Child Trust Funds Bill

HL Deb 26 April 2004 vol 660 cc616-56

6.29 p.m.

Report received.

Clause 2 [Eligible children]:

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

The noble Baroness said: My Lords, in moving Amendment No. 1, I shall also speak to the other amendments standing in my name and that of my noble friend Lady Wilcox in this group.

The effect of the amendments is to create the ability for parents to open child trust fund accounts for children who were born on or before the magic qualifying date of 31 August 2002. Those pre-2002 child trust funds would enjoy all of the benefits of a child trust fund regime, except for the Government contributions at the outset and any top-ups. At the heart of the amendments is a desire to encourage a habit of savings. The child trust fund project has that as one of its aims and it is why these Benches have determined that they will not oppose the Bill. My party has a long-standing commitment to encouraging savings and that means ensuring that there are effective vehicles available at all of life's stages.

The Government's record on savings is not good. I do not doubt the worthwhile intentions of the Government in the Bill, but we also need to judge them on their record. The fact is that the savings ratio has halved since 1997. It was 10 per cent then and now is 5 per cent with no significant recovery in sight. One third of households have no savings at all. It is hard to think of any of the Government's policies—as opposed to their rhetoric—which are strongly pro savings.

We think that a savings ratio of 5 per cent is unacceptable. We are sceptical about whether a child trust fund policy will have any effect on the ratio in the sense that it will encourage further savings. I do not know whether the Government's own contributions of around £250 million a year to the trust funds will count as savings for the ratio—and the Minister might enlighten us—but even if it does, we know that this will not represent anything that resembles a culture or habit of saving that we need so much if the savings ratio is to be restored.

I am proposing the amendments against that background. The Government scheme is for child trust funds to be available only to children born after 31 August 2002. We want children born before that time to be able to have child trust funds which are as similar as possible to those which benefit from the Government contributions. Part of that similarity will be the fiscal advantages that attach to child trust funds, but I do not want anyone to be carried away with the idea that I am proposing another major tax break for the wealthy. The Minister may wish to comment but I do not believe that the ability to invest £1,200 a year for a child will create a significant fiscal cost.

For me, the advantages of extending the child trust fund are twofold. First, there is no easy way at present to create an account that mimics the child trust fund itself. In particular, the lock-in of investments until the age of 18 is not available in the same way. I believe that this will be an important feature for some categories of potential contributors—for example, grandparents—who may wish to he reassured that the money will be locked up. Another feature is the availability of a stakeholder product, which may be attractive to some.

Secondly, and more importantly, there is the impact on the savings habits of potential contributors to the child trust funds. Parents like to treat their children equally and so, usually, do grandparents, godparents and so on. Creating an artificial divide in 2002 may mean that no additional savings will be channelled into child trust funds, because it will be impossible to treat equally children born before and after August 2002. If children cannot be accorded equal treatment, or only at disproportionate effort, the additional savings may simply not be made. The Children's Mutual, which has provided a helpful briefing to noble Lords, has been concerned about the matter—and so are we.

The Minister will tell us that there is a power in Clause 2(7) to extend backwards the date of eligibility for child trust funds. We acknowledge that the Government have said that they will monitor the market to see whether there is a gap. But in Grand Committee the Minister seemed more concerned with whether or not the market provided tax-advantageous products and, as I have tried to point out, this is not the most important gap.

In Grand Committee the noble Lord, Lord Newby, for the Liberal Democrats, said that he would support amendments that made it easier for families, especially poorer families, to invest. I hope that he now appreciates that our amendment is solidly in line with that principle: it is exactly about making savings for all the children of a family, rich or poor. I beg to move.

Lord Newby

My Lords, as noble Lords will know, we on these Benches oppose the principle behind the Bill, because we do not believe that it will achieve its objectives and that the money allocated to it by the Government could be better spent in the short term. As the noble Baroness, Lady Noakes, has pointed out, the line that we have taken has been to oppose amendments that increase the scope of the Bill, but equally to make sure that, to the extent that the Bill is likely to be implemented, all families should have an equal opportunity to invest in it. We shall be looking particularly at the situation facing poorer families and trying to ensure that they are eased in to the additional savings.

This group of amendments has arguments in both directions. There is some evidence that it may, if passed, encourage some poorer families to invest in more than one child, although, as I have said on several occasions, I have severe doubts whether for many poorer families it either makes sense to invest in these products, rather than others, and whether they are likely to do so in any numbers.

Against that is the question of whether the amendments increase the scope of the Bill. I believe that they do. The issue is not primarily one of cost, although I was intrigued to see under Amendment No. 13 that there is provision for a supplementary contribution to be made in respect of any child trust fund held by a child horn on or before 31 August 2002. So there is a clear chink there, which could lead to payment by the Government into child trust funds for older children.

A long way down the track there is also likely to be the potential for tax losses. Therefore, weighing up the two arguments against my own criterion, I find that the amendments extend the scope of the Bill and I shall not support them.

Lord Naseby

My Lords, I declare an interest as chairman of the Children's Mutual. I support the comments of my noble friend on the Front Bench. I wish to add a couple of points in relation to Amendment No. 1 and then turn to the two amendments standing in my name.

First, it seems, on the one hand, that the Government are rightly and understandably saying that they recognise that one should not differentiate between one child in a family and another but they want time to reflect on that and to see how their proposals operate in the market. The problem with that is that the providers themselves are now planning the software and all the other necessary preparations, which are exceedingly complicated. Therefore, providers need to have a clear, authoritative statement from the Government on whether the scheme will be extended at some point. A specific date does not necessarily have to be given, but there certainly needs to be a statement from the Government that the scheme will be extended hack to the remaining children within a family.

My second point is that the Government are saying, as I understand it, that, for the moment, there are alternative methods of saving for children. The friendly society of which I have the privilege of being chairman has been selling to the children's market for 40 years. We know that market well and we know that about 20 per cent of families save specifically for their children. It reaches nowhere near the concept of the child trust fund, which is why that concept is so exciting in the first place. It is why, from the beginning, the average family will look to the child trust fund as the mechanism to save for all of its children. The kind of question we are getting from people seeking information is: "Can I split my endowment in two so that my elder son can benefit from the CTF and have top-ups too?". I understand why there should not be top-ups, but it is difficult to explain why they should not benefit from CTF. I hope that the Government will think again about finding a means of involving children who just miss out.

The purpose of my Amendment No. 18 is to equal tax advantages, but not the other CTF provisions, to children born before 1 September 2002 and therefore not eligible for the CTF, and to do that through other regulated savings schemes. I see the provision as second best, but it is worth proposing and it would provide the means for raising any tax exemptions on subscriptions into those schemes to the same level as set for the CTF of £1,200 per annum. It would treat all children fairly, especially families of mixed ages; it would further encourage the savings habit; and it would provide a positive commitment to enhancing financial awareness.

In case the Government say that that is all very well, but it is too expensive to do it, I have tabled an amendment with regard to friendly societies. I re-emphasise my involvement in that movement. Half of children's savings are provided by friendly societies. It requires only a change of figure in the regulations from £270 to £1,200 to make it possible, through the tax-exempt policy for friendly societies, at least to provide a vehicle. It could be a time-barred vehicle. There is nothing to prevent the Government from saying that for an interim period of five years they will increase the figure to £1,200 and will then review it. That will at least put child A on an almost level playing field with child B.

Lord MacGregor of Pulham Market

My Lords, I support this series of amendments. We had a long debate in Committee so I can be brief. First, I congratulate my noble friends on the Front Bench on the ingenious way in which they introduced the amendments and managed to make them stick.

There are three reasons why I support the amendments. The first is the effect on families. There will be confusion among many parents when they discover that a child born in 2001 is not eligible for the tax benefits, but that a child horn after September 2002 is. They will certainly regard that as unfair, and it may well discourage some families, grandparents, family friends or whomever from putting money into the trust fund because it will discriminate between children in the same family. Indeed, I am aware of no other children's savings product that discriminates between children in the same family, which is what this does.

The second reason is the effect on the children. The purpose of the child trust fund is to encourage through grant and tax relief a savings habit among young children. In addition, as the Minister repeatedly said in justifying the scheme, the literature to be circulated with the trust fund will provide a financial education for them. Unfortunately, those two advantages will not be available to the older children in the family.

We are talking about children who are now about two and a half years old. It is unlikely that they will be able to read the literature or be aware of the tax advantages until they are much older. Therefore, they are deprived of those advantages from the outset, which is unfortunate. Indeed, no other savings scheme for children has this level of tax advantage. My noble friend Lord Naseby indicated how it might be done, but the suggestion of my noble friend Lady Noakes is simpler taken with the educational aspect. If those are advantages for children born since September 2002, they should be an advantage for all children.

The third reason relates to the point of view of the provider. We are all aware that the Children's Mutual, which has done so much work in this area, will be taking up child trust funds in a big way. However, the project is marginal for many other providers. It is a question of volume—and it really is marginal. If parents are discouraged from topping up for those children who are receiving a £250 grant and are unable to do anything for the rest of the family, that will have a disadvantage on the whole. However, if these amendments were accepted, undoubtedly the volume going into the child trust fund would be greater and might encourage more providers to participate.

For those three reasons, I believe that these amendments are desirable.

6.45 p.m.

Lord McIntosh of Haringey

My Lords, I shall not follow the noble Baroness, Lady Noakes, in a discussion about savings ratios. All right, if she wants me to, I will to the extent of one sentence. She is right that savings ratios since 1998 have been of the order of 4 to 5 per cent. There have been periods when they were higher, but the average over the past 40 years has been 3.5 per cent. There is therefore nothing dramatic or relevant to the Bill about savings ratios.

I agree with the noble Baroness that with this Bill we want to encourage saving. That is one of the objectives of the child trust fund. However, we believe that it can be and should be achieved without legislating for child trust fund accounts for older children.

Perhaps I may begin this Report stage by saying that we had a good idea with child trust funds. We put it into our election manifesto; we defined it carefully; and we consulted on it carefully. After all, we won an election and introduced legislation. But the measure must be carefully defined, workable, understandable and acceptable to families and financial providers.

Now, this and several other amendments seek to embroider and add to it. They would certainly add substantially to the cost, if Amendment No. 13 is to be taken as being consequential on this amendment. It would allow for contributions from the Government. Surely, once someone has had a good idea and it has been agreed that it is a good idea and that it should go ahead, we should stick to the simple, well defined, well thought-out scheme which we have before the House and not try to play with some of its provisions.

The new clause proposed by Amendment No. 11 and the related amendments would introduce a second form of child trust fund account for children born between 1 September 1988 and 31 August 2002. It is not being proposed, except as a power under Amendment No. 13, that they should have the initial government contribution, and there is no requirement on the Government to pay supplementary or further contributions such as the age-related contributions, although they would be allowed to do so.

We are not convinced that these accounts, without an additional endowment, would offer parents—particularly parents on low incomes—a powerful incentive to save. The feedback from our research shows that one of the key attractions of the child trust fund is that the government endowments are an effective way to encourage parents to save. The research carried out by IPPR indicates that, £250 would start the ball rolling. People might get into the routine of saving". It also indicated that, £250 is a fair start. It is positive. With interest and Christmas money going in, that would build up". The only real incentive to save without the government endowment would be the tax advantage nature of the account. The noble Baroness, Lady Noakes, carefully disclaimed saying that she was not proposing a tax break for the wealthy, but the impact of her amendments is more likely to appeal to those on a higher income. Only about 50 per cent of children have any savings in their own name, despite the current tax advantage savings vehicles that exist.

It is our firm belief that the industry will step in if it senses a demand for other types of children's savings vehicles. I cannot imagine a parent going to open a child trust fund account, asking whether there is a similar account for older children and not being offered other options. I am sure that that applies to the Children's Mutual.

However, what if the market fails to step in as I have suggested? The Financial Secretary to the Treasury made two commitments on Report in the Commons which should reassure this House. First, the Government will continue to monitor whether, after the launch of the child trust fund, parents feel their demands for accounts for older children have been met. Secondly, the Government are working on proposals to meet any gaps identified. My right honourable friend pointed out that any changes could be met by regulations. No amendments to the Bill, which might create additional complexity, are needed.

I might perhaps reassure the House further by explaining how we intend to monitor the market. We have consulted financial providers throughout the development of the child trust fund. We intend to continue those consultations in the period before the launch and in the first years of the child trust fund being available. In conclusion, I can give the noble Lord, Lord Naseby, the clear statement that he sought for the benefit of providers. It is not our intention to extend the child trust fund before 1 September 2002.

However, I would not like any noble Lord to think that we are simply going to ignore the needs of children born before 2002. We are developing the child trust fund website. That will have a section specifically for children who are not eligible for the child trust fund, giving them information about other savings opportunities. I hope that the amendment will not be pressed.

I turn to the amendments of the noble Lord, Lord Naseby. Amendment No. 18 would grant tax relief for child trust fund accounts to accounts for older children. I assume that those would be child trust fund-type accounts with the same key features. If the settlements legislation were to be disapplied on children's savings other than child trust fund accounts, even with a £1,200 annual limit on contributions, no controls would be in place to ensure that each child had only one such account. That could lead to widespread abuse. Parents could open multiple accounts for their children, or grandparents for their grandchildren, in order to shelter savings and investment income from tax. Rigorous controls must be built into the child trust fund system to ensure that only one child trust fund account can be opened for each child.

The settlements legislation has been disapplied for child trust fund accounts only because children have no access to the funds until they are 18, and then only the child or young adult is entitled to the funds. It would not be appropriate to give the same treatment to tax-exempt savings plans—the noble Lord, Lord Naseby, pointed out they can attract £270 a year—precisely because those plans do not necessarily belong to the child, nor are the funds locked in until the age of 18.

The noble Lord's Amendment No. 20 would amend Clause 14, which relates to insurance companies and friendly societies. The clause provides for the child trust fund business of life insurance companies and friendly societies to be taxed in the same way as their ISA business. The amendment simply supplements Amendment No. 18, except that it would not extend the treatment of funds to life insurance companies, only to friendly societies.

Given our decision not to create child trust fund-type accounts for older children without waiting to establish how the market meets any demand for them, it would not be appropriate to amend the Bill in the way proposed by Amendments Nos. 18 and 20.

Baroness Noakes

My Lords, I thank the Minister for that comprehensive response and I thank other noble Lords for their contributions, particularly those of my noble friends Lord Naseby and Lord MacGregor, who have so much practical experience to bring to debates of this kind.

The Minister raised a number of points. He spoke about the effect of the Government contribution on saving. The IPPR report has a lot of "mights". One of the problems with our discussion of how the child trust fund would operate in practice and what its effect would be is that it is a series of "mights". We have a concern that the child trust fund project will not have a dramatic effect on savings. Savings are important. We would not have invented the child trust fund ourselves.

Noble Lords should reflect that four out of five families do not save for their children. Is there anything in the Bill that would make those four out five families save for their children? The barrier is that parents will see a potential unfairness between different categories of child.

The Minister said that I had included the tax advantages. Indeed, I did, but not, I re-emphasise, because that would be a tax break for the wealthy. The Children's Mutual told me that for a savings product to be successful, it often has to have the label "tax free" or "tax advantage", even though there is no effective advantage in investing in it, because that is the psychology of investment. That was one of the advantages.

Lord McIntosh of Haringey

My Lords, not with the approval of the Government or the FSA.

Baroness Noakes

My Lords, I did not say that it was with the approval of the Government or the FSA. That was relayed to me by somebody who is very experienced in the field of the psychology of investment.

Lord Naseby

My Lords, I assure my noble friend and the Minister on the Benches opposite that the rules are quite clear. Any literature must follow the rules laid down by the FSA. Nevertheless, where there is a tax advantage, it does act as a trigger in the mind of the saver. My noble friend is quite right in pointing that out.

Lord McIntosh of Haringey

My Lords, I am shocked.

Baroness Noakes

My Lords, I thank my noble friend for explaining that point more adequately than I had been able to do. The Minister has said that the scheme will be monitored and that work may be undertaken to meet gaps but that the scheme will start without child trust funds for children born before August 2002. In an ideal world, we would like to see parity at the outset. It would not be costly, as the Minister claimed, because the benefits in terms of savings would far outweigh the cost. We are, however, conscious that the Bill reserves a power to extend the child trust funds. We must assume that the Government will undertake their scrutiny comprehensively and rigorously. We certainly expect the savings industry to be loud and voluble if it believes that the way in which the child trust funds are being implemented is, as we postulated, to the disadvantage of their success. On that basis, I shall not press the amendment. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 3 [Requirements to be satisfied]:

Lord Newby moved Amendment No. 2:

Page 2, line 33, 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: The amendment would remove the obligation on child trust fund account providers to provide equity-based accounts. It is aimed in particular at those building societies that offer cash-based accounts, but that do not, as a matter of course, offer equity-based accounts.

The reason for the amendment is that the Government require all those who offer child trust funds to offer stakeholder, equity-based child trust funds. More than a quarter of all building societies, particularly the smaller ones, do not have authorisation from the FSA to offer regulated investment products. Therefore, as matters stand, they are not in a position to offer equity-based child trust funds. In order to do so, they would need to apply to the FSA to extend the regulatory permissions under which they operate. That would impose additional costs and an ongoing compliance burden which, given the 1.5 per cent charge cap, would mean that, for those societies, it would not be worthwhile incurring the additional regulatory burden. My understanding is that of the 17 societies in this category, only one is intending to extend its permissions.

It has been suggested that this problem will be dealt with in the future by depolarisation, but that simply is not the view of the societies themselves. They believe that they would have to pay significant additional costs if they were to adopt the equity-based products and they simply cannot see financial sense in doing so.

Why does it matter if a small minority of financial services providers are not able to offer child trust funds? The reason is that these building societies are regionally based societies with a good reputation and, typically, a very substantial market share in their own area. They have a high proportion of lending to children and young people and a high proportion of accounts with people whose incomes are relatively modest. They are the obvious place where many well off families would go to open child trust funds. These families are not used to going to a plethora of financial services providers for a range of products. They often have a very limited range of accounts, very often just with their local building society, and very often they are cash-based.

When we discussed this matter in Committee the Minister said: I think it is more important for parents to have choice than for providers to be marginally inconvenienced".—[Official Report, 18/3/04; col. GC151.]

The truth is that it is not a question of the providers being marginally inconvenienced; it is a question of these providers simply not making provision at all because they cannot afford to offer these products. It simply does not make any financial sense for them to do so. In those circumstances, I contend that many families will simply not invest in child trust funds. The only financial institution they trust themselves is their local building society.

I believe that if these building societies do not offer child trust funds, many parents will not invest elsewhere, and therefore the Government's aim of extending savings, particularly down the income scale, will be to an extent frustrated. I therefore hope that the Government have had a chance to reconsider the issue since Committee stage and to be more flexible. I beg to move.

7 p.m.

Lord Naseby

My Lords, I wish that I could support the noble Lord. It seems to me that this is a case of special pleading, as some small laggard building societies cannot get up to date and offer a product which is universally thought right. Another danger occurred to me as I reflected on the amendment over the weekend. How do we ensure that building societies offering the child trust fund offer the stakeholder child trust fund as opposed to an attractive child deposit account — which does not have a price cap, is home based and has a number of other features, including the fact that it is non-stakeholder? So if there is a problem even in building societies that offer child trust funds—at least it seems to me that there is a potential problem— there is an even bigger problem in those that are not offering stakeholder child trust funds. If the noble Lord forces the amendment to a Division, I shall be in the opposing camp.

Lord McIntosh of Haringey

My Lords, I shall have difficulty distinguishing Amendment No. 2 from Amendment No. 3. Although each has a slightly different approach, both are basically on the same subject. Amendment No. 2 deals with the requirement for all providers to offer a stakeholder account. The stakeholder account has been designed to provide good value to all consumers. It is to be equity-based, risk-controlled, charges are capped at 1.5 per cent of fund value, and a minimum contribution of £10 will apply. All of those issues were debated in Grand Committee, and I am glad that we have reduced them to perhaps the core ones.

In order to maximise accessibility and ensure that all savers can benefit from the good value of the stakeholder account, the draft child trust fund regulations have required all child trust fund account providers to include a stakeholder account as part of their product ranges. The Government want all savers to be able to benefit from the generally higher returns to equities over the longer term. This requirement would also avoid the problem of providers automatically offering low-income families cash accounts—which is I think what the noble Lord, Lord Naseby, was more than hinting at; I think he was actually suggesting it. Of course, any description of the services provided by the Children's Mutual society is of benefit to the House.

Risk controls required for stakeholder child trust fund accounts would reduce the risk of a loss in value. However, savers will be free to invest in cash deposits, including those offered by building societies, if they wish. I will not go into the argument any further about equities. There are things to be said about that which are perhaps better referred to in the debate on Amendment No. 3. However, I am aware of the concern of some building societies that the FSA permissions required to offer the stakeholder account will mean that they cannot offer the child trust fund. That is the point made by the noble Lord, Lord Newby. He raised the concern with my office in response to my offer of a meeting between Grand Committee and Report stage.

The Government's view is that the requirement to "offer" a stakeholder account means that a stakeholder account is always made available when an investor contacts a child trust fund provider. That does not mean that all providers have to manufacture their own stakeholder account. A firm could make arrangements with another firm to offer its products as the stakeholder investment provided that all products are available in a one-stop shop for the customer. We are keen to see a wide range of providers, including the majority of building societies, and other mutuals, join the child trust fund market. The Government are continuing to work with the FSA and providers with a view to allowing providers that do not have the full range of FSA permissions to offer the child trust fund, and for that to be achieved in a way that protects the interests of investors by giving them access to a good value, equity-based account for the long term, without placing undue burdens on providers.

I hope that that indicates the work that is going on and the new thought that has gone into this issue since the matter was first raised in Committee.

Lord Newby

My Lords, I am grateful to the Minister for that reply and indeed for that latter comment. The truth, however, is that we still disagree about the effect of current provision on the likelihood of many lower-income families adopting child trust funds. I hear what the noble Lord, Lord Naseby, says about the possibility that these building societies are not as far advanced as the Children's Mutual; perhaps they should be able to offer more products more easily. However, the truth is that they cannot, and it appears that they will not. As a result, we believe that many of those who I would have thought the Government would be keen to see take up child trust funds will not do so. Therefore, as grateful as I am for the Minister's comments, I fear that he has not gone far enough, and I would like to test the opinion of the House.

7.8 p.m.

On Question, Whether the said amendment (No. 2) shall be agreed to?

Their Lordships divided: Contents, 32; Not-Contents, 107.

Division No. 6
CONTENTS
Addington, L.	Park of Monmouth, B.
Avebury, L.	Razzall, L.
Barker, B.	Redesdale, L.
Dahrendorf, L.	Roper, L.
Dholakia, L.	Russell, E.
Goodhart, L.	Sandberg, L.
Hamwee, B.	Sharp of Guildford, B.
Harris of Richmond, B. [Teller]	Shutt of Greetland, L.
Hooson, L.	Smith of Clifton, L.
Livsey of Talgarth, L.	Stoddart of Swindon, L.
McNally, L.	Tordoff, L.
Maddock, B.	Wallace of Saltaire, L.
Miller of Chilthorne Domer, B.	Walmsley, B. [Teller]
Monson, L.	Walpole, L.
Newby, L.	Williams of Crosby, B.
Oakeshott of Seagrove Bay, L.	Williamson of Horton, L.

NOT-CONTENTS
Acton, L.	Bassam of Brighton, L.
Ahmed, L.	Berkeley, L.
Alli, L.	Bernstein of Craigweil, L.
Amos, B. (Lord President of the Council)	Borne, L.
	Brooke of Alverthorpe, L.
Andrews, B.	Brookman, L.
Archer of Sandwell, L.	Campbell-Savours, L.
Ashton of Upholland, B.	Carter, L.
Barnett, L.	Chandos, V.

Chester, Bp.	Lamont of Lerwick, L.
Clark of Windermere, L.	Lea of Crondall, L.
Clarke of Hampstead, L.	Lockwood, B.
Cohen of Pimlico, B.	Lofthouse of Pontefract, L.
Corbett of Castle Vale, L.	Macdonald of Tradeston, L.
Craig of Radley, L.	McIntosh of Haringey, L.
Crawley, B.	McIntosh of Hudnall, B.
David, B.	Mackenzie of Framwellgate, L.
Davies of Oldham, L.	Mitchell, L.
Dean of Thornton-le-Fylde, B.	Morris of Manchester, L.
Desai, L.	Naseby, L.
Dixon, L.	Nicol, B.
Donoughue, L.	Northbourne, L.
Dubs, L.	Palmer, L.
Elder, L.	Pendry, L.
Elis-Thomas, L.	Pitkeathley, B.
Evans of Parkside, L.	Plant of Highfield, L.
Evans of Temple Guiting, L.
Farrington of Ribbleton, B.	Prashar, B.
Faulkner of Worcester, L.	Ramsay of Cartvale, B.
Filkin, L.	Rea, L.
Fyfe of Fairfield. L.	Rendell of Babergh, B.
Gale, B.	Richard, L.
Gibson of Market Rasen, B.	Robertson of Port Ellen, L.
Golding, B.	Rooker, L.
Goldsmith, L.	Sainsbury of Turville, L.
Gordon of Strathblane, L.	Sawyer, L.
Goudie, B.	Scotland of Asthal, B.
Gould of Potternewton, B.	Sheldon, L.
Graham of Edmonton, L.	Simon, V.
Grantchester, L.	Smith of Gilmorehill, B.
Grocott, L. [Teller]	Stone of Blackheath, L.
Harris of Haringey, L.	Symons of Vernham Dean, B.
Hayman, B.	Taylor of Blackburn, L.
Hilton of Eggardon. B.	Temple-Morris, L.
Hollis of Heigham, B.	Triesman, L. [Teller]
Howells of St. Davids, B.
Hoyle, L.	Turnberg, L.
Hughes of Woodside, L.	Varley, L.
Hunt of Chesterton, L.	Warner, L.
Hunt of Kings Heath, L.	Warwick of Undercliffe, B.
Irvine of Lairg, L.	Watson of Invergowrie, L.
Jones, L.	Whitaker, B.
Jordan. L.	Whitty, L.
King of West Bromwich, L.	Wilkins, B.
Kirkhill. L.	Woolmer of Leeds, L.

Resolved in the negative, and amendment disagreed to accordingly.

7.18 p.m.

Baroness Noakes moved Amendment No. 3: Page 2, line 36, leave out subsection (3).

The noble Baroness said: My Lords, the Minister alluded a few moments ago to the fact that Amendment No. 3 covers some of the same territory as the previous amendment. Indeed, I was surprised that the two were not grouped. However, as the role of the Opposition is to ungroup and not group amendments, I left it as it was proposed.

Lord McIntosh of Haringey

My Lords, in Grand Committee we tried to group them and they were ungrouped. Therefore, we thought that we would not chance our luck again.

Baroness Noakes

My Lords, that just shows the Minister that it is always worth another try. The effect of Amendment No. 3 would be to remove the requirement for a provider to offer particular types of account. The practical effect would be to remove the requirement to offer stakeholder accounts. In that respect, it goes beyond the previous amendment, which merely took out the requirement for the equity component.

We have no problem with a stakeholder product being approved by the Government and being available to consumers, and we would have absolutely no problem if the Government's explanatory material said that stakeholder products were good things in which to put one's child trust fund money. We believe that that is the right place for the Government to steer voucher recipients. Equally, we have no problem with the Inland Revenue using stakeholder accounts as a default where parents cannot be bothered to do anything or where, as mentioned by the noble Lord, Lord Newby, they understand only building societies and, if those do not offer accounts, they will do nothing.

However, we believe that the market should be encouraged to offer diversity and choice and it is neither efficient nor necessary for all providers to have to offer one kind of product. We believe that the explanatory material should explain the different types of product and their different features so that people can choose between them but we do not think that every single provider should have to offer a particular type of product as that may not play to the strengths of certain providers.

Therefore, on the one hand, we favour diversity of choice and freedom for providers to offer what they are good at, but, on a practical level, we worry about the impact of the requirement to provide a stakeholder account. If, for example, I decide to go into business as a child trust fund provider, which I have no present intention of doing, I must provide a stakeholder account alongside anything else that I want to market to attract child trust fund vouchers. The other products that I offer can have child structures, investment approaches and the approaches to minimum investments that I want. As I understand it, if I choose to become a child trust fund provider, I can offer those very diverse products but I must also offer a stakeholder account. I should be grateful if the Minister could confirm that.

Therefore, when I come to market child trust fund products, what would be the practical impact of having to offer a stakeholder product? Could I simply state at the bottom of my marketing material, "If you want one of the Government's stakeholder varieties, please apply separately", thus building my marketing around the unconstrained products that I wanted to offer? Or will stakeholder products, in practice, be a dominant offer? If it is simply a technical requirement, there may be little objection to it because the market will promote what it wants. I could not find anything in the Bill or the draft regulations which seemed to address that point. So I am struggling to find out what is the practical impact of having the requirement for a stakeholder product.

As I have said, we believe that providers should have the option of choosing whether they offer such stakeholder products. When they offer the products, they have to accept a strict charge cap and a number of other obligations that go with that. In return, they get the promotional benefit of being one of the Government's chosen investment vehicles and are promoted as such when vouchers are issued. But if a provider chooses to go another route, what is the problem with excluding from the marketplace a perfectly good provider of non-stakeholder products, provided that no one pretends that what it is marketing is a stakeholder product? I beg to move.

Lord McIntosh of Haringey

My Lords, I sympathise with the difficulty the noble Baroness has in understanding what Clause 3(3) says because in regulations it is all stated as "may". However, we have published the draft regulations and I can make it clear that the intention in the regulations is to specify that all providers must offer a stakeholder account as part of their product range as it has been specifically designed to provide good value to all consumers. That is the basis on which we debated the last amendment and it had better be the basis on which we debate this amendment also.

The stakeholder account is to be equity based but its risk will be controlled through lifestyling, a progressive move to less risky assets commencing no later than at the age of 13, and a requirement to diversify investments in the account. Although equity investments can go down as well as up in value, the evidence is that they provide the best returns for long-term investment. Nevertheless, it is not compulsory for investors to take out a stakeholder account. They are free to choose whatever account best fits their needs and risk preferences. Moreover, parents are always able to transfer their child's CTF account from a stakeholder one to a cash based one. Transfer between those accounts will be free.

Parents will have access to financial information and education to help them make suitable choices about which type of child trust fund account is right for them. I say this with the noble Lord, Lord Newby, in mind as the only virtue that he sees in the Bill is the increased availability of financial information. An information pack will also be issued to parents alongside the CTF voucher covering points that need to be considered. I think everyone in the House agrees that it is important that families make informed decisions. To ensure appropriate support for parents, particularly those with little experience of savings and investment, the Government have commissioned research on the best way to communicate to parents how to take the financial and investment decisions involved.

Allowing all investors to have the opportunity to invest in equity could help people engage with financial institutions and understand different ways of saving. That is why I am so puzzled at the expressed intention of the noble Baroness, Lady Noakes, in taking out Clause 3(3). This is precisely what that subsection and the regulations which it permits are intended to do. I wonder whether she is not in danger of finding herself on the opposite side from her colleagues in the Commons. After all, Mr George Osborne, the honourable Member for Tatton, said in Standing Committee in the other place: when I first looked at the Bill, I had some sympathy with the point of view expressed by the hon. Member for Angus about forcing, requiring or encouraging people to use equity products…However, on further consideration, I have been more persuaded by the argument that if one purpose of child trust funds is to educate people about the financial services industry, savings and so on, we should try to encourage more people to become shareholders and shareowners, as they would through equity stakeholder products. Of course, as a Conservative I believe in a capital-owning, share-owning democracy and perhaps it takes a new Labour Government to turn us into that".—[Official Report, Commons Standing Committee A, 6/1/04; col. 62.] I could not have put it better. I hope that the noble Baroness, Lady Noakes, will not pursue her amendment.

Baroness Noakes

My Lords, I was extremely interested to hear the views of my honourable friend in another place. If one takes out the slip of the tongue—I believe that it was a slip of the tongue—which resulted in "stakeholder", I could not possibly disagree with my honourable friend. From what he said, I do not think that he therefore supported the compulsion for every provider to offer a stakeholder product. He was merely saying that equity investments are a good thing and that is certainly a proposition that I find little difficulty in signing up to.

The Minister explained that the draft regulations have been published. However, I am still puzzled as to their effect, which is merely to state that there are stakeholder accounts and non-stakeholder accounts. My question to the Minister was what is the genuine effect of requiring a provider to offer stakeholder accounts if he can keep them as a marginal product in the suite of products which is there just to receive a tick from the Inland Revenue that a stakeholder product is available? So, my problem is first that I do not think that providers should be obliged to do this and secondly, I cannot see that requiring minimal compliance will achieve the Government's objectives. We will probably end up with providers, in effect, doing their own thing.

If my interpretation of that is correct, I should have nothing to fear from the compulsion for stakeholder products because they will be marginal products promoted only if the providers choose to see that as a major plank of their marketing stance. If that is what the Government wish to achieve, I suppose I have to leave them to it. On that basis I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

7.30 p.m.

Baroness Noakes moved Amendment No. 4: Page 2, line 41, at end insert— () secure that when the child reaches the age of 18 it is used only for purposes specified in regulations,

The noble Baroness said: My Lords, Amendment No. 4 amends subsection (4) of Clause 3 by adding a requirement that the terms of child trust funds should secure that when the child reaches the age of 18 the money is used only for the purposes specified in legislation.

We had a useful discussion on the matter in Grand Committee in the context of a similar amendment. Since then, the Minister has written to me. I thank him for his comprehensive letter. It covered the impact of the human rights convention. As I understand it, it would not be possible to pass secondary legislation to deprive a person of his property in a child trust fund because the effect of Clause 3(4)(a) is that the child trust fund is the child's property and a restriction on that would deprive the child of his or her human rights.

My amendment is inserted before Clause 3(4)(a). It is designed to ensure that the Government would have the power to create rules about how the funds should be used. I hope that it would be clear that the creation of a property right in paragraph (a) is subject to the rights that exist for the Government to determine how the money is used.

I do not want today to rehearse the arguments for restrictions because I am not arguing for particular restrictions. I am arguing that the Government should not throw away the opportunity to ensure that child trust funds are spent on proper purposes. The Minister said that power could not be taken at a later stage without infringing the child's human rights. That makes it imperative for a power to be taken in the Bill.

I remind the House that we are talking about significant sums of money in aggregate. With £250 million or so going into the scheme annually there will, once compound returns have been taken into account, be around £500 million in real terms maturing each year in 16 or so years' time. That assumes that the Government make no further top-ups and that no additional savings are made on behalf of the child. Taxpayers are funding this bounty and are entitled to know that the money will by and large be spent on purposes of which society approves.

Many noble Lords have concerns that the maturing funds will be used for what were described in Grand Committee as "trust fund raves"; that is, they will pay for a party, alcohol, drugs or all three. The danger is greater when the trust fund has not been topped up by additional contributions from parents or others because the amount at maturity will not look particularly significant to the individual. On the Government's own figures, £250 invested in a child's trust fund at a nominal yield of 7 per cent will produce £456 in real terms after 18 years. That is party-sized money.

The noble Lord, Lord Newby, in Grand Committee questioned the practicalities of policing a system that monitored how money should be spent. Clearly, there would be a trade-off between simplicity and practicality; too many potential uses and too much subjectivity would raise issues of practicality and cost. But we have seen from the US that practical schemes can be defined and operated. I am sure that we could devise a proper scheme if we were clear about what we wanted to do. Indeed, I think if we were trying to get additional contributions on behalf of children, for example, from grandparents and godparents, they might even be more likely to save if they saw some sensible regime for the ultimate use of the money.

I hope that the Government will not turn their face against this. The child trust fund is based on little hard evidence. Evidence may well start to accumulate that the original faith in the power of financial education is misplaced. If the legal niceties are such that no later action can be taken, whatever evidence has emerged, the only action that will be available to a future government of whichever party would be to conclude that the risks of abuse of public money were too great to allow the experiment to continue. So, if the Government want the experiment to run its course, surely they want to ensure that they have the power to step in to provide for responsible uses of the money when it matures. I beg to move.

Lord MacGregor of Pulham Market

My Lords, again I do not want to go over all the arguments that we had in Grand Committee. However, I think that some of the reservations about dissipation of the funds on raves or a quick holiday and so on—and I seem to recall other noble Lords, including the current Deputy Speaker, raised these points in Grand Committee—continue. It is interesting that the similar United States's scheme has some conditions on the use to which the money can be put because the recipients are of course gaining not only from taxpayers' grants, as in this case, but also from tax relief.

I do not want to go over those arguments, although I still think they are strong. I want to ask the Minister about one point referred to in his letter of 6 April 2004 to my noble friend Lady Noakes which he very kindly sent to all noble Lords. In it he stated: Even if there were the necessary vires"— by which I assume he means granting the powers to impose conditions at the age of 18 on the use to which the money can be put— I am also advised that if any such restriction were imposed, it would be regarded as a deprivation of the child's property, engaging its human rights under Article 1 of the First Protocol, and that there would be a serious risk of incompatibility with those rights". I regard that as a very important point because all the others are arguments in which one can take one side or the other. But if that were true, it is clearly a clincher against moving forward on this; indeed, it is a stopper to the whole argument. I notice that the words used were "serious risk". I do not know whether that is just a threat or if it is thought that the risk is very serious. That is why I ask the Minister to spell out exactly why it is incompatible with Article 1. We are asking that certain conditions should be applied to the scheme in return for taxpayers' grants and tax benefits.

I make a similar analogy with another savings scheme: personal pensions. Personal pensions are the pensioner's property, just as here child trust funds would be the child's property. Personal pensions have certain tax advantages and in return for those tax advantages restrictions are imposed on them; namely, that by the age of 75 those pension funds have to be invested in an annuity. Does that mean, therefore, that that restriction in relation to personal pensions could equally well come up against Article 1? So, where I now stand is that instead of regarding this as a clincher against what we were trying to do with the child trust funds, which would have been a disadvantage, I suddenly see the attractions of the principle because I am all in favour of altering the conditions regarding pension funds being invested in an annuity by the age 75. I ask the Minister to spell this out because I think it is a very important point.

Lord Monson

My Lords, the noble Baroness, Lady Noakes, rightly pointed out that £456 in real terms is party-sized money. I should also like to suggest that it is dangerous old banger or dangerous old motorbike-sized money.

Lord Newby

My Lords, we make clear from these Benches that in principle we support the idea of the use of child trust funds being constrained so that they are put to purposes which we would all feel were positive. At the moment, that cannot be guaranteed by any means.

I agree with the noble Baroness, Lady Noakes, that if the funds were so constrained, there would be a greater likelihood of parents and probably even more grandparents putting funding into child trust funds.

The problem is that no one has come up with a workable alternative constraint scheme, leaving aside the human rights' point. From what little I know about the American system, it is a very different product from the proposal being made here. One could not insert that kind of constraint just through regulation; it would require root and branch recasting of the whole scheme.

While I have a lot of sympathy with the purpose of the amendment, in the absence of any suggestion of how such a scheme might work, it is rather difficult to support it.

Lord McIntosh of Haringey

My Lords, the noble Lord. Lord Newby, has gone to the heart of the matter. I listened very carefully to the noble Baroness, Lady Noakes; she presented the amendment as if it were significantly different from the one moved in Grand Committee. It is a different approach, but it is intended to achieve the same objective of restricting how the money could be used when the child becomes a young adult at 18. That is the same purpose as sought in Grand Committee. I shall have to treat the amendment as if, for real purposes, it were the same as the one moved in Committee.

The noble Lord, Lord Newby, is right: the core of the matter is our belief that 18 year-olds are best placed to decide the best use of the money for them. Of course there could be misuse; we cannot deny that, and I did not attempt to do so in Committee. The noble Lord implied that using the money to fund a gap year might not be appropriate. He said that his 18 year-old was raising money for a gap year. I would have thought that it was a very good use of a CTF account to allow a wider range of teenagers than those from the middle classes who do so now to benefit from the experience of travel. If it were my son or daughter, I would not be at all worried if a CTF were made available for that purpose.

I said in Grand Committee that it was patronising to assume that 18 year-olds would not make the decisions that were best for them—research by the Children's Mutual indicates that that is the case. But is it not also patronising to assume that their parents or some committee would necessarily make better decisions?

Improving financial awareness is one of the key objectives of the child trust fund. The financial education that will run alongside the child trust fund will help young adults to make the right decisions for their own circumstances. We believe that the amendment to allow 16 year-olds to manage their own child trust fund accounts will encourage a greater sense of responsibility about the money in that account.

I remind the House that the Electoral Commission is considering those matters at the moment. It recommended that the voting age should remain 18 but that people could stand for Parliament at 18. No decision has been taken about that, but generally society is, rightly, giving greater responsibilities to younger people. To accept the amendment would be to go in the opposite direction.

In response to the point made by the noble Lord, Lord MacGregor, I wrote to him and others to say that, even if we had the necessary powers in the Bill, our legal advice is that any such restriction would be regarded as a deprivation of the child's property, engaging its human rights under Article 1 of the First Protocol. There would also be a risk of incompatibility with those rights. That is more than what the noble Baroness, Lady Noakes, calls a "legal nicety". But the fundamental point is that made by the noble Lord. Lord Newby: the potential for incompatibility depends entirely on what the restriction is and how it is applied. I shall not rely for this purpose on the European Convention on Human Rights. On the merits of the case itself, it is right that we should treat young adults as young adults when they reach age 18.

7.45 p.m.

Baroness Noakes

My Lords, I thank the Minister for that reply and all noble Lords for their contributions. The Minister said that he did not want to rely on the European Convention on Human Rights. However, in pushing to one side the European Convention on Human Rights, he did not answer the points made by my noble friend Lord MacGregor on what that meant in practice, particularly his very telling point on the read-over to annuities.

The Minister said that my amendment was the same in effect as the one in Grand Committee. I am no lawyer. It was intended to be subtly different, but clearly failed that test. It was intended to make it clear that the Government did not create an unfettered property right but only a fettered one. I would have thought that if the Government wished to have the ability to control how funds could be used, they could create that. If my amendment fails technically, so be it.

But we return to the Government's view that 18 year-olds are best placed to decide how to spend their money. We disagree on that. It is taxpayers' money that they will be spending, and the Government should be capable of producing a scheme for how that money should be spent—though not necessarily introducing it in practice.

I should like to think further on the human rights issues. Perhaps we may take up the Minister's offer of a further discussion before the final stage. For today, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 4 [Inalienability]:

Lord McIntosh of Haringey moved Amendment No. 5: Page 4, line 9, leave out from first "estate" to end of line 10.

The noble Lord said: My Lords, this amendment should be in the name of the noble Baroness, Lady Noakes, as she brought it forward. I would have liked to have had the opportunity to offer it to her to table in her name. It is a drafting amendment to deal with a matter raised by the Scottish Law Society. It removes an inappropriate reference to the Solicitors (Scotland) Act 1980. I am grateful to her for bringing it forward. I beg to move.

On Question, amendment agreed to.

Baroness Wilcox moved Amendment No. 6: After Clause 4, insert the following new clause— OFFENCES

1. (1) It shall be an offence for any person to induce or attempt to induce a child to carry out an act within subsection (1) of section 4.
2. (2) 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: My Lords, this amendment stands in my name and that of the noble Baroness, Lady Noakes. We brought forward this new clause in Committee in an attempt to add some weight to Clause 4, on inalienability, by creating an offence. The issue is straightforward, and I hope that noble Lords will forgive me if I briefly run through the facts to make the case for our amendment clear.

Clause 4 is intended to protect a young person with a child trust fund. It prevents the assets of a young person being transferred to a third party when the fund matures on the 18th birthday of the young person. That is designed to stop loan sharks or others using funds from a CTF account as security on a loan and subsequently appropriating the money when the fund is accessible at age 18.

That is a laudable measure and it is a vital protection in the Bill. My worry, however, is that it lacks teeth. The noble Lord, Lord McIntosh, argued in Committee that the amendment was inappropriate. He claimed: 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".—[Official Report, 18/03/04; col. GC183.]

I return to the point that I made in Committee. We are not talking about reputable loan providers, who will know the rules and abide by them. I envisage a dodgy loan shark, a manipulative "friend of the family" or other malicious adult who persuades a vulnerable and desperate young person, of say 16 or 17, to accept a loan on condition that they pay it back with interest from their CTF account when it matures. Such activity goes on as it is anyway. Young people are particularly liable to be targeted by disreputable adults. One only has to think about the number of young people who leave home due to family problems and are on the streets trying to make ends meet without sufficient funds. Now think of the circumstances when large sums of money will be available to every single young person on their 18th birthday.

I do not want to paint a morbid picture of the state of our society, but it is likely that there will be more frequent instances of individuals trying to con young people out of the funds due to them at 18 from their CTF accounts by offering an advance repayable with interest. How is the young person in question to know about Clause 4(1)? The agreement with the loan shark or adult will not be legally binding. However, anyone who will undertake to defraud a 17 year-old out of their CTF will have no qualms about using any methods of intimidation to recoup their funds when the account matures.

In Committee, I listened with interest to the noble Lord, Lord Newby, who said that creating an offence of the kind envisaged by our amendment was too draconian and would make criminal such activity as the loan of money from a parent for, say, driving lessons, which would then be repaid from the money from a CTF available at 18. This is activity that we would in no way wish to criminalise. We have looked again at our amendment and redrafted it to make it tighter and to try to address those circumstances.

Subsection (1) of our amendment states that any person who induces, or attempts to induce, a young person to assign their funds over to a third person before maturity, and who demands a charge thereof, is guilty of a criminal offence. This would not criminalise a situation where a 17 year-old approached his parents and asked informally for them to pay for driving lessons with the understanding that he would be able to pay back the money the following year.

What penalty would there be for an adult who ignored Clause 4(1) and successfully persuaded an unknowing young person to hand over their funds? There would be no penalty and no recourse to law, because no offence would have been committed. The young person, apparently, should have known that their CTF was inalienable under Clause 4(1), and should therefore have refused to repay whatever money was owed from their CTF.

If the young person were to dare to challenge their loan shark under Clause 4(1), the loan shark might possibly accept that actually they had acted illegally, and the original amount of their loan would be lost to them. Is this a significant deterrent for loan sharks and devious adults? I would like to think that it is, but I fully believe that it is no deterrent whatever to a manipulative person attempting to exploit a child and appropriate a portion of their funds at 18.

I stand firm in believing that, far from being draconian, this new clause on offences is vital in safeguarding the protection of children and young people and their right to the full value of their CTF at 18. I beg to move.

Lord McIntosh of Haringey

My Lords, let me start by acknowledging first that the noble Baroness, Lady Wilcox, obviously feels strongly about this issue, and I respect that. Secondly, I acknowledge that she has thought about the issue since Grand Committee. She has amended her proposition so that it would no longer be an offence, to use the example that we had in Committee, for a parent to pay for driving lessons at the age of 17 in the expectation of getting the money back when the child trust fund matures at the age of 18. That is helpful.

We are left with the fundamental proposition that the noble Baroness is putting forward, which creates two new criminal offences. Under subsection (1) it would be an offence for anyone to induce a child—the noble Baroness said "or attempts to induce", but that is not what her amendment says—to assign, or agree to assign, the investments within their child trust fund or to charge or agree to charge those investments. Subsection (2) defines the punishments attaching to those offences.

I hope that we made our position clear in Committee. Our view is that this new clause is legally inappropriate. The current drafting of the Bill ensures—in Clause 4(1)—that any assignment of or agreement to assign investments under a child trust fund and any charge on, or agreement to charge, any such investments is void, so that it has no legal effect. Clause 4 therefore removes any incentive for a loan provider to use a child's trust fund investment. There is no advantage for them to do so.

If however, despite this—this is the loan shark example that I assume that the noble Baroness, Lady Wilcox, is talking about—the child trust funds are used to secure a loan, despite these provisions, the young adult at the age of 18 will be able to recover the funds, relying on Clause 4. The security will be made legally ineffective, and the child trust fund assets will be reinstated through the courts. There are additional safeguards against borrowing, for example, from loan sharks, in the fact that withdrawals from the account are not permitted while the child is under 18.

The noble Baroness, Lady Wilcox, asked about penalties. Surely, the most important thing is that the courts are able to order that the money should be given back. That is really what we want to achieve, and I do not accept that making it an additional offence to attempt to induce funds is necessarily the right thing.

However, I ought to respond to the noble Baroness, Lady Wilcox, to this extent. Between now and Third Reading, I will look into whether other aspects of the law—those aspects that might conceivably be brought into play if someone is doing something that turns out to be void—do bear on this, and whether there are any offences that might be relevant to meet the concerns of the noble Baroness. I frankly do not know the answer at the moment. I will find out, and I will write to her. The fundamental protection for the child trust fund is that any activity of this kind would be void, and the money would be recoverable through the courts.

Baroness Wilcox

My Lords, my heart was sinking when the Minister started speaking, because I thought that I was going to get absolutely nowhere here. His last two sentences have raised my spirits somewhat. It may be only a vain hope.

I cannot emphasise enough, or too often, that I have worked in environments where I have seen this happen to people. I have seen youngsters really intimidated by members of their own family. I have seen them working towards a sum of money being taken away from them. It is my intention, and always has been, in those circumstances to be an employer who could try to help a child in my employ. We must always be looking to encourage employers to explain what the rights of young employees are. Perhaps that too will happen.

If there is any activity that we can do that will make children run towards a policeman rather than away from a policeman, that must be a good thing. I am only too delighted to withdraw the amendment, in the hope that the letter that I will receive from the Minister will move us a little more towards some form of punishment.

Amendment, by leave, withdrawn.

8 p.m.

Baroness Noakes moved Amendment No. 7: After Clause 4, insert the following new clause— INCOME-RELATED BENEFITS, ETC.

(1) In determining the matter specified in subsection (2) no regard shall be had of income and gains arising on—

1. (a) Inland Revenue contributions to a child trust fund;
2. (b) subscriptions to a child trust fund;
3. (c) investments under a child trust fund;
4. (d) investments or other assets derived from 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 that are specified in regulations."

The noble Baroness said: My Lords, I rise to move Amendment No. 7, which inserts a new clause after Clause 4. This is an enabling provision, which does not commit the Government to do anything specific. It simply allows them to ensure that child trust funds are not taken into account for benefits and credits to be specified in regulations.

In Grand Committee, I spoke to a more complex amendment that purported to specify particular benefits. Of course, for a scheme that is intended to run for 18 years or more, in that circumstance it would be silly to specify the benefits. Therefore, the formulation in this amendment allows the Government to specify the benefits or credit by regulations. I hope that this formulation—if I may term it thus—is Hollis proof; that is, that the noble Baroness, Lady Hollis of Heigham, would not object to it.

The Government are trying to break the mould of attitudes to savings and to ownership of financial assets with their child trust fund project, in particular, with those groups who have not saved or have not traditionally had financial assets. However, the arm of government that deals with the social security system has a different approach. That part of government sees financial assets as a reason not to pay benefits. If the assets are kept, they can result in a denial of benefits. If they are spent, the capital deprivation rules can have the same effect. So the poor on income-related benefits find themselves in a no-win situation.

Since Grand Committee, the Minister has confirmed in correspondence that a child trust fund would not be counted as the capital of parents while the child is under 18 years old. It would come into play only once the child has access to the fund at the age of 18. That still leaves the issue of the income-related benefits entitlement of an 18 year-old or—a point made by the noble Baroness, Lady Hayman, in Grand Committee—of a parent whose child has died who has inherited the child trust fund. It certainly leaves the general issue of capital deprivation by recipients of child trust funds.

Amendment No. 19 standing in the name of the noble Baroness, Lady Hayman, deals with the issue of capital deprivation more comprehensively than my amendment. In addition to that amendment, there is the issue of capital deprivation by donors to child trust funds. The Minister's letters to me did not allay my doubts that there would be a postcode lottery in that area.

The Government's response has been that they will disregard the first £6,000 of capital and that a further review of the threshold is "a real possibility". That is nothing like enough to ensure that child trust funds will be left out of account in calculating income-related benefits. The Government's social security approach is at odds with their desire to create a new savings paradigm. Why should a poor family think about saving if it might be neutralised by the benefit and tax credit system? I beg to move.

Baroness Hayman

My Lords, in speaking to Amendment No. 7 moved by the noble Baroness, Lady Noakes, I shall speak also to my Amendment No. 19. As the noble Baroness said, it deals more comprehensively with capital deprivation rules, but, I fear, perhaps less correctly in terms of drafting. I suspect that it is not Hollis proof. As the noble Baroness, Lady Noakes, said, this is an issue of principle; that is, whether we take a social security centred view of those who would be in receipt of child trust funds when they come to fruition or whether we look at the child trust funds and try to abide by what has been argued is their motivation to give all 18 year-olds, at a key point in their financial lives, an asset.

It seems that we have been universal in ensuring that the tax benefits within the scheme are available to everyone, including higher rate taxpayers as well as standard rate taxpayers. But when we come to the fruits of a child trust fund, we run into the issue of the interplay between the social security system and the child trust fund. There is the possibility that the poorest 18 year-olds with trust funds would find that, in some ways, the trust funds are a financial liability rather than an asset. If they are on an income-related benefit, they run the risk of losing some or all of that benefit because they have capital above the £6,000 that the Government suggest would be adequate. But, as the noble Baroness, Lady Noakes, pointed out, if in better times for those particular families serious deposits were made over 18 years, it is quite possible that there would be enough in the child trust funds to take the 18 year-olds well over the £6,000 limit, particularly if there are other assets. The benefit might therefore be reduced. My amendment deals particularly with capital deprivation.

Equally, if an 18 year-old was to spend that money on something that was not a rave, drugs or drink, but possibly spend it on a car—which might be particularly important at that time for the person to be able to get a job and a start in life—or to pay for a course that was not funded in any other way, there is the risk that he would lose out because he has been seen deliberately to deprive himself of the capital.

Exactly the same problems would arise where parents inherit a child trust fund when a child has died before the age of 18. In Grand Committee, I referred to the number of deaths of under-16 year-olds in this country as being around 5,000 deaths per year. I said that one could take 10 per cent perhaps of those families—a higher number than would normally be on benefit—as being affected by these rules. I was shocked when I posed a Written Question on this issue, answered on 19 April. The noble Baroness, Lady Hollis, as I suspected, could not answer exactly my question; namely, What proportion of those under the age of 18 who die each year are members of families dependent on income-related social security benefits". The noble Baroness kindly took the social fund funeral payments as a basis and extrapolated the result. The end conclusion was: Of those under the age of 16 who die each year the proportion who are members of families where a funeral payment is claimed and the claimant is eligible is therefore approximately 32 per cent".—[Official Report, 19/4/04; col. WA 13.] One third of children who die before the age of 16 come from families dependent on social security benefits. So this is not as small a problem as we had originally thought. It is an important matter of principle. I had a helpful meeting with the Financial Secretary to the Treasury, and I am grateful to her. She wrote to me subsequently seeking to reassure me about capital deprivation and the circumstances that worry me, such as those where parents want to move the money to give to other children in the family, so that the child trust fund is passed on. Parents may wish to set up a memorial in recognition of the life of the child who has died. I was reassured that in those circumstances, staff in the Department for Work and Pensions would have the flexibility to make decisions and that they would be sympathetic and do all they could not to enforce the rules too rigidly or harshly.

I accept that, but I would be more comfortable to see it in black and white. Where there is an element of discretion, there is always the possibility that rules and guidance will be interpreted differently. I hope, therefore, that my noble friend will look again at the issue. It is a question of whether the families of the poorest children in our country will benefit to the full from the scheme.

I should like to record that the reason I came to this issue is neither because I am normally that assiduous on these matters, nor because a pressure group raised the issue. A great friend of mine, at the age of 90, remains as deeply concerned about child poverty and family welfare as she has been for seven decades. She has twice my 35 years' membership of the Labour Party. She chided me that the Government of which I am a supporter and was once a member are bringing in rules that run the risk of depriving the families of the most vulnerable children and young people in this country of the benefits of this scheme while safeguarding the tax advantages for others. Her name is Peggy Wynn. She has been for many decades a doughty and well-informed campaigner. I think that my noble friend knows her well, and I hope that he will be able to reassure us by accepting the amendments.

Lord Newby

My Lords, we accept the principle behind the amendments and, indeed, the amendments themselves. The friend mentioned by the noble Baroness, Lady Hayman, has summed up the argument exactly. Why should those reaching the age of 18 from well-to-do circumstances be able to enjoy the full benefit of the child trust fund while those who have fallen on hard times might not? That flies against the principles behind the whole child trust fund initiative. Therefore I hope that the Government have thought again about the matter.

8.15 p.m.

Lord McIntosh of Haringey

My Lords, Amendment No. 7 would ensure that the child trust fund is not taken into account when entitlement to a range of benefits and tax credits is assessed. That is not spelt out in the amendment, but we have been over this ground sufficiently to know which benefits are means-tested and which are not. We need not go into the issue again. The House knows that the child trust fund does not affect entitlement to benefits such as incapacity benefit and disability living allowance, which are aimed at helping disabled people and those with long-term incapacity. They are not means-tested.

I have confirmed that child trust fund assets and the income and gains from those assets do not impact on family benefits and tax credits before the account reaches maturity when the child is 18 years old. I stated that in the letter quoted by the noble Baroness, Lady Noakes. As only the child can access the money at the age of 18, in applying the regulations on income-related benefits, the Department for Work and Pensions will not treat the child trust fund as part of a parent's capital or a child's capital before the child turns 18.

It is the Government's intention that when the child trust fund account matures, the funds could be rolled over into tax-effective savings schemes available at the time. Income from investment in such schemes does not affect entitlement to tax credits.

The Government acknowledge that savings in child trust funds or any other savings vehicles could affect entitlement to income-related benefits once the child trust fund account holder turns 18. I do not see this as quite the point of principle referred to by my noble friend Lady Hayman, but it is certainly a potential clash of cultures between the benefits regime and what we are attempting to do here. We have responded to that.

As a first step, the Financial Secretary announced at Second Reading in the Commons that from April 2006, the Government would increase the £3,000 threshold above which all savings reduced the amount of income support, jobseeker's allowance, housing and council tax benefits to £6,000. I should make the point that this concession goes very much wider than the child trust fund. It is a general concession confirmed in the Budget of 2004.

In any case, very few people on benefits have capital of over £6,000. For example, only 1 per cent of claimants under 60 on income support and income-based jobseeker's allowance have capital of over £6,000 as at May 2002. The Institute of Fiscal Studies' analysis of the British household panel survey shows that the median net liquid financial wealth is zero for adults aged under 25. So it is reasonable to conclude that the number of 18 year-olds with capital of over £6,000 would be under 1 per cent.

In addition, possession of capital above the lower threshold of £6,000 reduces the amount of benefit paid by one pound for every whole or part of £250 over £6,000. An individual would need to have capital over the upper threshold of £8,000 for income support and income-based jobseeker's allowance for them not to be entitled at all to the affected benefits. The upper threshold is even higher for housing benefit and council tax benefit, excepted at £16,000.

The doubling of the lower threshold is a significant move to reward those who save. It will give parents, carers, grandparents and friends the reassurance they need at this stage that the child will not be unfairly penalised in future for the savings made now.

In addition, the Government have made a public commitment to keeping under review the treatment of capital in income-related benefits. The first child trust fund accounts will not start to mature until 2020. The treatment of capital in income-related benefits needs to strike a sensible balance between targeted state support, incentives to work and not unfairly penalising those who have acted responsibly by saving. Given the doubling of the lower threshold and the commitment to keep under review the treatment of capital in income-related benefits, I have to resist Amendment No. 7.

I turn now to Amendment No. 19, which would have the effect that when an individual spends his or her child trust fund at age 18, or if a person spends money inherited from a child trust fund, this would not be treated as deprivation of capital. The second situation refers to when a child dies. Under normal intestacy rules, the child's assets, including the child trust fund, will go to the parents, or spouse if the young adult was married, and then the normal rules for income-related benefits and tax credits will apply. This applies to any assets in the estate of a dead child.

The Department for Work and Pensions has advised that expenditure would trigger the rules only when the significant purpose behind the spending is to secure entitlement to benefits. This also applies when grandparents make contributions to a child trust fund account. Their entitlement to pension credit is affected only if gifts into the child trust fund account are for the purpose of securing entitlement to pension credit.

The decision on whether the capital deprivation rules are triggered for a particular case will be based on full knowledge of the individual circumstances. This is the way in which the Department for Work and Pensions operates, and has to operate. If an individual decides to spend his or her child trust fund account at age 18 and the significant motivation behind the spending was not to secure entitlement to benefits, this spending would not he treated as deprivation of capital. For example, if an individual was less well off and needed to buy a car in order to find work—a point made by my noble friend Lady Hayman—the motivation for spending his child trust fund would not be to secure entitlement to benefits; therefore the rules would not he triggered and the entitlement to benefits would be unaffected.

That goes a good deal further than the description given by my noble friend Lady Hayman about local officers having to be generous and trying not to apply the rules. These rules are, in my view, properly tailored to individual cases rather than rules which ought to be on the face of the Bill, which it is sought to achieve.

In the same way, in the event of a child dying and the sums being transferred to the parents, if the parents spend the child trust fund it would not affect their entitlement to benefits if the motivation behind spending the money was not to secure entitlement to benefits. That takes into account the example of the memorial raised by my noble friend Lady Hayman. The decision maker will take into account the parent's reason for the spending. For example, if a parent wished to transfer the deceased child's trust fund to the child's sibling and if the motivation was not to secure entitlement to benefits, the capital deprivation rules would not be triggered. The parents are likely to be distressed in such circumstances and every effort will be made to handle the situation sensitively and appropriately.

I acknowledge what my noble friend Lady Hayman said about numbers. She estimated, and we agree, that there are likely to be approximately 5,000 deaths among children and young people under the age of 18. She estimated that about 10 per cent of them would come from families on benefits. The 32 per cent which she quotes from the Written Answer would seem to be in about the same range as the 40 per cent of children who will receive supplementary payment because they are in households in receipt of child tax credit because they have an income of less than £13,480. In situations where the child dies and moneys received from the child trust fund affect the parents' benefit, there will still be a tiny percentage of the population in receipt of the child trust fund, which we estimate to be about £10 million. Doubling the threshold will still work to reduce the number of parents who are affected in this way.

I have said something about the comprehensive guidance which the Department for Work and Pensions issues to decision-makers—that is, its own staff—to ascertain when the capital deprivation rules would be triggered. The decision-makers' guide is not secret. The public can consult a copy of the guide at the social security office or view it online.

Amendment No. 19 would allow individuals who deliberately spend their CTF to secure entitlement to benefits to be successful in their attempt. I say to my noble friend Lady Hayman that that would be unfair to taxpayers, inequitable and at odds with the Government's message that work is the best form of welfare. I say that in all friendship to Peggy Wynn, because, like my noble friend, I respect the lifetime's work that she has given to this and many other subjects.

The Government aim to provide a balance between personal responsibility, work incentives and targeted state support. Income-related benefits are intended to provide help for those who are unable to provide themselves and their dependants with enough to live on and need outside financial support. It follows that if someone has resources, they should use them before calling on the state. Capital rules allow people to have a modest amount of savings without their benefits being affected, but they reinforce the message that work is the best form of welfare.

I am sorry to have gone on so long on this subject but it is clearly treated as a matter of principle. I take it very seriously and I hope that the length of my response and the argument in it will encourage those who have put forward the amendments not to press them.

Baroness Noakes

My Lords, I can speak only for Amendment No. 7. The noble Baroness, Lady Hayman, will decide in due course what she wishes to do in respect of her amendment.

I thank the Minister for his comprehensive reply. Those of us who have raised concerns about this do so because of the discretion that is used. One man's significant motivation is not the next man's in terms of approach.

I welcome what the Minister said about making the decision-making guide available and the many examples he gave. That sounds reasonable in many respects.

I confess that I am still troubled by this area. The message going out to the less well off is mixed. The child trust fund is trying to generate a new approach to saving. However, we still have the existing unamended version of the benefits and tax credits system which is means-tested and which will claw back a considerable amount of the effect of capital accumulation. We were trying to highlight those mixed messages because they dilute the message that saving is a good thing for people in low-income groups to do. If we are to restore the savings ratio on a permanent basis, we need to get that message across.

I thank the Minister for what he has said. It will certainly repay close examination in Hansard. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 5 [Opening by responsible person or child]: [Amendment No. 8 not moved.]

Lord Naseby moved Amendment No. 9: Page 4, line 15, at end insert "except where the application is made by telephone or the internet

The noble Lord said: My Lords, I shall try to persuade the Minister to move forward on telephone and electronic applications. To do so, I decided to do a little more research on the matter, among government people. I discovered that over the past five years the number of people using online banking services has grown from 1 million to 5.4 million. The Government's e-envoy estimates that half of UK households have Internet access and 29 per cent of those are using online banking services. It is clear that more and more people expect to manage their financial transactions using the Internet.

None of us objects to the idea of the voucher being sent by the Inland Revenue to the young couple who have a new baby and are eligible for the child trust fund; indeed, we encourage the idea. It is a marvellous means of communicating information, education and choice for the parent or guardian and acts as a reminder to them to set up a child trust fund for their child. They have the provision to open an account over the Internet or telephone. That is all very well, but then they have to send in the wretched voucher.

The problem occurs when they do not send in the voucher. We have done some work in our society and, having considered other similar products, such as the baby bond—although it is not similar to the child trust fund except in the use of the Internet—we discovered that about half the people who apply have to be reminded to do something for the second stage. It may happen that a significant number of young couples want to apply, do apply, and open an account with everything in place except the voucher. Half of them may forget to send the voucher; some of them will lose it—which is inevitable. Life is like that. For some of them, the voucher will expire because they do not get around to doing anything about it until the last minute. Then there will be the extraordinary situation whereby the account is allocated to a provider, so that in the minds of applicants there will be two accounts— the one that they applied for initially when they forgot to send in the voucher and the second one, which is allocated.

I hope that the Minister is beginning to get the picture. It seems to me that the process is really a recipe for confusion. We could deal with it if only the Minister and his team would look a little further and recognise that aspect. I believe that we killed off the mass fraud dimension in Committee, so I do not need to go into that. The point that the Minister made in that regard was that it was all to do with microlining on the voucher, but the microlining on the voucher has only four elements on it. It does not even have the child's name, the parents' names or the address on it; it does not say whether it is a stakeholder or non-stakeholder product, whether it is a voluntary contribution, who is paying, or the details of the bank account or the direct debit. A little more keying would not make a huge amount of difference.

I say to the Minister in all sincerity that, given that 5.4 million families are using online banking—young, modern couples who will be the ones who use such a service—and all such services in future will probably do online banking, and if fraud is not an issue, we should get up to date. We should forget about insisting that the voucher must he sent in if the applicant applies over the telephone or via the Internet. I beg to move.

Baroness Noakes

My Lords, I tabled Amendment No. 10 in this group, which has a similar effect to Amendment No. 9 to which my noble friend Lord Naseby has just spoken. I might argue that my amendment is broader than his, which confines itself to the telephone and the Internet. I would gently suggest to him that his amendment to Clause 5(1) is a little difficult as the subsection relates to the Inland Revenue issuing vouchers, which must logically precede an application, so the Inland Revenue would not know what to do. But, leaving aside those issues, which are mere drafting, I think at heart we are in agreement that a child trust fund should be capable of being opened wholly by non-paper means and that the voucher should not need to be physically handed over to the provider.

My noble friend talked about the experience of a 50 per cent failure rate which, of course, leads to extra costs for providers. In the context of a scheme that has a 1.5 per cent cap, that may well be a significant issue.

In Grand Committee the Minister talked about the vouchers playing a part in financial education, but the education is likely to take place when the Inland Revenue gives the voucher to parents. It is really a case of the Government saying that they have an ignorant public and they have to play shops, as it were, by giving them something that looks as if it is valuable to enable the public to learn about financial education, and, indeed, that physically transporting the voucher will teach parents financial facts of life. That simply ignores the fact that very many parents already carry out transactions on the Internet and would find it extraordinary to have to complete the transaction physically.

In Grand Committee the Government also discussed fraud and hacking into, and opening, multiple accounts. That is something that we found quite difficult to understand. I assume that the vouchers will have a unique number. It is not beyond the wit of the Inland Revenue's IT capabilities to have a system that ensures that a unique number is used once and once only. There may well be problems with the purported opening of two accounts. That issue could certainly lead to some additional costs but, if that is the case, I suspect that the majority of the costs would be borne by the providers. If they wish to take the risk of that additional cost of using non-physical transaction methods arising, it surely should be up to them.

We have been disappointed thus far by the Government's non-adherence to the welcoming of the e-world which seems to permeate their other policies. I hope that repentance might be in sight.

8.30 p.m.

Lord Newby

My Lords, we support these amendments although I agree with the noble Baroness, Lady Noakes, that her amendment is possibly technically the superior of the two.

Looking forward, it seems to me that the extent to which we use paper for any purpose at all will be greatly constrained, and that paper will become a relatively rare thing. It certainly is as regards the method of communication of choice of my teenagers. I think that that is increasingly becoming the case with the Inland Revenue which sends me a piece of paper, the purpose of which is very much to tell me that it would rather I did not send it any more pieces of paper, and that it would like me to submit my tax return electronically.

I suspect that in five or 10 years' time any vouchers being issued by the Government will certainly not be on paper. They will be sent electronically. I do not know whether the current definition of "voucher" within the Bill enables it to be sent electronically but it seems to me that to have the kind of belt-and-braces approach which is being proposed by the Government where a piece of paper must supplement an electronic communication, goes against everything else that the Government are trying to do. Therefore, I, too, hope that the Government might change their mind on this point.

Lord McIntosh of Haringey

My Lords, I am a sucker for being told that I need to get up to date and get in touch with the electronic era. I am always tempted by arguments of that kind.

I am sorry that I shall not be able to respond in quite the way that some noble Lords would wish, particularly as I am in dispute with an insurance company, some loan notes of which I have lost. Every time I say that I have lost them and ask the insurance company to issue me with a duplicate or repay them, it sends me another stamped addressed envelope in which to send the voucher back. If I may, I shall take the relevant bits of Hansard and say that it is the view of all parties—all opposition parties at any rate in your Lordships' House—that I should be let off the hook and not have to recreate the voucher.

The situation is a little different in relation to the amendments. Amendment No. 10, in particular, would remove the need for the paper voucher to be produced before an account could be opened. I do not think it true that we have solved the problem of fraud, as the noble Lord, Lord Naseby, seems to think, but I shall not go over the argument again.

Is it really such an effort for the parents to get the voucher to the provider? We are talking about a voucher that is, in effect, a post-dated cheque for £250 or £500. Of course, it is post-dated almost 18 years, but nevertheless it is something that will be opened carefully with a paper knife rather than with the envelope torn in half. It will be treated reasonably respectfully. Some parents will choose to open an account with their usual high-street provider and, naturally, will take the voucher with them when they go. Others will be used to making applications over the Internet, but they will also be used to having to provide supporting paperwork, particularly proof of identity, by post.

I long to see the day when the Internet and electronic communications reduce the amount of paper. I seem to remember that, when the new British Library was first proposed, the Conservative Minister, now a Member of this House, said, "Why do we have to spend all this money on the British Library? By the time that it's completed, books will be out of date and we will have the paperless society". It was the noble Lord, Lord Carlisle of Bucklow, I believe. It was not true, and it will never be true. My experience is that the Internet does not reduce the amount of paper, but increases the amount of copying.

I was interested in what the noble Lord, Lord Naseby, said about the 50 per cent of people who approach the Children's Mutual to open an account but do not pursue it when asked to complete and return the necessary paperwork. If the Children's Mutual requires paperwork to be completed, why should the Government be so different?

Lord Naseby

My Lords—

Lord McIntosh of Haringey

My Lords, the noble Lord will have an opportunity to reply; it is his amendment.

I pointed out in Committee that the main reason for requiring the voucher to be handed over was the efficient transfer of the data encoded in the microline on the voucher to the Inland Revenue. The noble Lord's response to that is that the information is incomplete. Of course, the implication is that we should include more information on the microline, rather than eliminate it altogether and increase the risk of keying-in mistakes. It costs money for both the Revenue and providers to correct data-matching failures. Of incorrect combinations of ISAs, 30 per cent are due to that kind of failure. It costs less to prevent that happening in the first place, and vouchers do that in a way in which Internet or phone applications cannot. Providers will not have the burden of checking the details with which they have been provided; they simply relay the data on the voucher.

As I say, I am a sucker for being told that I ought to get up to date and be all electronic and e-government. However in this case, whatever is done, the voucher is the most efficient way of dealing with the issues.

Lord Naseby

My Lords, it is very difficult to respond to a Minister who, for one reason or another, does not want to do online banking. He has probably never done it; I may be wrong, but I do not think he has or that he really wants to. That is the problem, as young people want to do online banking. I suspect that the Minister has grandchildren. If he does, he will know that households with small kids crying are pretty bedlam-like. The papers get removed here, there and everywhere, and although the beautiful voucher—a cheque in lieu—arrives, it gets lost. There is no hiding the fact that it gets lost.

However, returning to my key point—the 50 per cent example that I gave—the law requires at the moment that if someone makes a purchase in response to the Children's Mutual web site, that person can make an application but we have to send back to them a form to sign. The problem is that half of the people who are sent the form forget to fill it in. Most people then do so, after we send them a reminder. But, of course, that is a double transaction. That is what will happen with the vouchers. There will be a significant number of young couples who, for one reason or another, do not return the wretched voucher. We and every other provider will have to contact and remind them—and some people will then send in the voucher. All of that adds to the cost and aggravation for a young couple who have so many other pressures at home.

I must tell the Minister that Internet banking is exploding. It will not stop at its current level. It will grow and grow. Even the Minister will have to take part before too long. Therefore, I ask him to take back the matter again. I shall not press the amendment tonight, but it is a key issue. I have given evidence on microlining, and I shall send the Minister a further detailed note. I beg leave to withdraw the amendment.

• Amendment, by leave, withdrawn.
• [Amendment No. 10 not moved.]
• [Amendment No. 11 not moved.]
• Clause 8 [Initial contribution by Inland Revenue]:
• [Amendment No. 12 not moved.]
• Clause 9 [Supplementary contribution by Inland Revenue]:
• [Amendment No. 13 not moved.]
• Clause 10 [Further contributions by Inland Revenue]:
• [Amendment No. 14 not moved.]

Lord McIntosh of Haringey moved Amendment No. 15: Page 7, line 16, at end insert— (4) For the purposes of this section, a child is to be treated as being an eligible child if entitlement to child benefit in respect of the child is excluded by—

1. (a) paragraph 1(a) of Schedule 9 to the Social Security Contributions and Benefits Act 1992 (c. 4) (children in custody), or
2. (b) paragraph 1(1)(a) to (d) of Schedule 9 to the Social Security Contributions and Benefits (Northern Ireland) Act 1992 (c. 7) (corresponding provision for Northern Ireland)."

The noble Lord said: My Lords, under Clause 10 the Government have powers to pay additional government endowments when children reach a specific age. A payment at age 7 has been announced, but the Bill allows future governments to make further payments at other ages if they decide to do so. As drafted, the Bill prevents such payments being made to the child trust fund accounts of children held in legal custody, as child benefit is not paid in respect of those children and the award of child benefit is the key eligibility requirement for child trust fund payments. That means that if a future government were to decide on payments to children at any age after 12, any child held in custody on the relevant birthday would not receive them.

Some people take the view that children in custody should not receive the payments, because that would be rewarding bad behaviour. But the Government do not believe that it is justifiable to disadvantage such children on the grounds that they were in custody on a particular birthday. To do so could lead to anomalous situations—for example, if a child were in custody for a long period but not on the relevant birthday and received a child trust fund payment, but a child in custody for a shorter period, including the relevant birthday, was excluded. The child trust fund is a long-term savings policy, and this group of children is likely to include some of the most disadvantaged and in need of help.

The amendment would allow such age-related payments to be made by the exclusion from child benefit for the purposes of Clause 10. I beg to move.

On Question, amendment agreed to.

Clause 12 [Subscription limits]:

Baroness Noakes moved Amendment No. 16: Page 7, line 30, after "in" insert "respect of

The noble Baroness said: My Lords, in moving this amendment I shall also speak to Amendment No. 17 —both are about the culture of savings theme, which we covered in earlier amendments.

Both amendments concern the annual limit on subscriptions to child trust funds that will be permitted. The amount is not specified in the Bill, but the regulations have now fixed that, initially, at £1,200 a year. Amendment No. 16 would replace the annual limit operating in each year with one that operated in respect of each year; and the intent is to create the possibility of carrying forward contributions from one year to the next.

In an ideal world people would commit to regular savings. We fully subscribe to that idea, and I am sure that the savings industry will want to promote it. However, not everyone who might wish to contribute to a child trust fund is able to take on a regular saving commitment. Some people have irregular income patterns while others, perhaps relatives, have no intention to contribute to a child trust fund on a regular basis. They might, however, think that some of the "rites of passage" events such as going to a new school or a confirmation would be an appropriate time to give money. The effect may be that in one year the limit will not be used, but in the following year when such a rite of passage takes place there may be an accumulation of money available for investment. Our amendment is therefore designed to accommodate the fact that in practice regular savings are not the only form in which money will potentially come into child trust funds.

In Grand Committee, the Minister said that providers would not be able to cope with that provision. I am confident that they could easily cope with it and would find a marketing advantage in telling people how much unused allowance they had so as to promote additional savings within the limit. It should not be necessary for every provider to offer a product if it cannot support it. But let those do so who can support variable amounts being contributed in a year, keeping track of the available limit, to see whether it is popular in marketing terms. Let the market decide on it. The concept of carry forward is not an alien one in tax law. Other allowances can be carried forward and they operate without problems.

Amendment No. 17 is a kind of "Rooker-wise" amendment, so I hope that the Minister will recognise its impeccable credentials which go with indexation in the tax sphere. It proposes that the £1,200 should rise annually with the RPI. I do not need to remind noble Lords of the insidious effects of inflation, even at the relatively low level of 2.5 per cent in RPI terms which we are currently experiencing.

In Grand Committee, the Minister said that the Government wanted to keep flexibility to manage the child trust fund in future years. "Flexibility", in government-speak, is code for chopping and changing at will. There is nothing in the amendment to stop the Government from increasing the limit beyond £1,200, but it prevents them from applying the kind of policies they have been applying to ISAs—that is, a combination of stop and go backwards.

The amendment is designed to increase confidence in the stability of the child trust fund regime and thus increase its attractiveness as a home for savings. I hope that the Government will see that the amendments are designed to improve the attractiveness of the child trust fund regime overall and I look forward to the Minister welcoming them with open arms. I beg to move.

8.45 p.m.

Lord McIntosh of Haringey

My Lords, this is another example of what I referred to in responding to Amendment No. 1. This is a good, simple idea. Although it is new and therefore cannot be proved in advance, it has been thoroughly examined and consulted on to make it as simple and practical as possible. What is being proposed in an accretion on to it. And too many accretions, like shellfish—I say that to appeal to the specialism of the noble Baroness, Lady Wilcox—could be damaging.

The additional contributions that can be made into a child trust fund by family, friends or children themselves are an important part of the fund. And additional savings by family and friends could significantly increase the amounts which children receive at the age of 18. The child trust fund aims to encourage a partnership between government and families and to build on existing positive attitudes for saving for children.

Amendment No. 16 would allow for unused subscriptions for one year to be carried forward to the next. I appreciate the point that not all parents can contribute the same amount every year and I understand that there are parents who would like to make up contributions that were missed. However, I persist with the view that it would be more complicated for providers to administer and for the child trust fund account holders and their families to get to grips with. After talking to some of the providers, our understanding is that a single, regular annual limit encourages regular savings and provides well for modest contributors who will form the vast majority of those involved with child trust funds.

It would also be unwise to include in the Bill rules such as increasing the subscription limit in line with the RPI. I know that the noble Baroness, Lady Noakes, does not approve of it, but we have given flexibility to future governments to manage the trust fund in the light of future development needs and opportunities. It is not fair to say that that would necessarily mean a slow-down or a stop in further changes. Yes, Rooker-Wise is relevant. There would be pressure to increase the limits in line with the RPI. Our rejection of the amendment is not intended to be a restriction. We are simply saying that future governments should decide the limit. We will keep the subscription limit under review in the light of the progress of the child trust fund. I am not sympathetic to the amendments, as the noble Baroness, Lady Noakes, seemed to think.

Baroness Noakes

My Lords, I cannot express to the Minister how disappointed I am that he has chosen to turn his face against the amendments. He described them as barnacles on shellfish, which I find particularly wounding.

The amendments were put forward as a serious attempt to improve the model, not simply as "harmful accretions", which was another of the terms used by the Minister to describe my amendments. We are concerned to ensure that the scheme, if it goes ahead, accommodates the different savings patterns that will exist. Whatever the savings industry wants, it will not be the case that every family can contribute a regular amount every month or year. Life simply is not like that. We were also trying to encourage the Government to commit to something that would represent stability in a savings product and avert possible cynicism. Many people have seen what the Government have done with ISAs; namely, the progressive reduction of the maximum annual contribution and the prospect of that amount falling to £1,000 next year. They have seen what the Government have done to savings products. Why should they believe that the Government would do anything different in future? The Bill gives them no reason to do so. However, the Government have unkindly rejected my amendments. I must accept their judgment. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

• [Amendment No. 17 not moved.]
• Clause 13 [Relief froth income tax and capital gains tax]:
• [Amendments Nos. 18 and 19 not moved]
• Clause 14 [Insurance companies and friendly societies]:
• [Amendment No. 20 not moved.]
• Clause 20 [Penalties]:

Lord McIntosh of Haringey moved Amendment No. 21: Page 12, line 25, leave out from beginning to "5(5)" in line 29 and insert—

1. "(a) the provision by the account provider, as a child trust fund, of an account which does not meet the condition in subsection (7A),
2. (b) a failure by the account provider to comply with section 8(2) or 9(3) or with a requirement imposed on the account provider by regulations under section"

The noble Lord said: My Lords, in moving Amendment No. 21, I shall speak also to Amendments Nos. 22 and 23. These amendments to Clause 20, which imposes penalties, are essentially tidying-up amendments to ensure that the references to other clauses of the Bill are to clauses under which offences can be committed and so penalised. None of the changes affects the penalty regime in any way. I beg to move.

On Question, amendment agreed to.

Lord McIntosh of Haringey moved Amendments Nos. 22 and 23: Page 12, line 31, at end insert— (7A) An account meets the condition referred to in subsection (7)(a) if—

1. (a) it is of one of the descriptions prescribed by regulations under section 3(2),
2. (b) section 3(4) is complied with in relation to it, and
3. (c) the requirements imposed by regulations under section 3(5) are satisfied in relation to it."

Page 12, line 35, leave out from "each" to end of line 37 and insert "account affected by the matter, or any of the matters, in respect of which the penalty is imposed,

On Question, amendments agreed to.

Clause 27 [Commencement]:

Baroness Noakes moved Amendment No. 24: Page 16, line 8, at end insert— () No order may be made under subsection (1) before the dissolution of the present Parliament.

The noble Baroness said: My Lords, I rise to move the last of the amendments on Report. I can hear the sighs of relief starting to echo around the Chamber. While the last, but certainly not the least, of our amendments, the amendment would delay the commencement of the Bill until after the next general election.

My proposition is a simple one. The child trust fund policy owes as much to the electoral cycle as it does to high-minded notions of "asset-based welfare"—which was trotted out in another place. I am glad that the Minister has spared your Lordships that. The policy was announced before the previous general election, and it has been implemented with the next general election fully in mind. In Grand Committee I went through the logic, which would have been clear back in 2001 after the previous general election, that the most likely time for the next general election—I said "most likely"; it is not an absolute necessity—would be in spring or early summer 2005. To reach that conclusion one has only to put together the Prime Minister's general desire to get beyond four years, not wanting to be boxed in at the end, and the EU presidency.

So when is the child trust fund being implemented? In spring 2005. That is when parents of about 1.8 million children will receive a voucher worth about £250 from the Inland Revenue, which is the department that the Chancellor runs. Unlike most letters from the Inland Revenue, which no one wants to read and usually ask for money, these letters will be very nice because they will contain a voucher that looks a bit like a cheque. So imagine the warm feelings of the 3 million or so parents—otherwise known as voters—when that happens. Taxpayers' money amounting to about £450 million will finance that. As we discussed in Grand Committee, the notion that the Chancellor will use his Budgets to secure voter approval is not very surprising. We all expect that next year's Budget will be very long on those matters. What is surprising is the calculated use of the child trust funds.

Back in 1769, the legal scholar William Blackstone opposed universal suffrage because he thought that the poor would sell their votes to the rich, who would then use their new power to exploit the middle classes. If we let the Bill be used to encourage anyone who thinks that £250 is a lot of money to vote for the Chancellor's party, we will indeed be handing him power to exploit the middle classes. It is the middle classes who have already borne the brunt of the Chancellor's additional taxes—more than £5,000 per household since 1997—and they will be the ones who have to bear the tax rises of the Chancellor's third term if he gets the opportunity. That is why we think it would be right for the Government to wait until after the general election. That would not be much of a delay for a policy that has an 18-year span. I beg to move.

Lord McIntosh of Haringey

My Lords, I think that this is unwise. There is a certain inevitability in the way in which policy, particularly new policy proposals, achieve fruition. You have an idea. You put it in a manifesto. You win a general election. You work out what the idea means in practice, you consult on it. If people are not happy you consult again. You produce legislation and you bring it before Parliament. You subject it to the severe scrutiny of your Lordships' House. When that has happened you allow enough time for it to go through. That may take three, four or five years—I do not know. I do not know when the next general election is going to be.

I would be astonished if we won the previous general election to any significant effect because we put child trust funds in our manifesto. I would be astonished if we were to win or lose the next election to any significant effect because we had pursued that policy through to fruition. On the other hand, if we were given the argument that the Opposition had denied parents this £250 or £500 because of these electoral reasons and we were able to go into the election saying, "You could have had this money but the Conservatives would not let you have it", I would think that that would have very considerably more electoral effect than what we are proposing to do now. I would strongly advise the noble Baroness, Lady Noakes, in her own interests not to pursue this amendment.

Baroness Noakes

My Lords, I thank the Minister for his advice. I completely accept that, in the electoral cycle, ideas work their way through and are then enacted. However, relatively few of them involve the transfer of significant amounts of money to individuals, admittedly in a form which could be put into an account but could not be accessed for some time.

If the general election were held next June, the delay would be relatively small. It is merely a matter of there being no suggestion that the Government could influence the outcome by using a particular type of policy. It is not a question of whether or not the Minister would be astonished. Let it be beyond doubt that if this is the Government's policy, that is fine; it will be implemented if they win the election. However, if they do not win the election and perhaps the Liberal Democrats win it, it will be for the Liberal Democrats to decide whether or not they implement the policy. I think we know from the tenor of the comments of the noble Lord, Lord Newby, what his answer would be. That is why we consider this to be a very important issue.

When we tabled the identical amendment in the Commons, I was encouraged that the Liberal Democrats all voted for it, including their leader, Mr Kennedy, and I think it is appropriate to test the opinion of the House.

9.1 p.m.

On Question, Whether the said amendment (No. 24) shall be agreed to?

Their Lordships divided: Contents, 17; Not-Contents, 67.

Division No. 7
CONTENTS
Anelay of St Johns, B.	Noakes, B.
Coe, L.	Northbrook, L.
Cope of Berkeley, L.	Northesk, E.
Fookes, B.	Palmer, L.
Lamont of Lerwick, L.	Peel, E.
Lyell, L.	Renton, L.
MacGregor of Pulham Market, L.	Seccombe, B. [Teller]
	Shaw of Northstead, L.
Newton of Braintree, L.	Wilcox, B. [Teller]

NOT-CONTENTS
Acton, L.	Hughes of Woodside, L.
Addington, L.	Hunt of Chesterton, L.
Andrews, B.	Hunt of Kings Heath, L.
Ashton of Upholland, B.	Jones. L.
Avebury, L.	Jordan, L.
Barker, B.	Lea of Crondall, L.
Brennan, L.	Livsey of Talgarth, L.
Brooke of Alverthorpe, L.	Lockwood, B.
Campbell-Savours, L.	Lofthouse of Pontefract, L.
Chandos, V.	Macdonald of Tradeston, L.
Clark of Windermere, L.	McIntosh of Haringey, L.
Clarke of Hampstead, L.	McIntosh of Hudnall, B.
Cohen of Pimlico, B.	Mackenzie of Framwellgate, L.
Corbett of Castle Vale, L.	McNally, L.
Crawley, B.	Maddock, B.
David, B.	Massey of Darwen, B.
Dean of Thornton-le-Fylde, B.	Newby, L.
Desai, L.	Oakeshott of Seagrove Bay, L.
Dixon, L.	Pendry, L.
Dubs, L.	Phillips of Sudbury, L.
Elder, L.
Evans of Parkside, L.	Rooker, L.
Farrington of Ribbleton, B.	Roper, L.
Gale, B.	Russell, E.
Gilbert, L.	Sawyer, L.
Golding B.	Scotland of Asthal, B.
Gordon of Strathblane, L.	Sharp of Guildford, B.
Goudie, B.	Taylor of Blackburn. L.
Gould of Potternewton, B.	Tordoff, L.
Grocott, L. [Teller]	Triesman, L. [Teller]
Harris of Richmond, B.	Walmsley, B.
Hilton of Eggardon, B.	Warner, L.
Hollis of Heigham, B.	Warwick of Undercliffe, B.
Hoyle, L.	Woolmer of Leeds, L.

Resolved in the negative, and amendment disagreed to accordingly.