§ Lord McIntosh of Haringey
rose to move, That the Grand Committee do report to the House that it has considered the Child Trust Funds (Amendment) Regulations 2005 [4th report from the Joint Committee].
The noble Lord said: I shall not detain the Committee very long with the details of the child trust fund, but I think it will help debate if I set out why the draft regulations that we are discussing today are necessary.
On 21 October last year, we announced that the phased transfer of the families with children receiving income support and jobseeker's allowance on to child 218GC tax credit would be deferred until 2005. That was to allow a full cycle of tax credits activity to be completed before those families were transferred on to child tax credit, with a view to preventing their payments being delayed in any way.
We also confirmed that families will continue to receive the same level of financial support through benefits as they would from tax credits. The announcement is why there is a need to table the draft regulations that we are debating this afternoon.
Under the Child Trust Fund, children born since 1 September 2002 receive government payments for their parents to open long-term savings or investment accounts. All children receive at least £250, with children in families with lower incomes receiving an additional £250, making a total of £500. Further payments will be made when children turn seven. In his pre-Budget report last year, the Chancellor of the Exchequer announced a consultation on adding another £250 for every child and a total of £500 for the poorest.
We estimate that some 40 per cent of children will qualify for the second payment of £250 paid to families on low incomes. Eligibility for the payment to children in lower income families is based on a household receiving child tax credit, with household income below the threshold in child tax credit. Currently, that is £13,480. These eligibility criteria were extended for children who were born before the introduction of child tax credit in April 2003 or who are living in families who have not yet moved to tax credits from benefits. These children can qualify for the second payment by virtue of the family receiving specific benefits, including income support and jobseeker's allowance.
The Child Trust Fund Act was drafted to allow children in households receiving those benefits to qualify for the additional payment if child benefit was first paid for them before 6 April 2005. That date was used in the Act because it was believed that, by then, all children in low income homes would qualify for the additional payment through child tax credit. However, the decision to delay the transfer on to child tax credit of the remaining families with children receiving income support or jobseeker's allowance means that the qualification for the additional payment needs to be amended to bring in children in families not on tax credits by 6 April 2005.
These Child Trust Fund regulations will make sure that children in this group do not miss out and that they are treated on a par with children in lower income families receiving child tax credit. We anticipate that approximately 34,000 children will benefit from this draft regulation. New families, that is families with a first child, go straight on to child tax credit but families already receiving the child allowances in income support and jobseeker's allowance continue receiving, those benefits for a new child born in the family. The draft regulation provides for a further contribution for these children under Section 10 of the Child Trust Fund Act, specifically a further contribution of £250 for children where the date child benefit was first paid 219GC is after 5 April 2005 and a person was receiving the child element in either income support or jobseeker's allowance for the eligible child.
All these payments will be made automatically into children's Child Trust Fund accounts on the basis of information provided by the Department for Work and Pensions. Families will not need to claim the payment for their child. This proposed amendment will not create any compliance burden for these families or for providers. It simply ensures that all children in lower income families receive an extra £250, giving them a total government payment of £500, fulfilling the intention that the Child Trust Fund should provide most support to those who need it most through progressive payments.
The other provisions are consequential amendments ensuring that the revenue can recover any payment subsequently discovered to have been incorrectly made and that the claims from account providers must include claims for the amount payable under these regulations. Let me emphasise again that providers are set up to do this routinely for the Child Trust Fund. This does not involve the introduction of any new administrative process.
This statutory instrument is essential to ensure that children in lower income families do not miss out, and I commend it to the Committee.
Moved, That the Grand Committee do report to the House that it has considered the Child Trust Funds (Amendment) Regulations 2005 [4th report from the Joint Committee].—(Lord McIntosh of Haringey.)
§ Baroness Noakes
I thank the Minister for introducing the order, which is evidence of the complexity of how the Child Trust Fund regime is working in practice. We can only speculate on how many other such orders will be needed to tidy up loose ends.
My party has no objection to the order in the context of the Child Trust Fund policy. As the Minister knows, we supported the Act only because it may contribute to improving savings ratios. We believed at the time of the Act, and continue to believe, that child trust funds are an electoral gimmick and that in practice they will not do much to generate additional savings. I think that we have already been proved correct on the first of those; that it is an electoral gimmick, as we saw in January with the Chancellor rushing around the country promoting them in what is very clearly a pre-election period. Fortunately, all that was eclipsed by the ongoing saga of the relationships between No. 10 and No. 11, so perhaps not much advantage was obtained.
Since I have the Floor on child trust funds, I have a couple of questions for the Minister on how trust funds are progressing. The Minister probably knows that when a company analyses its share register it works out which shareholders it should have, who are absent and which are overweight. On the number of CTF providers, what is the Treasury's analysis of which providers are providing CTFs for people to put their 220GC vouchers into, and which are absent? The ones that are absent are the most interesting when you analyse a share register. I am sure that it will be interesting when we look at the progress of a child trust fund policy.
My other question for the Minister—the issue has started to arise in commentary on how the policy is being implemented in practice—is about the role of cash CTFs. There is increasing evidence that cash CTFs will be popular among a large number of the population, notwithstanding the Government's desire to have more children using equity-type products as being more appropriate for the longer term. Will the Minister comment on how cash child trust funds appear to be emerging as one of the favoured uses for child trust fund vouchers and what the Government intend to do about that development?
§ Lord Newby
These regulations are an example of what inevitably happens with a policy that starts off relatively simply. Life is never simple when one gets into taxation and government expenditure. I suspect that, as the noble Baroness said, this is the first of a number of orders which will have the cumulative effect of making the scheme more complicated than was originally thought.
As noble Lords will know, we oppose the child trust fund legislation. We did not believe that it would achieve the aims set out for it. That view is reinforced by every passing day. It is hardly surprising that a large proportion of parents are opting for cash. They are confused by the other offers on the table and do not know what to do.
I was very interested in the article in the Financial Times over the weekend by Robert Budden, who said:I spent a few hours trawling through the Government's child trust fund website and the sites of a few of the providers and I was still hardly any the wiser. In a great many cases it was unclear exactly where your money would be invested or what charges would be made".It is not surprising, therefore, that parents opt for cash.
Is the Treasury satisfied that it has done enough to make it easy for parents to exercise the choice that they have when issued with the vouchers? Is the simple information that we were promised when the legislation went through being provided in all cases?
§ Lord McIntosh of Haringey
I am moderately grateful for those responses, but I should emphasise that the effect of these regulations in relation to the total effect of the child trust fund is very marginal. Something like 2 million vouchers have gone out and these regulations affect only 34,000.
The noble Baroness, Lady Noakes, asked me about the number of providers and potential providers. The number of actual providers is 82 and we have a list, which I shall gladly send to the noble Baroness. I am not sure that one can put a figure on the number of potential providers. I should have thought that all banks and building societies and a number of others—I see on the list the independent auditor of Oddfellows, for example—could become providers, so I do not think that the percentage of potential providers would 221GC be a very meaningful figure. But if there is anything further that I can say on that point, I shall gladly write to the noble Baroness.
The question of the noble Lord, Lord Newby, concerned choosing cash. My understanding is that quite a number of parents are opting for cash at the moment. There is a healthy debate on the merits of cash against equities, but it is far too early to see how it settles down. I think that there has been one 18-year period in the past 100 years in which equities underperformed cash, but, apart from that, I think that the basic argument that we put at the time is still sound. We give parents the choice and the best information possible and if, at the end of that period, they are resistant to the idea of investment in equities, so be it. We shall see how George Bush gets on with his pension reform and whether he can persuade pensioners in the United States that equities are better than cash.
On Question, Motion agreed to.