considerations we are consulting various disability representative bodies, sonic of which were mentioned by the noble Baroness, Lady Wilcox. If a consensus emerged for change, that would be considered seriously to see whether a sensible change can be implemented that would satisfy all concerned. Such a change could be introduced in regulations; it would not need an amendment to the Bill.

The debates in the Commons were extensive and helpful. Obviously this is a matter which should not be rushed through but considered with great care. Important issues need to be taken into account. The obvious one is that raised by the noble Lord, Lord Newby: would these young people be disadvantaged when they reached the age of 18 if their parents had decided to access their funds earlier? I appreciate the point that the child would be consulted when possible, but there must be a high number of cases of need where they could not be consulted.

These young people are seen to be different from other young people, so if they had either a smaller child trust fund account or none at all by the time they reached the age of 18, would that add to their feelings of being different? It is a thought which ought to be considered.

We are continuing our discussions with the leading disability groups. I am not able to give the conclusions, but I can assure the noble Baroness, Lady Wilcox, that we continue to give the provision of special arrangements for disabled children careful and reflective deliberation.

Baroness Wilcox

I am very happy with some of the comments from the Minister, in particular his assurance that the Government are continuing to consult Mencap, Barnardo's and the Disability Rights Commission, along with others. The idea that we could achieve a higher annual limit is quite exciting, and I know that my honourable friend in another place will be pleased to read what has been said today.

I am very sorry that the noble Lord, Lord Newby, could not break his rigid rules for his four points today because I know how good the Liberal Democrats normally are when considering disability issues. Indeed, they have shown us the way many times. I did wonder why the Liberal Democrat specialist performer on the Front Bench was not here today, and now I understand the reason. I am sorry about that.

At this stage it is only right that I should not press the amendment. I look forward to hearing what the Government have to say further. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Baroness Noakes moved Amendment No. 9: Page 2, line 44, leave out "as" and insert "in accordance with the provisions of section (Early withdrawal in case of terminal illness) or as otherwise

The noble Baroness said

In moving Amendment No. 9 I shall speak also to the other amendments in this group. The amendments deal with the difficult issue of whether child trust funds may be withdrawn for a child who is terminally ill. They are unlike the amendments just spoken to by my noble friend Lady Wilcox, referring as they did to a child who is disabled but expected to live, certainly throughout the period of the child trust fund. The key amendment in the group is Amendment No. 37 which introduces a new clause after Clause 5; the others are consequential.

The new clause would allow the parent or other responsible person to withdraw money from the child trust fund once he has obtained a certificate stating that the child has a terminal illness. In a moment I shall come to the definition of terminal illness, which is a difficult area, but first I should like to deal with the principle involved.

The Government's detailed proposals recognised that it was entirely understandable that the, parents of a terminally ill child might want to withdraw funds to benefit the child in its remaining life", whether to pay for treatment or for a special holiday. But a combination of fear of fraud and of administrative difficulties appeared to lead the Government to ignore the issue when they came to produce the Bill.

In another place the Financial Secretary gave some hope that the Government might move on this when she said on Report that, we will continue to examine the matter thoroughly. If there is a reasonable way to achieve the goal, we will introduce regulations to that effect".—[Official Report, Commons, 3/2/04; col. 666.] We are returning to this issue because we think that our proposed clause provides for a reasonable way to achieve the goal. Our new clause—on two physicians finding that a child has a terminal illness—provides a robust way of identifying children for whom it would be reasonable to allow early withdrawal.

Our definition of terminal illness is drawn from the real world of insurance policies which pay out within 12 months of death, or assumed death. A number of insurance policies in the market pay out when there is certified terminal illness in precisely the same terms as we have included in this amendment.

It is of course possible that physicians could certify terminal illness and parents could then withdraw the money to spend on themselves, but I do not think that that is likely. In any event the child trust fund will pass to the parents on death and there seems little chance, if we have a position where the child can be certified as terminally ill, that they would worry about waiting that short period of time.

I hope that the Government will see this clause as a positive way of dealing with the issues. I beg to move.

Lord Newby

Unlike the previous amendments, we can see the point of this proposal. To put it very indelicately, by definition the purpose of the Bill will be frustrated if the child dies before they can reap the benefit of the fund at the beginning of their adult life. In those circumstances it would seem perverse to deny the child the benefit of the funds sitting in their account at a point when, it is hoped, they can derive some benefit from it.

However, having re-read what the Minister said at Second Reading, I must say that I thought the Government had agreed that they would deal with this point. I am not quite sure why there is a need for this amendment. No doubt all will now be made clear.

Lord McIntosh of Haringey

Yes, it is true, the Financial Secretary said more than what was quoted by the noble Baroness, Lady Noakes. She said that she was persuaded of the case for change. However, I am glad that the amendments have been tabled because they are a constructive contribution to the problem that we have to face. These are very painful decisions and it is a difficult area; there are sensitivities here. It is possible to be heavy-handed or to introduce upsetting interventions at what could be a very difficult time in the life of the parents of the child. Moreover, I am afraid there is also the possibility of fraud which, I agree, the amendments attempt to minimise.

Fundamentally, as the noble Lord, Lord Newby, pointed out, we have said that we are persuaded of the case for change. We are working on finding a way of achieving an appropriate means of releasing funds. We aim to have proposals in the regulations which we will be laying after Royal Assent. But the noble Baroness, Lady Noakes, is pushing at an open door.

Baroness Noakes

I thank the noble Lord for his support and the Minister for his comments. We shall have to wait for regulations to be made after Royal Assent. Will draft regulations be made available during the passage of the Bill through your Lordships' House?

Lord McIntosh of Haringey

I cannot promise that. These amendments have made a constructive contribution to what is a difficult problem. I cannot promise exactly when our proposed regulations will be available, but we shall get there somehow.

Baroness Noakes

I thank the noble Lord. Clearly I need to reflect on this carefully before the remaining stages to see whether we should seek to amend the Bill or trust the Government to do something after Royal Assent. However, I am grateful for what the noble Lord has said and the way in which he said it. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Newby moved Amendment No. 10: Page 2, line 44, leave out "as" and insert "in accordance with the provisions of section (Early withdrawal by young person not in full time education) or as otherwise

The noble Lord said: This series of amendments relates to the key issue of the benefit of the child trust fund providing a financial asset at the start of adult life. The amendments address the question: what is the start of adult life? For children in full-time education, adult life starts in the economic sense when they leave it, but for children who leave school at 16, that is the point at which they reach the start of adult life. Therefore to deny them access to the child trust fund set up in their name for two years seems to frustrate the purpose of the Bill, which is to have the asset ready and available for use at the point at which they begin to move from education into "adult life". That is the phrase used, but what the Government have in mind, I believe, is economically active life.

A question arises: for what do we envisage the child trust funds being used? Something that has undoubtedly been in the minds of the Government and others is that they might be used for driving lessons. The logical time to take driving lessons, especially if one is to be in the labour market before 18, is as soon as one possibly can—at 17. Under the Bill, such young people would not be able to access the funds for that purpose even though, for many of them, the possession of a driving licence is the most significant determinant of whether they get a job.

That is one of a number of examples I could give. The principle that underlies the amendment is very straightforward. If adult life starts at 16, and if the purpose of the Bill is to provide funds when adult life starts, it should match the purpose with the practice. Those young people who have given up on school for good or ill at 16 and gone into the labour market should have access to their child trust funds. I beg to move.

5.15 p.m.

Baroness Noakes

Although we have some sympathy for what the noble Lord has said, we are concerned about what young people will do with their child trust funds. My next amendment deals with putting some restrictions on how child trust funds can be used at maturity. I would be much more comfortable about an earlier withdrawal to a 16 year-old young adult—we really should not call them children, because they are not children at 16 or 17—if there were some defined uses to which the money could be put. As I shall explain on the next amendment, I feel uncomfortable with an unconstrained ability to access the money at an earlier age. However, the noble Lord has made some important points.

Lord McIntosh of Haringey

I rather feel as though I am being attacked from two different directions. I do not mind that at all, because we have a rational proposal and the objections of this amendment and the next one do not really hold up.

We provide in the Bill a clear point at which young adults can access their child trust funds—when they reach adulthood at 18. There are lots of different ages of adulthood, including the age at which one can join the Army, get married, have a driving licence and vote. Another is the age of consent, which the House has debated at incredible length over the past few years. All those are different ages, but we have settled on 18 as defining young adulthood. It has the advantages of being clear, universal, and providing 18 years of investment for a child trust fund, which would be diminished if the money were taken out at I 6 or 17.

I am particularly worried about the suggestion that the money should be available for those who cease full-time education. Surely there is a risk that it might be an encouragement to cease full-time education, whereas the thrust of all our policies has been to encourage young people to stay on in full-time education beyond 16 years of age. Announcements made in the past week or so have reinforced that.

It is not desirable to allow some 16 year-olds and not others access to child trust funds before they reach the age of 18. At Second Reading, there were those such as the noble Baroness, Lady Noakes, who argued that there should even be restrictions at 18. That argument is surely stronger for 16 year-olds and 17 year-olds. Some, such as the noble Lord, Lord Northbourne, argued that the age should be even later than 18. That is like coming into an inheritance at the age of 65.

The noble Lord, Lord Newby, made the point at the beginning of our proceedings that he would support amendments that stuck to the principles of the child trust funds and oppose those that departed from them. In contrary distinction to that, his amendment departs from those principles and I am afraid that we cannot support it.

Lord Newby

I am not entirely surprised at that response. There is only one issue that I dispute. One of the principal purposes of the child trust fund is to provide the child with a financial asset at the start of their adult life. If they are leaving school, the start of their adult life is jolly well 16, not 18. However, I did not really think that I would persuade the Minister, so I am not too shocked not to have done so. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Baroness Noakes moved Amendment No. 11: Page 3, line 3, at end insert— ( ) Regulations may provide how a child trust fund may be used once a child reaches the age of 18.

The noble Baroness said

It is with not much hope that I move the amendment, given the Minister's remarks, but I do so none the less. It adds a new subsection to Clause 3 giving a regulation-making power on the use of child trust funds when a child reaches the age of 18. We debated the matter at Second Reading, and a number of noble Lords expressed concerns about what would happen to the money when the child reached 18. In fact, the Minister was the only noble Lord at Second Reading who seemed unconcerned about the likelihood, which many of us foresaw, that the money would be squandered once the young adult had access to it.

The child trust fund policy is not based on substantial evidence. We fear that partying may well be high on a child's wish list at the age of 18. However, the Minister warned us at Second Reading that: We should be wary of patronising young adults by putting restrictions, which have not been very well defined, on the way in which funds should be used".—[Official Report, 26/2/04; col. 376.] I have no wish to patronise young adults, but we should be alert to the real possibility that child trust funds will be dissipated—that they are a financial asset one day and gone the next.

The evidence on what young people will do with money saved for them is not conclusive. The trust funds will be held by everyone—that is their virtue, from the Government's perspective—including those families where there is no tradition of saving and no current value placed on holding financial assets. We need to have extraordinary faith in the transforming power of either the child trust funds or the financial education talked about at Second Reading to believe that the child trust funds, which for many young adults will comprise no more than the Government's largesse compounded for 18 years, will not simply be spent.

I confess that I do not know exactly how it would be wise to constrain the use of child trust funds. Indeed, that may change over time along with the boundaries between what the state provides and does not provide. A number of suggestions were made at Second Reading, but we do not have to decide now because there are 15 or 16 years before it actually becomes an issue. That is why my amendment creates a power to specify how the account could be used.

To create child trust funds without such a power is unwise. If evidence emerged that attitudes to child trust funds were not sufficiently responsible, or perhaps if evidence from overseas where similar products have been experimented with suggested that restrictions would be wise, my amendment would give the Government an explicit power to act accordingly. On that basis, I hope that my amendment will commend itself to the Minister. I beg to move.

Lord Newby

The amendment goes to the heart of what we see as one of the principal flaws in the Bill, which is that, for many young people, we are simply talking about a windfall 18th-birthday present. They have not contributed to it and, through no fault of their own, their parents may not have done. A dollop of cash descends. The question is whether the money will be used in a way in which, in normal circumstances, we would wish taxpayers' money to be used. Clearly, the way in which the money will be used will vary substantially.

I support the amendment in principle—if we are going to have these funds then ensuring that the money is used in a way which society would consider constructive clearly has a lot to recommend it—but I fear that there will be problems in defining how the money may be used. People may well disagree on this. Would you, for example, be happy that such moneys should help fund travel during a gap year? I speak with considerable personal experience of raising funds for a gap year at the moment. My 18 year-old son would consider that there is no more appropriate use for any money available to him than to enable him to go round the world in his gap year. I do not know what the answer is, but I think that helps to describe some of the problems we would have in defining what we consider to be appropriate.

The policing of the use of the money would be an horrendous task. While I am sympathetic to the amendment because one would wish to constrain the use to which the funding is put, the fact that it cannot be constrained demonstrates why this is a flawed proposal.

Lord MacGregor of Pulham Market

This is an important issue. In the Second Reading debate it was clear that it worries a number of noble Lords and it is right that we should explore it very thoroughly in Grand Committee and probe, in particular, the Government's case.

I wish to raise three issues on which to question the Minister. First, in the response to the consultation document, about 50 per cent of the respondents were in favour of limiting the end uses to worthy causes and 50 per cent were not. I should be interested to know the strength of feeling and the arguments used on behalf of those who want to limit the use.

Paragraph 20 of the Treasury Select Committee report on trust funds states: Research commissioned by the Homeowners Friendly Society into consumer attitudes towards the Child Trust Fund found that 'people feel strongly that the 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"". Sixty-four per cent wanted that. The report continued: We asked the Treasury why there will be no restriction on the use of the Child Trust Funds when they mature at age 18. The Financial Secretary told us that…'we think the funds ought to be spent on worthwhile projects'…but considered that it would be difficult to design a scheme to identify what were worthwhile benefits and believed that…'the best way of encouraging the funds to be used well is to ask young people themselves what is in their best interests"". As to the difficulty of defining worthy causes, I know that others have argued, as did the noble Lord, Lord Newby, that there could be an interminable debate on the issue. Of course there could, but it is the purpose of the debates in both Houses to come to a conclusion on such matters should we wish to do so. I shall refer to the American experience in a moment, but clearly the American Government were able to come to a conclusion on the three purposes to which they wanted to restrict a similar scheme.

I am not quite sure what the Financial Secretary meant by, the best way of encouraging the funds to be used well is to ask young people themselves what is in their best interests". What does that lead to? That we should ask them what is in their best interests and then confine the scheme to their response? I do not see the argument there at all.

The report continues: We also asked the Treasury whether they had considered introducing an incentive to use the Child Trust Fund for educational purposes, to which the reply was that 'we have not ruled out some kind of benign encouragement"". I have a great respect for Treasury officials but I am not quite sure what "benign encouragement" means. Does it mean we will not restrict the uses at age 18 but we will suggest certain areas in which it would be better to spend the funds than others? I shall be interested to hear the Minister's response on that issue. In particular, I should like to hear the arguments, not about the difficulties of defining the purposes for which the funds might be used—that is a matter for the Government to decide—but about the administrative and other difficulties involved in restricting the funds to particular purposes. What are the practical arguments that the Government find persuasive?

That leads me on to my second point. I understand that the Americans have introduced individual development accounts. Those are confined to three purposes—lifelong learning, enterprise and housing. If the US has been able to do it, could not we? What was its answer to the kind of objections that we are hearing about the administrative and other difficulties of confining the funds to those areas?

My third point relates to what the Children's Mutual, an organisation that seems much quoted in our debates, said on the issue. It is opposed to restrictions on the use of the funds for a number of reasons. One of those is its own experience that 47 per cent of moneys from maturing baby bonds helps fund higher education and that 25 per cent is used to open bank or building society accounts. That is all very splendid and worthy, but I am not sure that it answers the question for us. Inevitably, parents who subscribed to the opportunities that the Children's Mutual offered were parents who were anxious in the first place to build up savings for their children to use for such purposes when they became 18. So there was already motivation.

What we are talking about—it is perfectly worthy—is trying to encourage many others, particularly parents, who would not normally think of saving, to do so. My concern is the same as that expressed so well by my noble friend Lady Noakes. According to the Government, we are talking about only £475 at 18 if there is no parental contribution, or £911 if there is a £500 contribution in the first place. A young person aged 18 is likely to blow that £475 on all sorts of purposes if he is not used to the idea of saving for worthier purposes. The experience of the Children's Mutual is not wholly relevant to our concerns.

I have a lot of sympathy with the principle. I suspect that the real argument against it will be the practicalities. That is what I want the Government to spell out in a way I have not heard yet. I particularly want to know why, if the Americans can do it, we cannot do it as well.

5.30 p.m.

Lord McIntosh of Haringey

I want to start by resisting the suggestion made by the noble Baroness, Lady Noakes, that I was unconcerned at Second Reading about the possible misuse of the fund by the young adult at the age of 18. I am as concerned as anyone and recognise that there will be occasions when it could go on what your chairman, in a note to me, calls a "trust fund rave". I can see the possibility that that might happen.

The problem is not so much the practicalities as the practical difficulties. We are talking about the principle of saying to people at the age of 18, "You are adults who must make your own decisions". The encouragement of responsibility is one of our objectives. That is why, for example, 16 year-olds and 17 year-olds are being given a say in the way in which their funds are accumulated and invested. That is the financial education to which the noble Lord, Lord Newby, rightly attributes such importance. It is part of the financial education process that young people of 16 and 17 should know what has been invested for them, even if it is a small amount. From that age, they should have a say in how it is invested. It follows that, at 18, they should be entirely responsible for how it is spent.

In the consultation, a very large number of people said what I have just said. Some people wanted restrictions, although I have to say that a considerable number of those wanted them not in the form of the amendment but that the age limit should be 21 or 25 rather than 18. That is like a pub giving credit to people over the age of 80 if accompanied by both parents. I am not sure that that is a particularly good idea.

The noble Baroness, Lady Noakes, said that the evidence is not conclusive. Of course it is not conclusive because we are doing something here which has not been done before. Whenever you do something that has not been tried before, you cannot anticipate all the possible outcomes. We have announced a new project; we consulted on it twice during the course of 2003 and we have come to the conclusions that are now reflected in this Bill.

I recall that the noble Lord, Lord Northbourne, said that we are patronising parents. I think that we would be patronising young adults if we attempted to implement this amendment by regulation. I can recall, as does the noble Lord, Lord MacGregor, research undertaken by the Children's Mutual which I quoted at Second Reading. He asked me why, if it can be done for independent development accounts in the United States, it cannot be done here. IDAs are very different. They are intended to encourage people to save towards further education, home buying and—I cannot recall the third one—

Lord MacGregor of Pulham Market

Enterprise.

Lord McIntosh of Haringey

Yes, and that is very good. But IDAs are administered through community groups at the local level. Over there, they are close to the people receiving the IDAs, but over here we are proposing a nationwide scheme. We would have to consider not only issues of definition, but also issues of enforcement which I could imagine being complicated and very different from those in individual development accounts.

However, it is not the practicality which is the clincher here. I think that the point is that we have to treat grown-ups as grown-ups.

Baroness Noakes

I thank the Minister for that reply and I thank my noble friend Lord MacGregor for his important contribution. He pointed out that if it can be done in the United States, then we can do it here. I am sure that, while the US may have been implementing it in a different context, it points the way to it being a practicable exercise.

I want to put one question to the Government. If, during the course of the operation of child trust funds, the Government have concerns about how the funds would be used, do they have powers under the Bill to place any restrictions when they reach maturity?

Lord McIntosh of Haringey

The answer is that the European Convention on Human Rights gives a right to a person's property. A person over the age of 18 is entitled to the enjoyment of his or her property. I did not want to raise that point because it looks like a long-stop argument, but if we were to raise it later, once the legislation had been passed, we could come up against the property rights secured under the convention.

Baroness Noakes

To clarify, if we do not take a power in this Bill, we will not be able to take a power later because there is no other power in the Bill to deal with the case. The reason I have raised this point is that it will be a long time until the money is paid out—some 16 years must elapse before it becomes an issue. Nevertheless, we are currently talking about putting in £250 million per year. By the time that has accumulated over the period, there will be around £500 million going out each year. Those are broad figures.

There could be serious societal concerns. Taxpayers' money will have gone into the fund and there will be questions about the uses to which it is put. My amendment does not require the Government to place restrictions on use at the age of 18, it gives the Government the power to do so.

Lord McIntosh of Haringey

Let me take legal advice and write to the noble Baroness, Lady Noakes, and all other noble Lords who have taken part in the debate.

Baroness Noakes

I hope that the Minister will be able to write before we reach the Report stage. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

The Deputy Chairman of Committees (Lord Carter)

I should inform the Committee that if Amendment No. 12 is agreed to, I cannot call Amendment No. 13 on grounds of pre-emption.

Baroness Noakes moved Amendment No. 12: Page 3, line 4, leave out subsection (5).

The noble Baroness said

I can be brief on Amendment No. 12, which concerns regulations to be made under Clause 3. The amendment would delete subsection (5) of the clause. Clause 3, rather like the Bill overall, is littered with regulation-making powers. The earlier subsections in the clause contain targeted regulation-making powers. Subsection (5) appears to be some sort of catch-all—or "catch anything we have not already thought or—clause. The Explanatory Notes say nothing about the subsection; indeed, the Explanatory Notes completely ignore it. We regard that as unsatisfactory.

In another place, the Financial Secretary failed to give a single example of why subsection (5) is needed on top of the existing regulatory powers in Clause 3—which is why, on a probing basis, we have proposed its deletion. If the Minister can give us a good reason for having this power on top of the other regulation-making powers in Clause 3, we will be entirely content to leave it. Otherwise we shall seek its withdrawal, on the grounds that we should not be creating untargeted powers to make regulations in circumstances beyond the contemplation of those who are legislating. I beg to move.

Lord McIntosh of Haringey

The power in Clause 3(5) is actually an important one. I think we have to look at the reaction of providers to this to understand it fully. The child trust fund will be based closely on the ISA model with which providers are familiar. They have asked us to use the ISA model as a precedent. The provision in Clause 3(5) gives us flexibility we would not have if requirements for an account had to be in primary legislation or indeed if it took a long time and parliamentary activity to change them. If it is necessary to change a requirement quickly, we can make that change as soon as possible without having to wait for primary legislation.

Because the child trust fund involves the interests of children, we consider it very important to have this flexibility so that if there is undesirable behaviour which would adversely affect the child's interests we could stop it straight away. I would also remind the Committee that the Select Committee on Delegated Powers and Regulatory Reform looked at this clause together with all other clauses and it did not recommend the change proposed in the amendment. We have complied with its recommendations. This goes beyond what it considers to be necessary.

Baroness Noakes

I thank the Minister for that reply. I should like to deal with his last point as I have discussed the issue quite recently with the noble Lord, Lord Dahrendorf, who does such sterling work on that committee. When noble Lords on these Benches and the Liberal Democrat Benches wish to discuss regulations, the Government say, "Ah, but the regulatory powers committee has not recommended any change". The opposite case also is often made, that the Government have accepted what the committee said.

The noble Lord, Lord Dahrendorf, is very clear that that is not the message from the report of the committee. Indeed, the committee sees its role as highlighting particular points that it thinks should be brought to the House's attention or dealt with differently. However, it does not thereby place an imprimatur on all the other regulatory powers in the Bill. I do not know whether the noble Lord, Lord Dahrendorf, speaks for the whole of his committee, but he felt that that would not be a helpful development for the way in which we dealt with legislation.

I return to the substance of the issue. I asked for what purpose this regulatory power might be used on top of the regulatory powers in subsections (1), (2), (3) and (4). The Minister told us about consistency with the ISA model. However, the only consistency is to try to lift out the same legislative framework, and not necessarily to say why the legislative framework is as it is. The Minister then talked about unspecified things going wrong and needing to be dealt with, but he did not tell us what might go wrong or what might have to be done under this subsection.

So while this may seem a very small and trifling amendment, it takes us into significant issues of how we approach the scrutiny of Bills. I think that we are entitled to know for what purpose regulatory powers are to be used.

5.45 p.m.

Lord McIntosh of Haringey

Perhaps I can be a little more helpful. I am taken aback by this conversation with the noble Lord, Lord Dahrendorf. If the members of his committee look at a Bill, see provisions such as those in Clause 3(5) and do not like them, I would be very surprised if they did not say so. I think that the Government are entitled to assume that they would pick out the points that they found to be objectionable and draw them to the attention of the House. But perhaps that is a wider debate than can be carried out in Grand Committee.

All the general requirements are set out in Regulation 8 of the draft regulations. The account must satisfy the requirements that it is the account for a single child, "the named child"; that the named child is or has been an eligible child; that no child may hold more than one account. Those are basic matters. It may well be that other legislation could require changes in the general requirements for an account. We would not wish any changes to be delayed where a conflict between different areas of legislation could cause damage. That is why we must have provisions of this kind.

Baroness Noakes

I thank the Minister for that further explanation. I shall certainly consider it carefully. But it seems to me that what he said on Regulation 8, which I have read, could be covered by the regulation-making powers that appear earlier in Clause 3. It will not profit the time of the Committee today to pursue the argument further. Having reflected on what the Minister has said I should do, I may wish to return to the issue on Report. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 13 not moved.]

Lord McIntosh of Haringey moved Amendment No. 14: Page 3, line 10, at end insert "(but subject to subsection (9A))

The noble Lord said

In moving Amendment No. 14, I shall speak also to Amendment No. 17. The amendments allow for the appointment of the Official Solicitor in England, Wales and Northern Ireland, or the Accountant of Court in Scotland, as the person with the authority to give instructions to the account provider regarding a child's trust fund account in circumstances prescribed in legislation.

The amendments are necessary, as there are children looked after by a local authority who have no one with parental responsibility to give instructions regarding their child trust fund accounts, and it would not be possible to take action in respect of the account if that were necessary or desirable. Looked-after children, after all, are among the most disadvantaged in society, and if there is no one with parental responsibility—for example, for orphans with no legal guardian—there could be a gap in the legislation. I hope that the Committee will feel that this is an uncontroversial addition to the existing provisions. I beg to move.

On Question, amendment agreed to.

Baroness Noakes moved Amendment No. 15: Page 3, line 14, at end insert— ( ) Regulations must provide for the provision of information about the authority to manage a child trust fund to persons who are identified as responsible persons in respect of children for whom a child trust fund is opened under section 6.

The noble Baroness said

In moving Amendment No. 15, I shall speak also to Amendment No. 16. They are probing amendments to find out the Government's approach to two specific issues.

Amendment No. 15 deals with the provision of information to the people identified as responsible persons for children for whom the Inland Revenue opens a trust fund under Clause 6. This is where a responsible person has not opened an account for his child, or where there is no responsible person—for example, where the child is in care. The regulations would have to ensure that information about the authority to manage an account is provided to responsible persons.

Clause 6 states that the Inland Revenue must open the account for the child, but it seems to have no responsibility to inform the person responsible for the child that that has been done, and so a person may be in ignorance of the account and what follows from it. I could not find anything in the draft regulations. I am not even sure which section would allow regulations to be made in respect of a Section 6 account.

Amendment No. 16 goes a little further, requiring the identification of a person with authority to manage all accounts opened under Clause 6(5)(b); that is, those children for whom there appears to be no responsible person. They will be largely children in care, but it will also include under-age parents.

The amendments in the previous group introduced by the Minister may overcome the issues raised by Amendment No. 16. But, do the Government intend the regulations to prescribe that the Official Solicitor will be involved in all cases where a responsible person cannot be identified? That goes well beyond the simple case of children in care. I beg to move.

Lord McIntosh of Haringey

I am entirely sympathetic with the thrust behind, and the intention of, these amendments. Perhaps it would be best if I set out what will happen. Regulation is not actually required. Where parents do not open an account for their children before a child trust fund voucher expires after one year, the Revenue will open an account for the child. It will be a stakeholder account, opened with a provider next on the list of approved providers willing to offer such accounts. In other words, the business will be spread among those who are willing to take it.

Once the Revenue has details of the account, it will write to the child benefit claimant—its point of contact with the child—to let him or her know about the child's CTF account. In most cases, the child benefit claimant will be a parent. The letter will highlight how a responsible person can take responsibility for the account and the benefits of doing that. It will be made clear that the child trust fund account and/or the provider of the account can be changed as a parent wishes. The regulations ensure that that can be done at no charge. The Inland Revenue will also send details of the child trust benefit claimant to the relevant provider so that the provider has a contact address.

One of the main messages of the information and guidance that will be produced for the child trust fund will be the importance of parents' taking responsibility for their child's account; for them to choose the account that they believe will most suit their child's needs with the provider of their choice; and to continue actively to manage that account, ensuring that it is performing well. In other words, the Revenue will do what the amendments seek to achieve and they do not need regulations to do it.

However, in accordance with Pepper v Hart, as I have said it in the process of the Bill, that is confirmation of that fact.

Baroness Noakes

I thank the Minister for that last comment, which I had worked out. I am grateful to him for explaining the process by which the Inland Revenue will inform people. Will he also confirm that the amendments that he moved in the previous group mean that, in all cases where a person cannot be identified, the Official Solicitor will be acting in? The amendment just gives regulation-making power.

Lord McIntosh of Haringey

Yes. There is no gap. Now that we have agreed to one government amendment, and we shall agree to the other one, there is no gap in responsibility.

Baroness Noakes

There is no gap in regulation-making power, but there is still a gap in responsibility. perhaps I may suggest.

Lord McIntosh of Haringey

Wait a minute; I must be quite clear: the Official Solicitor amendments and the comparable Scottish amendment apply to a child in care. The Official Solicitor would not act for a child other than a child in care. In the other cases that we are talking about, the procedure that I described means that the Inland Revenue is dealing with a provider that it has chosen according to rules and with the benefit claimant. Again, there is no gap. There is someone who is responsible.

Baroness Noakes

In relation to under-age parents, could I just clarify that they would not have authority to manage an account? How do we deal with that position? I understood that that was one of the areas where there would be a gap.

Lord McIntosh of Haringey

The Inland Revenue would wait until the parents were 16 years old when they would have the power to manage the account. It is probably best if I read out what is proposed on who will be able to make decisions on an account where both parents are under the age of 16. I think that is what the noble Baroness, Lady Noakes, asked.

There will be no one with parental responsibility for the purposes of the child trust fund if both parents are under the age of 16. Young people under 16 years old cannot administer a CTF account because the law does not allow them to enter into enforceable contracts.

The Inland Revenue can be contacted to open a child trust fund account for the child to avoid waiting a year for an account to be opened automatically when the voucher expires after 12 months. Once one of the parents reaches 16 years old, or someone above the age of 16 becomes available who is able to exercise parental responsibility for the child, they can assume responsibility for the management of the CTF account.

Baroness Noakes

That means that if a very young child had a child of her own, there would be a period of perhaps several years in which the account would not be managed by anyone.

Lord McIntosh of Haringey

Under those circumstances, I would imagine that someone else would assume parental responsibility, such as a grandparent.

Baroness Noakes

I shall consider further what the Minister said. These are complex areas. I may ask his officials for further advice on specifics or, alternatively, raise the matter again on Report. In the mean time, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No.16 not moved.]

Lord McIntosh of Haringey moved Amendment No. 17: Page 3, line 26, at end insert— (9A) Regulations may provide that, in circumstances prescribed by the regulations, the person who has the authority to manage a child trust fund held by a child under 16 is to be the Official Solicitor (in England and Wales or Northern Ireland) or the Accountant of Court (in Scotland). (9B) A person who has the authority to manage a child trust fund by virtue of subsection (9A) is entitled to give any instructions to the account provider with respect to its management which appear to the person who has that authority to he for the benefit of the child.

On Question, amendment agreed to.

Clause 3, as amended, agreed to.

Clause 4 [Inalienability]:

[Amendment No. 18 not moved.]

Baroness Wilcox moved Amendment No. 19: Page 3, line 37. leave out subsection (2).

The noble Baroness said

Amendment No. 19 raises an interesting point on teenage bankruptcy, which my honourable friend George Osborne raised during proceedings in another place. Clause 4 deals with inalienability; the provision that one cannot assign a CTF or have an agreement to charge against a child trust fund. That includes cases where a child is made bankrupt, as made clear by subsection (2): On the bankruptcy of a child by whom a child trust fund is held, the entitlement to investments under it does not pass to any trustee or other person acting on behalf of the child's creditors". Our probing amendment would leave out this subsection. Essentially, the subsection secures that where a child is made bankrupt it will not be possible for the creditors to gain access to the child's CTF account. The debate on this issue in another place brought forth some very significant arguments. While no child can enter into enforceable contracts, apparently it is possible for a child to be made bankrupt. The Minister in another place gave an example. He said: for example, if he misrepresents himself to be over the age of 18 and enters into contracts, those contracts may be binding on him. In ordinary circumstances, it is not possible to have an enforceable contract, but if the child has misrepresented his age, it can be possible. A child could start a business and buy stock, pretending to be 18. If he could not then pay for the stock, the supplier could sue, resulting in the bankruptcy of the child".—[Official Report, Commons Standing Committee A, 13/1/04; col. 82.] This is a particular and probably an infrequent circumstance. However, in the case where a child has lied about his age and caused his own bankruptcy, why should his creditors not have a claim on the assets? The Government claim that the principle behind CTFs is that the assets are locked up until the child reaches the age of 18. In the example, why should the creditors not wait until the child is 18 years old and then reclaim the money which they are owed from the CTF?

I realise that CTFs are meant to be a frozen or untouchable asset which the child can access only at 18 years old. But if a child makes the mistake of misrepresenting his age and causes his own bankruptcy, we believe that that child should learn his lesson. It seems incongruous for a child of 17 years old to become bankrupt and then to receive a pot of money six months later on his 18th birthday—mainly, as my dear friend the noble Baroness said, to use on a whacking good party—while his creditors, who are left out of pocket because of his previous misdemeanour, cannot make a claim. I beg to move.

6 p.m.

Lord McIntosh of Haringey

Slapped wrists. Inalienability is one of the words that I cannot say, like proliferation. I will have to learn.

The aim of Clause 4, as the noble Baroness, Lady Wilcox, says, is to provide protection for young people so that they still have a financial asset when they reach 18. I guess that on that basis, it will commend itself to the noble Lord, Lord Newby. The clause is intended to prevent the assets within a child's CTF account being transferred to a third party on maturity either by assignment or by way of charge to use CTF funds as security for a loan. I think that on that point, the noble Baroness, Lady Wilcox, is with us. This is a wider point than bankruptcy.

The point of contention is that the clause also prevents the assets being taken in the rare event, as the noble Baroness says, of a child being made bankrupt. The amendment would remove the protection to the account; it would allow the CTF investments to be used for the child's creditors, leaving the child with no asset at 18, contrary to the purposes of the Bill.

As the noble Baroness rightly says, a child can be made bankrupt. If a child misrepresents himself or herself as being over the age of 18 and enters into contracts, these contracts may be binding on a child. He or she might start a business and buy stock, pretending to be 18. If that child cannot pay for the stock, the supplier could sue, resulting in the child's bankruptcy.

In practice, as the noble Baroness says, such cases are no doubt extremely rare but the possibility means that the risk of a child losing the assets we wish him or her to have at 18 exists. Clause 4 has precedent—it copies, for example, Section 45 of the Tax Credits Act 2002. It may be a fine technical point. but it is necessary to preserve the objectives of the child trust fund for all children and not to vary what is in general a fine balance in bankruptcy law between credit ors and the bankrupt person.

Baroness Wilcox

That surely is a fine technical point. The objective of the Bill is for the child trust fund to help people understand the benefits of saving and investing; surely if they do not understand that. there should be punishment somewhere. t does not seem right to me.

Noble Lords

Oh!

Baroness Wilcox

Perhaps we are not allowed to use the word "punishment" but it seems very wrong to me that a child doing something like this at 17 cannot see the results of his own actions by having his money taken away from him. I am sorry, but I think this is very poor. At this stage, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Baroness Noakes moved Amendment No. 20: Page 4, line 2, leave out from "factor" to end of line 3.

The noble Baroness said

I am indebted to the Law Society of Scotland for Amendment No. 20. It would delete the reference to Section 41 of the Solicitors (Scotland) Act 1980. Under Section 6 of that Act, a person can be admitted as a solicitor in Scotland only if he is aged 21 years or over. Section 41 of the 1980 Act refers to the provision of a judicial factor for a solicitor's estate and therefore cannot be applicable to a child's estate. Therefore, reference to Section 41 of the Act should be deleted. I beg to move.

Lord McIntosh of Haringey

I got the letter from Mr Drummond of the Law Society of Scotland as well. The society is very assiduous but it is always very late. I do not understand the amendment; I will try and find out what it means and what effect it has. I will write to the noble Baroness, Lady Noakes, with our conclusions before Report.

Baroness Noakes

I thank the Minister for that. It is my experience that the Law Society of Scotland is usually right on the technical amendments it puts forward. So I hope that the Minister will write to me saying that he will be introducing a government amendment to reflect that point. In the mean time, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 4 agreed to.

Baroness Wilcox moved Amendment No. 21: After Clause 4, insert the following new clause— "OFFENCES (1) It shall be an offence for any person to induce a child to carry out an act within subsection (1) of section 4. (2) It shall be an offence for any person to enter into any arrangement with a child the effect of which is that the child agrees to transfer to that person or any other person the proceeds of the child's child trust fund once he has attained 18 years of age. (3) A person guilty of an offence under this section is liable on summary conviction to imprisonment for a term not exceeding 6 months or a fine not exceeding level 5 on the standard scale or both.

The noble Baroness said

Amendment No. 21 proposes a new clause after Clause 4 entitled "Offences". The point of this new clause is to address a situation which was mentioned during debate in another place whereby a malicious individual, maybe a family member, friend, relative or even a loan shark, induces a child to enter into an agreement in which the proceeds of the child's CTF are transferred to the individual when they become available on the child's 18th birthday. Subsection (1) of Clause 4 already makes sure that the funds cannot be used as a security against a loan—in effect, the funds would be made legally void as security if someone attempted to use them as such. Our amendment goes further by making any attempt to act in this way a civil offence subject to a fine or imprisonment.

During debate in another place the Minister argued that no civil penalty was needed because a CTF could not be used as security and the person would therefore not be able to act in this way. I do not agree that that is a sufficient argument. The issue is larger than this. We are not just talking about loan sharks where the child, at the age of 18, can challenge the use of the trust fund as security and the loan shark will then be left with nothing. There are certain to be individuals who will try, informally, to bully or pressurise a child of 16 or 17 into entering into an agreement which, though not legally binding, could be persuasively enforced by a manipulative adult. Children at 18 are vulnerable and open to such abuses.

With CTFs we have a situation where large amounts of money become available to every single child at the age of 18. We have spoken already about it being unlikely for fraud to occur on the opening of a CTF because the money is locked in until 18. However, if people are looking to get their hands on CTFs, the way to do it would be to try to get a vulnerable 17 year-old to commit the proceeds of his CTF, which would be accessible in a year's time, in return for some immediate loan or credit. How is such a 17 year-old to know that his or her fund is not viable as a security? When it is handed over at the age of 18, he can use the money for whatever he wants, and that may include giving it to the next-door neighbour to whom he promised it six months previously in return for a loan of £1,000.

Sadly, given the world we live in, it is important to look at this situation from the point of view of the worst case scenario, and imagine those people who will try to manipulate young people to get their hands on their assets. In these circumstances, I believe that there may be a great deal of merit in making such people subject to a civil penalty. I beg to move.

Lord Newby

I wonder whether the noble Baroness is not proposing a slightly too draconian measure here. It may be that my understanding of the word "arrangement" is not particularly good from the legal point of view, but it seems not unreasonable for someone to enter into an informal arrangement whereby a young person arranges with another family member to pay for driving lessons as soon as he reaches the age of 17—here I return to my earlier interest—on the understanding that as soon as he reaches the age of 18, the cost of those lessons would be taken out of the child trust fund. That does not strike me as a ridiculous waste of the money.

I accept that there will be circumstances in which children are pressurised to do something inappropriate, but I feel that this amendment goes a little too far.

Lord McIntosh of Haringey

The noble Baroness, Lady Wilcox, closed her remarks by proposing that this should be subject to a civil penalty, but her amendment would make it a criminal offence.

Lord Oakeshott of Seagrove Bay

Six months inside.

Baroness Wilcox

Even better.

Lord McIntosh of Haringey

The noble Baroness is in a tough mood this afternoon. The aim of Clause 4—"Inalienability"—is to provide protection for the young person so that they still have a financial asset when they reach the age of 18. The clause is intended to prevent the assets within the child trust fund account being transferred to a third party on maturity of the CTF account either by assignment or by way of charge, for example, to use child trust funds as security for a loan. The clause also prevents the assets being taken in the rare event of a child being made bankrupt—a matter that we have already debated.

The amendment seeks to introduce two new criminal offences. Under subsection (1), it would be an offence for anyone to induce a child to assign, or agree to assign, the investments in their child trust fund, or to charge, or agree to a charge, on those investments. Under subsection (2), it would also be an offence for anyone to make an arrangement with a child the effect of which is that the child agrees to transfer to that person or to a third party the proceeds of the child's trust fund once he has attained 18 years of age. Subsection (3) defines the punishments attaching to the offences, including, as the noble Lord, Oakeshott, said from a sedentary position, six months inside. The amendment is legally inappropriate. Let me explain why. Clause 4(1) tackles the practical problem at its source by providing that any assignment of the investments in a CTF, for example, by way of security for borrowing, is void—that is, legally ineffective. There is therefore no incentive for any person to induce a child to assign or charge their CTF assets. Loan providers will not attempt to use CTFs as security for loans because they would not gain any advantage from so doing. They would achieve no legal rights to the assets within the child's trust fund.

What happens within a family—for instance, in the driving licence example given by the noble Lord, Lord Newby—is something that the law would prefer not to know anything about. Subsection (2) is, in effect, the same as subsection (1). The wording in subsection (2) implies an informality to the arrangement but the legal substance is the same. By making an agreement to transfer the proceeds of a child's trust fund to another person when reaching the age of 18, the child has, in effect, assigned the assets within his or her child trust fund to that person, although in an informal way.

The Bill as currently drafted does not allow the child to enter into such agreements. No one would benefit from making such an agreement because the 18 year-old would have no legal obligation to honour the agreement at the age of majority. Creating a criminal offence for entering into such an agreement is surely overkill. It is likely that the amendment would be unenforceable. It is inappropriate to seek a penalty for something which has no legal effect, let alone to make it a criminal offence.

Baroness Wilcox

I was interested in the story of the noble Lord, Lord Newby, about driving lessons and the happy family that he obviously lives in and comes from. I have spent many years of my life running a fish-processing unit in Cornwall. I have seen 17 year-old girls stood up against walls and beaten to make sure that their money can be got. I am not talking about the niceties of driving lessons; I am talking about something very different.

As to the idea that loan providers will lay off because they do not think they can get at this money, I am sorry, I must have been living in a different world. I have seen how pressure can be put on children in such circumstances.

I am very sorry that the Government will not even consider the issue. I am sorry that the amendment is legally inappropriate. I shall go away and consider whether there is anything we can do to make it legally appropriate. There are areas in this country, and places in which I have lived and worked, where the idea of threatening a child is fairly normal to an awful lot of people. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Baroness Noakes moved Amendment No. 22: After Clause 4, insert the following new clause— "INCOME DISREGARD FOR PURPOSES OF INCOME-RELATED BENEFITS, ETC. (1) In determining the matters specified in subsection (2), no regard shall he had of income and gains arising on—

1. (a) Inland Revenue contributions to,
2. (b) subscriptions to, and
3. (c) investments under,

a child trust fund. (2) Those matters are—

1. (a) eligibility for,
2. (b) entitlement to, and
3. (c) levels of,

the benefits and credits specified in subsection (3). (3) The following are specified in this subsection—

1. (a) child tax credit,
2. (b) council tax benefit,
3. (c) housing benefit,
4. (d) income support,
5. (e) income-based jobseeker's allowance,
6. (f) working tax credit, and
7. (g) pension credit."

The noble Baroness said

Amendment No. 22 seeks to insert a new clause after Clause 4. It deals with the interaction between the benefit system and child trust funds, and other matters that were touched on at Second Reading.

Specifically, the new clause seeks to ensure that the child trust fund is not taken into account for child tax benefit, council tax benefit, housing benefit, income support, income-based jobseeker's allowance, working tax credits or pension credit. If I have missed out a credit or benefit, that is not surprising, given the Chancellor's propensity for inventing, abolishing and re-inventing tax credits.

Benefits and tax credits are an extraordinarily complex area, and I do not pretend that the amendment is perfect. I am very glad that the noble Baroness, Lady Hollis, is not here because I know that she would tear the drafting of the amendment to shreds. No doubt the Minister will attempt to tear it to shreds, but I hope that he will accept it as a probing amendment in order to debate the interaction between the benefit system and child trust funds.

At Second Reading the Minister said that the Government, have always made it clear that there is no impact on the parents' finances while the trust fund is growing".—[Official Report, 26/02/ 04; col. 377.] I want to put a simple question to the Minister about this. Where in child trust fund or benefit legislation will we find this rule? Will it be necessary to make new regulations? Many benefits use a reference to capital regardless of any income that is actually received. Is it quite clear that the child trust funds will never be counted as part of the family's capital?

Then we have the issue of others who contribute to a child trust fund and thereby reduce their own capital. The capital deprivation rules could easily kick in. I am aware that the application of the rules is a matter of discretion, but that will not help a grandmother in deciding whether she may safely transfer some of her capital to her grandchildren. Will the Minister say how the Government will avoid postcode benefit withdrawal, with benefit officers using their discretion and taking different views around the country? Will he say how a person could find out in advance what would or would not be accepted?

Lastly there is the question of a child who has turned 18 and has a child trust fund but applies for means-tested benefits. If the child spends the trust fund—as the Bill, with its lack of restrictions on the use of the fund, will entitle him to do, and some believe that that is what he will do—will this be treated as a capital deprivation? If that was the result, it would in effect amount to one rule for the rich and another for the poor because the rich could spend their child trust fund with impunity while the poor would be poorer in terms of benefits if they did so.

It is quite possible that a child could have more than £6,000 in his fund if his parents, perhaps in happier times, had been able to contribute to the fund. Will that automatically be used to knock down the benefits that he can receive, thus nullifying the benefit of the fund?

We know that the Government see great potential for the child trust fund to change behaviour among the poorest people. But these are the people who are living on our benefits system and who are likely to see the child trust fund as just another way in which the rules will catch them out. Will the Minister say on what basis the Government are sure that the child trust fund scheme will work effectively for those people—and we are talking about millions of people—who receive means-tested benefits? This is not a minor issue. I beg to move.

6.15 p.m.

Baroness Hayman

I rise to speak to the amendment moved by the noble Baroness, Lady Noakes, and to my own amendment, Amendment No. 47, which is even more grossly imperfect in its drafting than that of the noble Baroness, not least because I seem to have invented a new oxymoronic benefit—a covenant tax benefit—which was meant to be council tax benefit. It may also be in the wrong place.

However, it gives me the opportunity to deal with the issue of the death of a child with a child trust fund and the implications for parents who inherit the fund should they be in receipt of benefits. As the noble Baroness, Lady Noakes, said, assurances have been given that these funds will make no difference whatever in terms of income for parents. However, in those tragic cases where a child dies under the age of 18, if the parents are on benefits, potentially that could make a real difference to their income. One can envisage circumstances where this would happen.

There are something like 5,000 deaths among children and young people under the age of 18 every year. If, say, 10 per cent of those children come from families on benefits, which is not impossible, then we could see a situation where families have run down all their capital. For lone parents bringing up a child under the age of 18, the most likely cause of death would be an accident or long-term disability or illness. That makes it even more likely that the parent will have been on benefits.

Sadly, it also makes it more likely that this will be a fractured family where there may not be two parents; where the mother may have been left on her own to bring up a child in difficult circumstances; and, indeed, where the child trust fund may take the income over £6,000, which is the Government's solution to the problem that I think they have acknowledged regarding the interaction with benefit. In happier times the child could have benefited from contributions from grandparents or from a father who was in work. That could have built up to several thousand pounds, but then the family fractured, the child was ill and there were years on benefit. Then, at the point at which the child dies, the parent is faced with the possibility of losing benefit because of the savings made for that child.

I acknowledge that such cases will be very rare. However, they are slightly less rare than cases of bankruptcy of under 18 year-olds who have been deceptive about their age. I was rather encouraged by my noble friend's words about ensuring that every child should have access to their child trust fund regardless of very inappropriate behaviour and bankruptcy. I hope that we can have the read-across not only to those who would inherit a child trust fund. I think there will be very hard cases where it will be singularly inappropriate for the Government to give with one hand in terms of the child trust fund but take away with the other in terms of benefit.

I would be interested if my noble friend could give me some costings on this. Obviously we are looking into the future and it is difficult to know, but I suspect that one could extrapolate. I think that the costs will be very low. The cases where this will kick in and cause real hardship are going to be very painful. I hope that the Government will look carefully at this again. They said in the initial response, in raising the threshold to £6,000, that this was the first step. I hope that there will be other steps in this area.

should like to say a word about those 18 year-olds who are themselves on benefit. Again, we have the interaction between the child trust fund and the benefit system. One's attitude to this depends on whether one starts with the social security system and says, "Why should this be any different from winning the lottery in terms of taking people out of eligibility for benefit?", or whether one starts off, as I suggest we should, with this scheme itself. My noble friend says that it is wholly new. It is up to us to decide what are the rules. In putting it forward, the Government have decided that the taxation regime for this scheme will be different from that for normal gifts to children. It therefore seems to me that, in logic, it is equally possible to make this benefit, the fund, different from other forms of finance that these children might have.

If the scheme really seeks to do what it says, to ensure that all 18 year-olds have a financial asset at a key life stage, it seems to me perverse to take that financial asset and turn it into a financial liability because of its impact on income rather than on capital—not for the richest children, those who have income from other areas and are perhaps higher rate taxpayers, but for children in the most difficult financial circumstances. They deserve a financial asset at 18 every bit as much as every other 18 year-old.

The noble Baroness, Lady Noakes, made a point about having left out some benefits. I am sure that we have both done so, particularly on disability benefit. That is an area in which even a small amount—even only the Government's amount—put into the child trust fund could mean someone losing benefits. Take an 18 year-old who had an accident at 17 and was unable to work, but received lump sum compensation of £5,000 for that accident. The money could take that youngster over the limit and mean that he loses benefits.

Some cases will be extremely difficult. I understand that there are parallels in other forms of capital that come to such children or to people on benefit, and that the loss then kicks in. I cannot say that other people suffering in such circumstances seems a terribly attractive reason to extend such suffering into the areas that we are discussing. That is especially so when we look at the purposes set out, which are to encourage saving—that may be very difficult for such families—and to ensure that all 18 year-olds have a financial asset at a key life stage.

Lord Newby

We are very sympathetic to both amendments, which seem much in line with the principles of the Bill. By giving way on raising the disregard to £6,000 in stages, and implying that that was a mere step towards something else, the Government have really underlined the fact that they do not feel very comfortable with the current situation either. I fear that the Minister is being uncharacteristically mean in regard to the provision. I strongly encourage him to follow the arguments made by both noble Baronesses.

Lord McIntosh of Haringey

Let me assure the noble Baroness, Lady Noakes, that I accept that the amendments are probing, so I shall not criticise the drafting at all. Of course, there are issues of principle here, and genuine conflicts between our desire that the child trust fund money should be available to as many young people at 18 as possible and the possibility of perverse incentives that might arise if we depart from the principles set out in the Bill.

I have no difficulty in reassuring the noble Baroness that the child trust fund assets, and the incomes and gains from them, do not impact on family benefits and tax credits before the account reaches maturity when the child reaches 18. In other words, they are not part of the family's capital for benefit purposes. After the child's 18th birthday, the account ceases to be a child trust fund account. The Government's intention is that when the child trust fund account matures, if the account holder wishes, the funds can be rolled over into tax-effective savings schemes available at the time. Income from investment in tax-free savings schemes does not affect entitlement to tax credits. That is a qualification to the argument that has been made.

Contributory benefits, such as invalidity benefit and the contributory element of jobseeker's allowance, are not subject to a means test, so no account is taken of savings or income from savings. The Government acknowledge, however, that there may be concern that saving in the child trust fund or any other savings vehicle may affect entitlement to income-related benefits, such as income support and income-based jobseeker's allowances when the individual is an adult. It is to that that the amendments refer.

The treatment of capital in income-related benefits needs to strike a sensible balance between providing targeted state support, incentives to work and not unfairly penalising those who have acted responsibly by saving. The Government will continue, as they always have, to keep this under review.

As a first step, the Financial Secretary announced at Second Reading in the Commons that, from April 2006, the Government will increase the £3,000 threshold above which savings reduce the amount of income support, jobseeker's allowance, housing benefit and council tax benefit payable to £6,000. That was confirmed yesterday in the Budget.

The first child trust fund accounts will not start to mature until 2020. It is unlikely that the rules on income-related benefits will still be the same then. That is why it would not be realistic for me to give costings as I have been asked to do. Nevertheless, the increase announced from 2006 will be sufficient to give parents, carers, grandparents and friends the reassurance that they need at this stage that the child will not be unfairly penalised in future for savings made now.

When I said "as a first step", I meant that as a first step the threshold is being raised from £3,000 to £6,000. As we have 16 years to go before the first accounts mature, clearly a second step—in other words, a further review of the threshold—is a real possibility.

On Amendment No. 78, Clause 19 allows the Inland Revenue to make a payment to the parents of a child who has died before payments to which the child was entitled have been credited to a child trust fund account. The amendment seeks to ensure that payments to parents in this event do not affect their entitlement to benefits and tax credits.

Normal intestacy rules will apply if a child dies before reaching age 18. That is, the child trust fund will go to the parents—or spouse if the young person was married—and be taken into account as part of their capital as soon as it is available to them. Normal rules for income-related benefits and tax credits will still apply.

This issue is not unique to child trust funds; it applies to any assets in the estate of a dead child. We do not see a persuasive case for special treatment for the child trust fund compared to other children's savings. There is also the practical problem of specifically exempting CTF money. This is because, if a child dies, the CTF will cease to exist and it would be difficult to ring-fence the money; it could be placed in any number of savings products by the parents.

As I have said, the increase in the threshold above which savings reduce the amount of income-related benefits payable from £3,000 to £6,000 in April 2006 will reduce the number of people affected by the capital rules for all kinds of savings, not only the child trust fund. We shall keep this under review so that it strikes a sensible balance between providing targeted state support, incentives to work and not unfairly penalising those who have acted responsibly by saving. In other words, I am afraid that we cannot support the amendments.

6.30 p.m.

Baroness Noakes

I thank the Minister for that reply and noble Lords who have taken part in the debate. I particularly thank the noble Baroness, Lady Hayman, for her contribution in relation to the death of a child. It raised many important issues.

I was pleased that the Minister said that the child trust fund would not affect family capital. I would be grateful if he will let me know under what provision we will find that. It is certainly not in the Bill, and I would like to be clear about it. The noble Baroness, Lady Hollis, may have to provide that information.

Lord McIntosh of Haringey

I will certainly write to the noble Baroness.

Baroness Noakes

I thank the Minister for that. I asked about grandparents and other relatives contributing and the interaction with the capital deprival rules. In particular, how will the Government avoid a postcode approach, because discretion is at the heart of the capital deprival rules? How can we be sure that children in one part of the country as compared with another will not be disadvantaged because of the attitude of particular benefit officers?

I also asked how a grandparent or other relative will be able to find out what they can and cannot do. That is quite important if we are trying to get to the bottom of this.

I take the Minister's point that we have 16 years or so to sort this out. I am completely unimpressed by increasing the limit, because I think we need something much more targeted than that. However, I accept that specifying the benefits in the legislation 16 years ahead is not a particularly effective solution. For me, the general issue remains open. I do not think that the Minister really answered the points made by the noble Baroness, Lady Hayman.

I should like to receive the information that the Minister has promised. We should be finding some mechanism in the Bill to go beyond the first step that the Minister has described and to make it clearer. As the noble Baroness, Lady Hayman, said, we have the opportunity to say how we want this to be treated as part of the benefits system. We do not have to take the benefits system as a given because we are creating a new approach to savings and investment. Therefore, it is open to us to vary the interaction of existing systems if that is what we think appropriate. We will want to reflect on what the Minister has said; equally, I suspect that we will want to come back to this on Report. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 5 [Opening by responsible person or child]:

Baroness Noakes moved Amendment No. 23: Page 4, line 6, leave out "first

The noble Baroness said

We come to another point raised by the Law Society of Scotland. The amendment would delete the word "first" in Clause 5(1) from the sentence: In the case of each child who is first an eligible child by virtue of section 2(1)(a)". The provision does not go on to describe what "second" or "secondly" is. It is quite unclear what "first" adds in Clause 5 or Clause 6. I hope the Minister can explain what the word means in that context or, if not, that he will agree to its deletion. I beg to move.

Lord McIntosh of Haringey

Again, I have some difficulty in understanding this amendment. I am afraid that the noble Baroness, Lady Noakes, has not helped me, although I commend her brevity.

The word "first" is in the Bill to ensure that there is clarity over the basis of a child's entitlement to a child trust fund account. The child will be eligible either through a child benefit award or through the special arrangements we have put in place for looked-after children.

Without "first" in both cases, children could qualify for a child trust fund account under both the normal child benefit route and the looked-after children route. That would probably depend on which claim came in first—the child benefit claim or the notification from the local authority. In extreme situations, where the timing was unclear or coincided, the child would not get the government endowment to which he or she was entitled.

The inclusion of "first" in both places in the Bill ensures that there is a level playing field for all children and that their entitlement is always based on their personal circumstances. For example, a child who goes into care immediately after birth or who enters care with a child benefit claim never having been made in relation to them will have a child trust fund account opened for them by the Inland Revenue. They will receive an amount equal to both the initial and the higher rate endowment because they could never receive a higher rate through the normal rules—children qualify for that by being in a household in receipt of child tax credit and on an income below the current income threshold of £13,230 at the time the child benefit award is first made in relation to them. The potential for ambiguity over the basis of a child's entitlement is unhelpful. I hope that that message may be conveyed to the Law Society of Scotland.

Baroness Noakes

I thank the Minister for that reply, which explains the situation extremely well. I only hope that the lawyers north of the border are equally persuaded when they read Hansard. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 24 not moved.]

Baroness Noakes moved Amendment No. 25: Page 4, line 8, at end insert— ( ) The Inland Revenue shall not issue any vouchers under this section until after the date of the next General Election.

The noble Baroness said

In moving Amendment No. 25, I shall also speak to Amendment No. 89. Both amendments are on the theme of delaying implementation of the child trust fund scheme until after the next general election. Amendment No. 25 would do so by adding a new subsection to Clause 5 so that the Inland Revenue delayed sending vouchers to parents until after the next general election. Amendment No. 89 would delay a commencement order under Clause 27 until after the dissolution of the current Parliament.

We debated the issue at Second Reading and, predictably, there was no meeting of minds between the Government and Conservative Members. We see the scheme as having been conceived and executed with electoral advantage in mind. That can be seen in the first announcement before the most recent election, and now in the impact on parents around the time of the next election.

I doubtless have even less actual knowledge of the timing of the next general election than the Minister. However, it does not take much analysis to work out that the most likely window is next May or June, if a collision with the British presidency of the EU is to be avoided, and if the Prime Minister seeks to avoid, as most do, the inflexibility of the final months of a Parliament. That coincidence of timing—it is around the time at which the child trust fund vouchers will wing their way to 1.8 million addresses—is too great.

About 3 million parents could be feeling good about the windfall from that very nice Chancellor. They may even temporarily forgive him for taxing and spending and failing. The scheme is an expensive one using taxpayers' money. We feel very strongly that money should not be used for electoral advantage. I beg to move.

Lord Newby

I am appalled at the cynicism of the noble Baroness. It is shocking to think that a politician, far less a Chancellor of the Exchequer, would ever time anything to affect the electoral cycle. However, having listened to the Budget yesterday and given its overall galaxy of goodies that will descend over the next 18 months, the idea that the child trust fund should be singled out for delay gives it greater prominence that it deserves. Although I have every sympathy with the principle that politicians should act as wise, long-term guardians of the welfare of the state rather than looking for votes in the short term, I do not support the amendment.

Lord McIntosh of Haringey

I take it that when the noble Lord says that he is shocked, he is shocked in the way in which Claude Rains was shocked to find drinking and gambling going on in the bar in "Casablanca". In that sense, I am also shocked.

The noble Baroness says that the issue was debated at Second Reading, but it was not really mentioned by anyone except her. I responded to it and explained how new ideas can take affect. One puts something in a manifesto—that is clearly right; one consults on it over a considerable period; if it is new, one tries to persuade people that it is good. We did that in 2001. One produces a Bill that goes through Parliament; one implements the measure when one can. If that takes the same time as the period between general elections, so be it.

Like the noble Lord, I rather think that the impact of money that will come to children born after 1 September 2002—they presumably do not have a vote in any 2005 election—and that will come to them only in 2020 is not much of an electoral bribe. In those circumstances, cynicism is misplaced.

7 p.m.

Baroness Noakes

Well, what a surprise! The Minister has wilfully misconstrued the effect that the child trust fund vouchers might have. The effect will not be on the children, who will be toddling around and not thinking about their 18th birthday; it will be on their parents. That is why I referred to the three million or so parents who might be influenced.

I did not expect to have reached an agreement on the amendment in Grand Committee, because it was clear that the Government would not accept it. However, there is good reason for pausing on the issue of child trust funds. It is a radical departure, which will cost a significant amount of taxpayers' money over the years.

It would be a positive step to await the result of the next election before deciding whether the scheme shall go forward. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 26 not moved.]

The Deputy Chairman of Committees

I have to tell noble Lords that, if government Amendment No. 27 is agreed, I cannot call Amendment No. 28.

Lord McIntosh of Haringey moved Amendment No. 27: Page 4, line 12, leave out from beginning to "to" in line 13 and insert— (3) An application may be made—

1. (a) if the child is 16 or over, by the child, or
2. (b) otherwise, by a responsible person,"

The noble Lord said: In moving Amendment No. 27, I shall speak also to Amendments Nos. 29, 30 and 33. These are technical amendments. The Bill was amended in the Commons to allow 16 year-olds to give instructions to providers on the management of their CTF accounts. An unintentional effect of the amendments made to achieve that is that, as the Bill stands, the CTF voucher would be issued to the child over 16 in circumstances where child benefit is paid not by the United Kingdom but by another European Union country. The most common example is families living in Northern Ireland where a parent works in the Republic. I could explain the drafting changes, but I hope that it will be accepted that the amendments have no other effect than that which I have described.

Baroness Noakes

Perhaps I may clarify why Amendment No. 28 could not be moved if Amendment No. 27 were accepted. That would deprive me of speaking to Amendment No. 28 in the next group.

The Deputy Chairman of Committees

It is because of pre-emption.

Baroness Noakes

I understand that, but I sought to test further what kind of pre-emption Amendment No. 27 would have on Amendment No. 28.

The Deputy Chairman of Committees

The words that Amendment No. 28 seeks to amend would have gone.

Baroness Noakes

In that case, with the agreement of the Committee, I would like to speak to Amendment No. 28 with this group. I recognise that the amendment could not be agreed today, but this is my only opportunity to speak to it. It is a point that I wish to cover.

Amendment No. 29 would remove subsection (4) from Clause 5 on a probing basis. Subsection (4) was inserted on Report in another place as one of several amendments made in response to concerns raised about 16 and 17 year-olds. The purpose of Amendment No. 29 is to find out the Government's intention regarding 16 and 17 year-old parents. The government amendments may have dealt with the point.

In another place, the Government accepted that 16 and 17 year-olds could manage their trust funds; however, we understand that they also accepted that 16 and 17 year-old parents could open accounts for their children. The Financial Secretary said that parents aged over 16 could manage their children's accounts. She did not say explicitly that they could open their children's accounts, but that it remains the case that, if a parent is under 16, their child's account will be opened directly by the Inland Revenue. The implication was that parents of 16 years old or over would be able to open their accounts. But the draft regulations that deal with applications provide at paragraph 13 that applications may be made only by people aged 18 or over. Paragraph 21 provides for the same in respect of transfers.

My question is whether government Amendment No. 28 will allow 16 and 17 year-old parents to apply for, open and transfer child trust fund accounts. The regulations provide that only people aged 18 or over may apply to open a trust fund account. That implies, therefore, that a 16 or 17 year-old parent may not open a trust fund account. My amendment, which is tabled on a probing basis and would delete the regulation-making power, seeks to elicit whether that is what the Government now intend as it is not what we thought had been agreed in another place. I am not sure whether government Amendment No. 27 actually achieves it.

Perhaps I may speak briefly to Amendment No. 28 which relates to the period after which the Inland Revenue opens a child trust fund account. At present, the regulations provide for a year before the Inland Revenue opens an account; my amendment would insert a period of six months. In most cases the Inland Revenue will open an account only when a parent has not opened one after one year. Potentially, the child could lose one year out of 18 years of income accrual and capital gain. If a parent does not open the account, the period until it is opened should be shorter.

There will be a number of parents who, through ignorance or negligence, do not open an account. By leaving a whole year for an account to be opened, we are creating a delay factor. Papers could go missing in the post. Given the general performance of the Post Office, we would expect several thousand child trust fund accounts to go missing every year. Is it right to wait for a year until the Inland Revenue opens the account? Amendment No. 28, which is pre-empted by Amendment No. 27, would shorten the timeframe to six months.

Lord McIntosh of Haringey

The noble Baroness, Lady Noakes, has made two points. One is a legitimate point on Amendment No. 27 and the group; the other is a quite understandable desire not to be pre-empted. The first point is very simple. Before the amendment that we are now tidying up was made on Report in another place, it was always intended that parents of 16 or 17 could open accounts. That will still be the effect. It can be done by regulation, if necessary, so there is no problem there.

As to whether there should be a 12-month period as opposed to a six-month period, it is true that the Inland Revenue will not open an account until after 12 months. But we think that the vast majority of parents will open an account as soon as they get the voucher. There will be others, with little experience of financial products, who will wish to wait a little longer, perhaps to consult friends or relatives. We will inform all parents that early opening will give the account more time to grow. But it is also incumbent on us to tell parents that it is an important decision and that they should consider all the options carefully. Under those circumstances, in order that we should have the maximum number of parents taking an informed decision on their own account rather than leaving it to the Inland Revenue, we think it best to stick to the 12-month period.

We will monitor the number of accounts being opened within a year. There is no reason why, for example, we should not telephone parents to encourage them to open an account, if that seems necessary. On the whole, in the interests of parental responsibility, it is desirable to give them a little more time to make up their minds.

Baroness Noakes

For clarification, is the effect of Amendment No. 27 to allow a 16 or 17 year-old parent to open an account?

Lord McIntosh of Haringey

No, it is not. The effect of Amendment No. 27 is a good deal lesser. As I said, it provides for circumstances where a family lives in one country and a parent lives in another. I gave the example of Northern Ireland and the Irish Republic.

The more important issue that the noble Baroness, Lady Noakes, raises is not covered in the amendments; it will be covered by regulation, because it can be covered in that way.

Baroness Noakes

The draft regulations say that applications may be made only by people aged 18 or over, as is the case with transfers. That is provided in the paragraphs to which I referred earlier. That seems to be the Government's intention, which is at odds with their agreement in another place.

Lord McIntosh of Haringey

It is in conflict, because the draft regulations were drawn up before we made the concession on Report. We shall now revise the draft regulations so that 16 and 17 year-olds can be given the authority to open accounts, as the noble Baroness wishes.

Baroness Noakes

I am grateful to the Minister.

Lord McIntosh of Haringey

I beg to move Amendment No. 27.

On Question, amendment agreed to.

[Amendments Nos. 28 and 29 not moved.]

Lord McIntosh of Haringey moved Amendment No. 30: Page 4, line 16, after "made" insert—

1. "(a) within such period beginning with the day on which the voucher is issued as is prescribed by regulations, and
2. (b) "

On Question, amendment agreed to.

Lord McIntosh of Haringey

This may be a convenient moment for the Committee to adjourn until next Tuesday at 3.30 p.m.

The Deputy Chairman of Committees

The Committee stands adjourned until Tuesday next.

The Committee adjourned at two minutes before seven o'clock.