Clause 2 - Eligible children
Child Trust Funds Bill
10:00 am
Mr George Osborne (Tatton, Conservative)
I beg to move amendment No. 5, in
clause 2, page 1, line 13, leave out '2002' and insert '1992'.
Mr Joe Benton (Bootle, Labour)
With this it will be convenient to discuss the following amendments: No. 142, in
clause 2, page 1, line 13, leave out '2002' and insert '2010'.
No. 104, in
clause 2, page 2, line 26, leave out subsection (7).
No. 34, in
clause 8, page 4, line 34, at end insert—
'(1A) Regulations under subsection (1) must prescribe an initial contribution of nil in respect of any child trust fund held by a child born before 1st September 2002.'.
No. 37, in
clause 9, page 5, line 3, at end insert—
'(2A) Regulations under subsection (2) may prescribe a contribution of nil in respect of any child trust fund held by a child born before 1st September 2002.'.
Mr George Osborne (Tatton, Conservative)
This is arguably the most important series of amendments. My Liberal Democrat colleague will speak to amendment No. 142: it verges on being a wrecking amendment but I will leave it to the Minister to argue that. With the exception of amendment No. 104, which I will come to at the end, my amendments would extend the child trust funds to children born after 31 August 1992. In other words, it would allow people to open child trust funds for older children.
I make it quite clear from the beginning that I would not expect an initial Government contribution or indeed any Government contribution. I do not seek to spend more public money. I merely seek to allow parents to open child trust funds and to have all the benefits of being able to save for their children, putting in amounts of up to £1,200 a year and having a tax free sum at the end. The amendments would change the date from 2002 to 1992. I chose 1992 because I thought that that would be sensible. We could have an earlier date, but I am talking about anyone who is not a teenager. Given that it will be a year or so before the funds are up and running anyway, people are more likely to save for their younger children—children who are not teenagers—although I am happy to listen to arguments to extend the provision to teenagers. To achieve my objective, I would amend the date from 2002 to 1992. With amendment No. 34, I would amend clause 8 to make it clear that the initial contribution from the Government would be zero in respect of a child trust fund held by a child born before 1 September 2002.
I do not propose that it should be compulsory to start a child trust fund; I do not suggest that everyone should do so. I am merely saying that we should
provide parents with an opportunity to open a child trust fund for older children. I have a personal interest in this, as has the Minister. One of my children is eligible for a child trust fund; the other is not. As I intend to put money into the child trust fund for my young daughter on a yearly basis, I would like to do the same for my son.
Mr David Laws (Yeovil, Liberal Democrat)
I understand why the hon. Gentleman raises this issue, but he does not propose that the Government should contribute to the accounts of children born before the date that they have set, and the tax advantages of the child trust fund are pretty marginal for most people compared with existing savings reliefs. Therefore, is the only advantage that he is really offering parents who would take advantage of his proposals a tax-advantaged account that has some handcuffs, if I can put it that way, in that the money is kept in it for 18 years? Otherwise, they could presumably exploit other means of tax-advantaged saving.
Mr George Osborne (Tatton, Conservative)
There are other savings vehicles on the market. That issue has been raised in discussion of child trust funds, but the truth is that many parents do not use those savings vehicles, for whatever reason. I think it quite likely that parents in my situation—with one child or more who qualify and one child or more who do not—will want to open accounts for the older children. My proposal would be time-limited. After 12 or 13 years or so, it would be redundant anyway, because everyone will have child trust funds. People will not need to be able to open child trust funds for older children, because they will already have them.
The Government's stated objective, as the Minister repeated on Second Reading, is to encourage
''children and their parents to save for the future.''—[Official Report, 15 December 2003; Vol. 415, c. 1337.]
I am merely asking why we should restrict the benefits of child trust funds to newborn babies.
Mr David Laws (Yeovil, Liberal Democrat)
I still have not heard a clear explanation of what the hon. Gentleman would gain as a parent from having the option to put money into a child trust fund for a child who is not covered by the Government's proposals, compared with using another form of tax-advantaged saving. Is he merely saying that the risk is that parents will be irrational in not understanding the other savings options open to them, so the Government should provide accounts for irrational parents to encourage them to make equal provision?
Mr George Osborne (Tatton, Conservative)
I do not want to disappoint the hon. Gentleman, but many people are irrational in life.
Mr George Osborne (Tatton, Conservative)
The hon. Gentleman mentions the Tory party, but I shall come on to a list of Labour people. [Interruption.] One Labour Member who is about to intervene supported this proposal on Second Reading.
Mr Michael Jabez Foster (Hastings and Rye, Labour)
Does not one advantage relate to charges? The charge for the child trust fund will probably be limited to 1 per cent., whereas many of the schemes currently available rob children of 3, 4 or even 5 per cent. of their savings simply to set up those expensive options. The child trust fund will be a better alternative.
Mr George Osborne (Tatton, Conservative)
The hon. Gentleman makes a good point. I do not necessarily support the 1 per cent. charge, but I certainly do not support charges as high as 3, 4 or 5 per cent. We shall discuss the charge cap later. My proposal is about simplicity. I would be able to say to my children that they both had child trust funds—which would mature at the age of 18—and, indeed, the tax-free savings that would accrue as a result.
Mr Michael Weir (Angus, Scottish National Party)
Is there not a potential problem here? I am sure that the hon. Gentleman has already made provision for his elder child, as most of us whose children will not qualify for the bonds probably have. Is he not in difficulty with his promise that those who would benefit from child trust funds by receiving the initial Government input are those on lower incomes? Under his proposal, they would not get such an input for older children. I fail to see how that would benefit any older children.
Mr George Osborne (Tatton, Conservative)
Of course, in an ideal world, if we had vast sums of money at our disposal, we could provide initial contributions in the form of Government vouchers to children of all ages. I am, frankly, realistic; I know that that is not feasible, as the money is just not available. I am merely suggesting that many of the other benefits of the child trust funds scheme—benefits that go beyond the initial voucher—can be offered to parents with older children. I am in good company here, because the Treasury Sub-Committee's excellent report on child trust funds—to which a Liberal Democrat member of the Committee signed up—concluded:
''We consider that the natural reaction of parents with children born on either side of the cut-off date will be to try to see that they are treated equally. This may mean that those parents with sufficient financial resources will make additional provision for children who do not qualify for a child trust fund account. We believe they would be encouraged to do this if child trust fund accounts, identical in all respects save the absence of a Government endowment, were available for their other children. In the light of the evidence of the cost to the Treasury of the extra tax relief afforded by child trust funds is negligible, we recommend that consideration be given to extending the availability of child trust fund accounts but without Government endowments, to children born before 1 September 2002.''
The amendments seek to implement the recommendations of the Treasury Sub-Committee, to which Conservative and Liberal Democrat Members signed up.
Dr Desmond Turner (Brighton, Kemptown, Labour)
I thank the hon. Gentleman for his patience in giving way so often. I am puzzled by the spat between Conservative and Liberal Democrat members of the Committee. As an outsider to it, it seems that the Conservatives are adopting the mildly
generous view that is more traditionally associated with the Liberal Democrat party, and the Liberal Democrats are adopting the more traditionally Conservative Gradgrind meanness. Can the hon. Gentleman explain that?
Mr George Osborne (Tatton, Conservative)
Yes, I can. We have worked out how to get out of Opposition into Government.
Mr David Laws (Yeovil, Liberal Democrat)
I do not want the hon. Gentleman to misrepresent the Committee's views in any way. He will be aware that the responsibility of Select Committees is to try to come to a majority view, even when their members may have slightly different emphases on particular points. If he finds that surprising, I refer him to the comment made by one of the Committee's Conservative members, the hon. Member for Bury St. Edmunds (Mr. Ruffley), who referred to child trust funds as
''a quarter of a billion PR stunt''.
That seems to collide with the views that the hon. Gentleman has expressed on behalf of the Conservative party.
Mr George Osborne (Tatton, Conservative)
My hon. Friend the Member for Bury St. Edmunds is a good friend of the Minister—they had some good, lively discussions in the Committee—and believes that the proposal is a bit of a gimmick, but he still supports it. He suspects that the timing of the introduction of the vouchers, just before the general election, makes them a bit of a gimmick. However, he supports the principle behind child trust funds, which is to encourage savings. He did not vote against the proposal, unlike the Liberal Democrat Member who, strangely, signed up to the report, but then went into the Opposition Lobby to vote against the measure on Second Reading.
Mr Joe Benton (Bootle, Labour)
Order. We are moving slightly off the point of the amendment. I will take the intervention, and then ask hon. Members to return to the amendment.
Mr David Laws (Yeovil, Liberal Democrat)
I am grateful for your guidance, Mr. Benton. I am sure that you are quite right to warn us of the dangers of moving away from the amendment. The hon. Member for Tatton sought to claim, on the basis of the Select Committee report, that there was agreement on all points. Does he really believe that the hon. Member for Bury St. Edmunds supports the proposals after he described them as a £250 million PR stunt?
Mr David Laws (Yeovil, Liberal Democrat)
I start on a note of agreement. I support amendment No. 104 and agree with what the hon. Gentleman said about it.
It is surprising that the Government want to leave open the question whether they will introduce an earlier date for entitlement to the child trust fund. Perhaps the comments made by the Minister on Second Reading show that the Government still have an open mind on the issue, although I presume that they initially decided not to include an earlier date in the Bill because they were concerned about the administrative costs involved.
The hon. Member for Tatton was right to say that we should resolve the issue now rather than leaving the vague subsection (7) in clause 2, which would allow the Government to return to the issue later. We are entitled to know their views on the issue, rather than waiting for everything to be determined by regulations that we have not yet seen. I agree entirely with the hon. Gentleman that we want a definitive Government line on the matter from the Minister.
I understand why the hon. Gentleman raised the issue today; he is right to say that the concern has been expressed by many Labour Members of the Treasury Committee and the financial providers who made representations to the Treasury and to the Select
Committee. I am not sure that the hon. Gentleman has made a convincing argument for backdating the legislation to include children who will currently fall outside its scope . He may have shown the weakness of his argument by acknowledging that, by and large, only irrational people would want to take up the opportunity of a child trust fund that was backdated prior to the date in the Bill. Even he is not arguing that there should be any Government contribution to such funds.
I believe, moreover, that the hon. Gentleman would acknowledge, as would I, that the number of people who would benefit from tax relief is extremely small, given that other forms of tax-advantage savings are available, and that the tax advantages of the child trust fund are very modest. The hon. Gentleman therefore relies on the idea that if parents were not able to establish a child trust fund—even one with no advantages—they would not make any savings. They would not put money into any other forms of tax-advantage savings, even though, in our view, those have better characteristics, in terms of access, than the child trust fund, particularly for lower-income families, and have largely the same tax advantages. In the case of a family in which one or more children are entitled to the child trust fund, but other children are not, any sensible parent wishing to establish some sort of equity within their own family would seek to ensure that any additional savings made in the child trust fund would also go into an account set up for the other children.
Mr George Osborne (Tatton, Conservative)
I am aware that the hon. Gentleman opposes the idea of child trust funds and voted against them on Second Reading. However, on the logic of what he says, I assume that he would not advise parents to make any contribution to a child trust fund, since, as he puts it, there are other, more advantageous, savings vehicles. Presumably, he would argue that parents should take the initial contribution and keep that in the account, but they should put their savings elsewhere.
Mr David Laws (Yeovil, Liberal Democrat)
Without being knocked astray from discussion of the amendments, there is much good sense in what the hon. Gentleman says. We do not yet know what the Government propose for the savings gateway. Parents might tie up savings in a child trust fund account, which has negligible tax advantages, even on the Minister's own assessment, when they could receive the same tax advantages through accounts that are already available such as the ISA. They might also find that the child trust fund is not a good place to put money, if the Government introduce new proposals in which there is an additional element of advantage and Government contribution.
In fairness to the hon. Gentleman, I acknowledge that the savings market is often characterised by a fair degree of short-sightedness, and sometimes of what appears to be irrationality. I recall learning recently that a large number of employees of Members of
Parliament were not taking up the option of free money offered to them for their pensions by the House of Commons authorities. Not only had they not set up a pension account of their own, but they were not taking advantage of money that was being offered to them at no cost. Perhaps it is on such irrationality that the hon. Gentleman bases his argument that parents would not establish other accounts—ISAs, for example—if they did not have something called a child trust fund. However, that argument is fairly weak and marginal when set against the additional administrative and other costs of establishing the child trust fund entitlement for children who would not currently have that entitlement.
I admit that my views on the matter might be different if I were not so sceptical of the value of the current proposals, both in respect of the use of scarce Government money and of the advantages that the Government believe that the child trust funds have, which I believe to be very small. My unwillingness to support the hon. Gentleman's proposal to allow more people to access the child trust fund than the Government will allow may be based partly on my scepticism about the scheme as a whole. However, I do not believe that the hon. Gentleman has clearly established the advantages that his proposal would give parents whose children are currently not entitled to the child trust fund.
I shall speak briefly to amendment No. 142, described by the hon. Gentleman as almost a wrecking amendment. I do not want to revisit issues that we discussed on Second Reading but, through the amendment, I invite the Government to think again about whether this is the right time to introduce the Bill. Are they convinced that a later start date would not be advantageous, as that would allow them to direct scarce financial resources to where they could make most impact?
On Second Reading, I mentioned that the Prime Minister made a statement on the launch of the child trust fund in April 2001, when he said:
''We are committed to extending opportunity to all. All our children—especially the most disadvantaged—should have the chance for a proper start in life.''
Many commentators have pointed out that the child trust fund will make no financial difference to children in their early years. Indeed, it could take away from funding that could be available to support education, because that money will be locked away in an account for 18 years, and we will not have any tangible advantage from it until 2020—that is unusual for a Government policy.
I also commented on the proven, rather than the alleged, value of the other Government measures for young children, such as the Sure Start schemes and children's centres. I urge the Government to think about whether it would not make more sense to continue to roll out those important initiatives across the country—including to areas such as Somerset, which the hon. Member for Bridgwater (Mr. Liddell-Grainger) and I represent in part. That would allow the important work that the Government are doing on early years to be completed before they expend what
could, in the next spending review, be pretty scarce money on the initiative, the benefits of which many people feel are unproven.
The proposal embedded in amendment No. 142 is that the Government should delay the introduction of the child trust fund, allowing them in the meantime to focus the £250,000 a year, at least, that they would be saving on the other Government policies that certainly help some of the most disadvantaged people in society.
There are other issues that the Government would be well advised to deal with before they introduce these measures. Subsection (7) perhaps shows the extent to which we are reliant on regulations; it suggests that Government policies on these matters have not been sufficiently thought out.
I mentioned earlier the importance of considering the interaction between other forms of tax advantage saving and the child trust fund. It seems odd to introduce the fund without making a clear statement, particularly to those on low incomes, of what other Government initiatives, such as the savings gateway, will exist to boost savings. The pilots involve giving match funding to individuals who are saving in order to encourage them to do more. I should have thought that that would do much more to stimulate saving among those on low incomes. Also, if the Government introduced such a measure after the child trust fund had been introduced, many lower-income families who had locked up money for 18 years in the child trust fund for no tax advantage would find that they could have used the money to far more advantage in the savings gateway.
A number of issues would benefit from further Government consideration. For all those reasons, and without reopening the Second Reading debate, I urge the Government to think about the value of shifting the scheme back a number of years in order to get the proposals right, and to make sure that the scarce amount of money available really goes towards tackling disadvantage in the early years, rather than into a scheme that will have no effect until people reach the age of 18.
Mr Michael Jabez Foster (Hastings and Rye, Labour)
I support the principles that the hon. Member for Tatton displays in wishing to extend the benefits of this excellent scheme, which I wholly support. However, he is too modest in seeking, through amendment No. 5, to extend it only to those born after 1992. If we want to benefit all children, we should extend it to all children. For that reason, I shall certainly not support an amendment that simply creates a divide different from that which already exists.
I acknowledge that, as the Minister said on Second Reading, there is an administrative issue, and she may be wise in not wishing to go too far too fast, especially given the reservations of Labour Members and others about the ability to set up and run efficiently a big scheme for a group of people—in this case children. In the Minister's reply, I would welcome some indication of the administrative burden. How difficult will the task be, how many extra staff will be required and what would be the cost of extending the scheme to everyone?
It is important to extend these simple, effective child trust funds across the board. In many respects, the present provisions are as tax-efficient as the child trust funds; there is negligible difference for most children from modest backgrounds. The tax benefits are also negligible. None the less, the charges are excessive; for example, up to 4 or 5 per cent. of some of the funds that have been mentioned today. That is perhaps justified because of the fragmented way in which the schemes operate. Advertising and promotion are expensive, and the funds suffer as a consequence.
The child trust fund is a simple scheme in essence, and it will not require substantial promotion, as the payments themselves will promote it. For that reason, the costs will be low, and the Bill provides for a limit on those costs. I shall leave it to the Minister to explain why the administrative burden is so great that a more comprehensive job cannot be done. If that is impossible, I hope that a gradualist approach will be taken so that children born after an earlier date can be included. The idea of not having a cut-off point at 1992 could be pursued.
Mr Michael Weir (Angus, Scottish National Party)
There is an air of unreality in the debate about extending the measure to children born after an earlier date. In many ways, I support the comments of the hon. Member for Tatton; in an ideal world, every child would have a trust fund. However, it is easy for a relatively wealthy parent to say, ''I will equalise provision for my children. Child A gets £250 from the Government so I will set up a trust fund for Child B with £250.'' However, many on low incomes and benefits have absolutely no chance of doing that. The sum of £250 may not seem a huge amount to the hon. Gentleman, but it is a substantial sum for many of our constituents. Most of those people have little chance of being able to set up trust funds for two or three of their other children at the same time as they get this money from the Government.
If we go down this route, most parents will try to set up a trust fund to equalise provision for their children, but there is a danger that those on low incomes will put any spare money into a trust fund for another child, rather than build up the trust fund for the first child, so the situations will never be equalised. It is unrealistic to expect them to be. In an ideal world all children should be equal, and I accept that the hon. Member for Tatton has good intentions, but the scheme has to start somewhere, and I fear that if we put back the date it will have no effect apart from on those who will save for their children in any event.
Mr George Osborne (Tatton, Conservative)
Many of the objections that the hon. Gentleman is deploying against my amendment can be deployed against child trust funds. First, any child born before 31 August will not have a trust fund, so parents, whether they are on low incomes or not, will have to explain why one child has a fund and one does not. Secondly, someone with several children who each have a fund under this scheme may put different amounts into each child's fund. Thirdly, of course wealthier parents are more likely than less wealthy parents to put money into child trust funds. Later, we can talk about the fact that, as a result of this scheme,
a child from a wealthier family can end up with £35,000 on their 18th birthday and a child from a low-income family can end up with £900 or £1,000. Many of the problems that the hon. Gentleman has identified lie with the proposals for the child trust fund. I am trying at least to give parents the chance to remedy the inequality between the treatment of two children.
Mr Michael Weir (Angus, Scottish National Party)
I accept what the hon. Gentleman says. I made much the same points on Second Reading. However, what he is attempting to do will not affect that situation; in fact, in many ways it may make it worse.
Mr Peter Atkinson (Hexham, Conservative)
What the hon. Member for Yeovil says is true: people are extremely irrational about their savings—and that does not just apply to the House of Commons staff who do not collect their free pension contributions. Many people hold on to mortgages that are vastly more expensive than is necessary, even when they could change them quite happily and save many thousands of pounds a year. I support the proposal made by my hon. Friend the Member for Tatton because his scheme has the advantage of simplicity. People will put little sums of money into accounts when it is convenient to do so.
I speak from experience, but I come to the subject from a slightly different angle. Unlike the Financial Secretary or my hon. Friend, I have no vested interest. My children are grown up—although the bad news is that they still cost me quite a lot of money. The Financial Secretary and my hon. Friend think that when their children are mature that is the end of it, but it certainly is not. If only I had had the opportunity to contribute to something like this. If the Government get their way, the cost of university education will go up and up, so this sort of nest egg will be valuable to people. It is important that such schemes are open to everybody, so that when they mature, they will provide a considerable sum to help pay for university education, although there may not be £35,000.
Mr David Laws (Yeovil, Liberal Democrat)
Is the hon. Gentleman saying that if there had been a child trust fund open at the relevant time for his children and even if there had been no tax advantage in relation to other forms of saving and no Government contribution, he would have made savings provision for his children, whereas in reality he made no provision?
Mr Peter Atkinson (Hexham, Conservative)
I would not have made any contribution, but my wife would. When people deal with larger financial matters, such as pensions, they—and men in particular—tend to ignore or dismiss such savings vehicles. I know that my wife, like other people, used to squirrel money away on behalf of the children in all sorts of ways. One of the beauties of this scheme is that it fulfils that objective. It may be irrational, but it would be useful to many parents.
Mr David Laws (Yeovil, Liberal Democrat)
I do not want to probe too much into the hon. Gentleman's family financial arrangements—and I do not know how much his wife was squirreling away from him for his children—but, notwithstanding the fact that he seems not to be the key financial decision maker in his household in respect of his children, is he saying that his wife would have saved more for them than she did?
Mr Peter Atkinson (Hexham, Conservative)
I am not sure whether discussing my family's financial affairs is in order. Nevertheless, my wife runs most of the financial affairs in my household. My hon. Friend's amendment is important because it provides a useful method of saving for many people and such a provision should be extended. As I look at subsection (7), I am convinced that that is at the back of the Government's mind. Subsection (7) is included to allow the provision to be extended in future. That is not happening at the moment because, sadly, as we have learned, nothing that this Government ever do is without less than a sum advantage to them. They think that they can get political kudos from introducing baby bonds and that they can have a second bite of the cherry later. I believe that that is behind subsection (7) and the agenda generally.
Ms Ruth Kelly (Financial Secretary, HM Treasury; Bolton West, Labour)
I have listened with great interest to Opposition Members, and particularly to my hon. Friend the Member for Hastings and Rye. It is right at this stage to draw a distinction between three very different proposals. Sometimes when the issue is discussed, those proposals can become confused. Therefore, to aid the Committee, I shall outline the three distinct issues that we should consider.
The first issue is whether children from a previous cohort should be eligible for exactly the same child trust fund as those who were born after 1 September 2002—whether they should have Government endowments provided in exactly the same way; whether they should have a lock-in up to age 18; whether stakeholder accounts and Inland Revenue accounts as specified in the Bill should be provided for them; and whether a charge cap and risk controls and so on should be available for such stakeholder provisions.
Amendment No. 104 would allow us to draw a previous cohort of children into the mechanism and into the child trust fund. It would provide a degree of flexibility, making it possible for other children to benefit. Those in favour of the Bill might think that that is unambiguously a good thing—they might not. However, if one accepts that all children born after the start date of 1 September 2002 should benefit from the child trust fund, it seems reasonable that we should think about including a greater number.
Mr David Laws (Yeovil, Liberal Democrat)
Is the Minister saying that the Government have not decided whether they wish to allow people with children born prior to the existing cut-off date to take advantage of the child trust fund? Does she wish to leave that option open? If that is so, can she tell us when the Government will make a decision on that issue?
Ms Ruth Kelly (Financial Secretary, HM Treasury; Bolton West, Labour)
I am not saying that we have not decided. We have decided that those born after the cut-off date of 1 September 2002 should benefit, but we have allowed for a certain degree of flexibility, such as the ability to give top-ups at ages other than those set out. Should the research back us up in making further provision and should the funds become available from Exchequer resources, we will be able to decide whether to bring in another cohort of children.
Some hon. Members have proposed that the child trust fund without the Government endowment should be available to all children under the age of 18. It has been suggested that the shell should be made available compulsorily to those born before the cut-off date of 1 September 2002, that there should be a lock-in, and that there should be stakeholder provisions with risk controls and so on, so that a fund that mimics the child trust fund exactly, apart from the Government endowment, would be available to all. I argued against that on Second Reading because it would mean that 10 million children at a stroke would be allocated shell child trust funds. That would impose a significant administrative burden, not just on providers but on the Inland Revenue. Indeed, it would impose a tax burden on the Exchequer.
Mr George Osborne (Tatton, Conservative)
People who proposed that—indeed, I proposed a similar measure for anyone who is not a teenager—are suggesting not that everyone would be allocated a child trust fund, but merely that people would be able to set them up. Optimistic though I am that parents would make use of my proposals, I do not think that, realistically, 10 million children will have child trust funds. The number will be a fraction of that. Many financial providers say that that may enhance their ability to sell the product to families, by encouraging them to put in contributions for their youngest children, who have the initial Government contribution.
Ms Ruth Kelly (Financial Secretary, HM Treasury; Bolton West, Labour)
I was about to come to the hon. Gentleman's proposal, which was the third option for discussion. I am dismissing the proposal to allocate a shell child trust fund to all children under 18. That is for reasons of administrative burden, but also because it would, for example, be difficult to argue that a stakeholder product should be allocated to a 17 year-old, whose lifestyle requirements would not make it appropriate. The issue therefore becomes much more complex, and we would have to think it through. We could not introduce the proposal on the start date of the child trust fund.
However, the hon. Gentleman suggested a third option. The Inland Revenue would offer an account with the same tax advantages—an ISA-style account—for children born before the cut-off date of 1 September 2002. Like the child trust fund, it would also have a lock-in facility, and there would be stakeholder accounts for those who wanted to benefit from them. I am sure that the hon. Gentleman will correct me if I have got this last detail wrong, but I believe that the account would also be available only for children born after a cut-off date of 1992. Of
course, there would still be the issue of whether stakeholder provision was relevant, but I am sure that we could return to that.
Then there is the argument presented by the hon. Member for Yeovil as to whether it is proportionate to make the proposed accounts available and whether demand for them would exist and is currently not met by products on the market. In the past, I have argued that many savings and investment accounts on the market are aimed at children. Each child already has a personal allowance of £4,615 a year before they are liable to pay tax on money that is gifted from a parent. They have to earn an income of £100 a year before they become liable for tax. So, there are significant advantages for people who wish to invest in an account for their children.
Mr Michael Jabez Foster (Hastings and Rye, Labour)
Does my hon. Friend know of any scheme available on the market that has charges as low as those of the child trust fund?
Ms Ruth Kelly (Financial Secretary, HM Treasury; Bolton West, Labour)
I believe that the Children's Mutual has a charge of about 2 per cent. Of course, we have not yet announced the level of the charge that we are likely to introduce for the child trust fund, but it will become known in due course.
The question is whether there would be unmet demand for the type of child trust fund product that we are likely to offer. If there were demand for such a product, providers may well offer a look-alike product that has an 18-year tie-in and which uses the current tax advantages in the system, and which they market with the child trust fund when they send information to new parents and when there are top-ups and so forth. In fact, I am sure that providers would do that if there were demand. There may be an issue about charges, but competition would drive them down, perhaps to the level offered by the child trust fund. So the issue becomes whether there is a gap to be met between the tax advantages in the system and those that we are offering in the child trust fund.
Having heard the strength of feeling on the matter, I am perfectly willing to talk to providers to see whether they think that there would be a gap that needed addressing. There would be some cost to the Exchequer in offering such a product, and, given stakeholder provisions and so forth, I do not think that it would be as easy to offer a solution as is sometimes suggested. The easiest way to meet demand could be through the market, as I have suggested. However, if it became clear that there was unmet demand, I believe that it would be possible, through regulation, to establish a similar children's ISA product that would make the child trust fund arrangements almost in their entirety but without Government endowments and so forth. I undertake to ask providers whether they believe that such unmet demand exists or is likely to exist so that we can review the situation in the future. On that basis, I ask the hon. Member for Tatton to withdraw his amendment.
Mr George Osborne (Tatton, Conservative)
The Minister has rather taken the wind out of my sails. I was getting ready for a vote and had my Whip all lined up, and now she has said that she will consider—[Hon. Members: ''He has just left.''] I let him go. It is good news that the Minister will consider the issue seriously. The hon. Member for Hastings and Rye and I are pleased at the outcome of the debate.
I take at face value the Minister's assurance that much of what I am suggesting needs to be done in the Bill can be done by regulation and that a similar product can be developed. In my discussions with all the representative institutions and some of the companies, each one said that it would like to offer the products to older children and that that would help its marketing to families. After all, we are talking about something that is going to be time limited, because in 18 years every child will have a child trust fund. I am grateful that the Minister is prepared to consider that.
On amendment No. 104, I am still a little unclear about the Government's proposals. Do they really envisage including older children at a later date and spending large sums of money on doing so? I suspect that the Minister does not need subsection (7) and that it will never be used, but I suppose that I take her argument that she needs the flexibility. I beg to ask leave to withdraw my amendment.
Amendment, by leave, withdrawn.
Mr George Osborne (Tatton, Conservative)
I beg to move amendment No. 103, in
clause 2, page 1, line 14, leave out 'entitled to' and insert 'eligible for'.
Mr Joe Benton (Bootle, Labour)
With this it will be convenient to discuss amendment No. 124, in
clause 9, page 5, line 12, leave out 'entitled to' and insert 'eligible for'.
Mr George Osborne (Tatton, Conservative)
I confess that I may not have the wording of these amendments exactly right, and the Minister will undoubtedly tell me that it is wrong. The amendments would change the wording of clauses 2 and 9, and I have tabled them to examine the Bill's explanatory notes, in which the Government say that
''it will be essential to claim child benefit for a child if that child is to qualify for a CTF account.''
The exception is a child in care, which is dealt with separately and which we will discuss later.
The point is that it is essential to claim, rather than be eligible for, child benefit. Child benefit has one of the highest take-ups of any benefit because it is universal and not means-tested. When I asked a written question to the Treasury about take-up rates at the end of last year, the Paymaster General replied:
''Precise figures are not available, but the take up rate of child benefit is thought to be around 98 per cent.''—[Official Report, 8 December 2003; Vol. 415, c. 330W.]
However, that still leaves 2 per cent. of children—by my maths about 1,400 children a year—for whom child benefit is not claimed but who are eligible for child benefit and, therefore, eligible in theory for a child trust fund.
Amendment No. 103 would allow the Government to provide those children with a child trust fund even if their parents do not apply for child benefit for whatever reason. I am not sure why that 2 per cent. of people do not apply for child benefit—perhaps they are just not up to it or have particular objections to taking Government handouts—but whatever the reason, it is not the child's fault. Surely if the Government are keen to extend the new fund to every child, they should at least give themselves the option of trying to track such children down. Parents who are not claiming child benefit are unlikely to want to set up child trust fund accounts, but the Bill provides a clause that enables the Inland Revenue to set up accounts for children whose parents refuse to or do not set up accounts for whatever reason. The amendments would give the Government the option of opening child trust fund accounts for children who are eligible to have child benefit claimed in their name but for whom child benefit is not being claimed at present.
Ms Ruth Kelly (Financial Secretary, HM Treasury; Bolton West, Labour)
I understand the point that the hon. Gentleman is making. We want as many people as possible to have the advantage of a child trust fund, but the key principle in developing the child trust fund was to keep the system as simple as possible for parents, providers and the Inland Revenue. The vast majority of parents, as he pointed out, receive child benefit. So making the award of child benefit the key to eligibility for the child trust fund ensures that parents do not have to worry about any other claims in what is inevitably a busy time for them following the birth of a child.
Mr David Laws (Yeovil, Liberal Democrat)
Can the Minister explain why a small proportion of people do not claim child benefit? What categories of people do not make that claim?
Ms Ruth Kelly (Financial Secretary, HM Treasury; Bolton West, Labour)
It is difficult to understand why that 2 per cent. of people choose not to claim child benefit. One can only speculate. Clearly some people make a deliberate decision not to do so. Others may do so through oversight or because they do not understand the procedure. But without knowing who they are it is impossible to understand their motives. If we did not have the link to child benefit we would have to link the award of a child trust fund to some other eligibility system, which would almost inevitably be more complicated than the direct link to child benefit.
Mr George Osborne (Tatton, Conservative)
I am not suggesting breaking the link with child benefit. I merely suggest that the link should be eligibility for rather than receipt of child benefit.
Ms Ruth Kelly (Financial Secretary, HM Treasury; Bolton West, Labour)
I am sure that the hon. Gentleman will understand that the direct link to child benefit is what makes the system so simple for the Inland Revenue to administer and relieves it of a huge burden of trying to identify eligible parents.
Mr David Laws (Yeovil, Liberal Democrat)
The hon. Member for Tatton has identified an important potential hole in the group of people who may be entitled to child trust funds. As the Government have taken clear and decisive action elsewhere in the Bill to ensure that children are not disadvantaged by their parents' inactivity, perhaps
they could look again at the hon. Gentleman's proposal to ensure that no children lose out as a consequence of decisions made by their parents.
Ms Ruth Kelly (Financial Secretary, HM Treasury; Bolton West, Labour)
I do not think that there is a big hole. If people have deliberately avoided contacting the Inland Revenue to claim child benefit, it is highly unlikely that they will want to take up a child trust fund on behalf of their children and the Government endowment that it is attached to it.
Mr George Osborne (Tatton, Conservative)
We are guessing because we do not know who this 2 per cent. of people are. Some of them will be extremely incompetent people, frankly, who have been unable to claim child benefit on behalf of their children. They are likely to be the most disadvantaged families. Therefore, would it be possible for the Inland Revenue to have a small team of a couple of people who would try to track down some of these children and at least give them the benefit of a child trust fund? They clearly are not getting other benefits in life. They may be some of the most disadvantaged children in our society.
Ms Ruth Kelly (Financial Secretary, HM Treasury; Bolton West, Labour)
If we found out about such a disadvantaged family we would encourage them to claim child benefit and they would not have to make an additional claim for the child trust fund. Anecdotally, however, the Inland Revenue understand that it is generally wealthy people who want no contact with the system whatever who choose not to claim child benefit. The hole may be even smaller than we first thought.
Mr David Laws (Yeovil, Liberal Democrat)
The Minister appears to be saying that the Government believe that parents are entitled to decide whether their children have the child trust fund. She appears to say that where parents have taken a conscious decision not to claim benefit the child should be excluded from the child trust fund. Surely elsewhere in the Bill there is a clear Government view that even if parents do not take up the child trust fund option when they receive child benefit, the Government will take it up for them. Therefore, the amendment raises legitimate concerns that a very vulnerable group of children could lose out. The Government could do more to safeguard their interests.
Ms Ruth Kelly (Financial Secretary, HM Treasury; Bolton West, Labour)
I do not think that that point is valid. The most disadvantaged people are most likely to have direct contact with the child benefit system. By accessing that system, they also access the child trust fund system. It would make no sense to have a team of people in the Inland Revenue trying to track down people who had not claimed their child trust fund. That is different from not having the team try to track down people who had not claimed child benefit, for whatever reason. The direct link between the two makes the whole process much easier to administer for the Inland Revenue, and much simpler for parents to understand and make claims.
Mr George Osborne (Tatton, Conservative)
I speak from a position of ignorance, but does the Inland Revenue actually seek out people who do not claim child benefit? Does it write letters to
people, saying that it has noticed on its computers that they are not claiming child benefit? Perhaps it should if it does not.
Ms Ruth Kelly (Financial Secretary, HM Treasury; Bolton West, Labour)
I understand that it is very difficult for the Inland Revenue to write letters to people if it has no information on which to base them—if it has no address for the person and so on. However, the hon. Gentleman is correct to say that the priority should be to contact those who have no link to the benefit system, rather than merely to isolate the child trust fund and concentrate resources on detecting those who have not applied for that. For those reasons—the simplicity of the link and so on—I urge him to withdraw the amendment.
Mr George Osborne (Tatton, Conservative)
I was merely trying to explore what happens to the 2 per cent. of people who do not claim child benefit. Now that the Inland Revenue is in charge of administering child benefit, like many other benefits, it would be interesting if it did some work on finding out who that 2 per cent. of people are. I am not sure that the Minister is right to say that it has no information on those people. They were born somewhere, so presumably there are hospital records and so on. We take what she said at face value: 2 per cent. of the population disappear completely from the system and presumably do not pay any tax or appear on any Government records. Now I come to think about it, the figure is probably more than 2 per cent. In any case, I accept the Minister's point that the problem relates more to the claiming of child benefit than to the claiming of the child trust fund. Perhaps just to satisfy her own mind, she could investigate why those 2 per cent. of people do not claim child benefit and what kind of people they are. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Mr George Osborne (Tatton, Conservative)
I beg to move amendment No. 6, in
clause 2, page 2, line 4, leave out subsections (3) and (4).
Mr Joe Benton (Bootle, Labour)
With this it will be convenient to discuss the following amendments: No. 7, in
clause 2, page 2, line 10, leave out subsection (5).
No. 163, in
clause 2, page 2, line 18, at end insert—
'(5A) A child is also an ''eligible child'' if he is—
(i) a child for whom a parent gains entitlement to child benefit in respect of the child at any time before the child's eighteenth birthday; or
(ii) a child whose parents were not previously entitled to claim child benefit, who is subsequently taken into the care of a local authority.'.
Mr George Osborne (Tatton, Conservative)
The purpose of the amendments is to probe who is eligible for child trust funds. I thought that the best way to do that was to table amendments to exclude various subsections of the clause that deals with eligibility. Subsection (3) covers children who, as I understand it, live in the UK but whose parent works in another EU country, so they receive child benefit from that country because of an EU agreement. The explanatory notes say that
''the most common situation is where a family lives in Northern Ireland and the only working parent works in the Republic of Ireland''
and therefore the child benefit is paid by the Republic. Clearly, however, others will fall under subsection (3).
In tabling the amendment, I was interested to know how many people we are talking about. What does the clause mean when it talks about children living in the UK? What happens to children born of British parents who are out of the country when they are born? If their British parents are working abroad, perhaps for a long time, do the children ever receive a child trust fund?
Subsection (4) deals with the reverse situation. It excludes from child trust funds children who are not living in the UK but whose parents are here and so claim child benefit from the United Kingdom by the same EU regulations. The explanatory notes say:
''If such a child moves to live in the UK, he or she will be eligible from the time of that move''.
Does that mean, for example, that a French or German person who works in the UK and brings a child here can set up a child trust fund for them? How long would the child have to be in the UK before becoming eligible for a child trust fund? I am talking now about EU nationals, who have a right of residency. What if an EU national were to work here for just six months? Does a child then receive a child trust fund for the rest of its childhood? How many people would be in that situation?
Finally, subsection (5) concerns immigrant children from non-EU countries. The only such children who would be eligible would be children who are settled in the UK and who have no restriction on the period that they can remain here. Does that mean that when they become an ordinary resident of the UK, some system is triggered and they receive a child trust fund? The purpose of my amendments—I do not intend to press them to a vote—is merely to ask the Minister about those different categories of people and to explore some of the system's anomalies and loopholes.
Mr Michael Weir (Angus, Scottish National Party)
I tabled amendment No. 163, based on the same lines as the amendment moved by the hon. Member for Tatton, to deal with an immediate specific problem relating to child trust funds. As the Minister has previously explained, eligibility for child trust funds depends on eligibility for child benefit. Subsection (5) would exclude asylum seekers. The effect of that would be that those seeking asylum in the UK would not be eligible to apply for child trust funds. The position of those successfully applying for asylum after the Bill has been enacted is not clear.
It is conceivable, for example, that someone who successfully applied for asylum and acquired UK citizenship, could give birth to a child who would otherwise be eligible, before being granted asylum or citizenship. Such parents would not be able to claim child trust funds under the proposed system. What would be the position if, in time, the Government judged that they were deserving of asylum, and they acquired UK citizenship? That decision might be
many months or years down the line. If such parents then became eligible for child benefit for their child or children, would they then be able to make a claim for a child trust fund? It is not clear whether the Bill would entitle them to do so. On one reading of clause 2(1), they might be able to make a claim as soon as they became eligible for child benefit. On another reading, they would be able to do so only if the child was eligible at the time of birth. Can the Minister clarify whether, in such a situation, a child would become eligible for a fund if the parent were to become eligible for child benefit at any time prior to the child's 18th birthday? I concede that the provision does not entirely create a level playing field, because it would not make provision for a fund that could have accrued since birth. I cannot think of a practical way of doing so. Amendment No. 163 seeks to make the child eligible from the time that the parent becomes eligible for child benefit.
Sub-paragraph (ii) of the amendment is in a similar vein, and is an attempt to tackle a specific problem that could arise if the new Asylum and Immigration (Treatment of Claimants etc.) Bill is enacted. The Child Trust Funds Bill makes provision for children in care to receive trust funds. However, it is clear from the Second Reading debate on the asylum Bill that there is a possibility—I put it no higher than that—that some children of parents who have been refused asylum would end up in local authority care. It is not clear to me what their position would be on this or any other benefits. Much depends on what their position becomes under the asylum Bill. If they end up in local authority care, will they be given a right of abode in the UK? Will they be liable to deportation at some point, perhaps when they become adults? If their parents disappear, will they be considered for adoption or fostering? At the moment, none of that is clear. I understand that many of these issues will be addressed in the Committee stage of the asylum Bill.
If these children are to be in local authority care and perhaps remain in the United Kingdom, they should be treated in the same way as other children in local authority care and be eligible for the fund—perhaps at the point at which they come under local authority care. Can the Minister give us an idea of how many children are in that group? I hope that there are very few of them.
Ms Ruth Kelly (Financial Secretary, HM Treasury; Bolton West, Labour)
The child trust fund is a long-term savings policy that is intended to benefit those who live in the United Kingdom. Eligibility for the child trust fund is based on eligibility for child benefit but, as the hon. Member for Tatton pointed out, European Union legislation requires the introduction of these two subsections if all children in the UK—and only those children—are to benefit from the child trust fund.
Under domestic law, the person claiming child benefit is required to be ordinarily resident in the United Kingdom and the child is required to be present. However, that is overridden by EU social security regulations designed to secure free movement by giving reciprocal rights to migrant workers. That can mean that child benefit for children living in the
UK is paid by another member state and that UK child benefit is payable for children who do not live in the UK. The hon. Member for Tatton asked how many children might fall into that category: I believe that there are fewer than 500 children living in the UK whose child benefit is covered by another country.
The child trust fund is not a social security benefit. It is not paid in respect of the needs of the child but to ensure that the child gets a good start in adult life. Subsection (3) ensures that children who live in the United Kingdom but in respect of whom child benefit is not payable by the UK because of EU legislation are eligible for the child trust fund. For example, without subsection (3), children living in Northern Ireland who have one parent who works in the Republic of Ireland would be excluded from the fund because under European regulations child benefit for that child is paid by the Republic of Ireland rather than the UK.
Subsection (4) ensures that children who do not live in the UK but for whom UK child benefit is paid because one of the parents works in the UK will not be eligible for the child trust fund. There is no case for the UK Government to pay endowments to encourage saving for and by children whose ties are not within the UK.
Mr George Osborne (Tatton, Conservative)
As I asked in my opening remarks on this amendment, does that mean that an EU national—a French person, for example—who comes to the United Kingdom with their child to work for a year would get a child trust fund?
Ms Ruth Kelly (Financial Secretary, HM Treasury; Bolton West, Labour)
No: the funds are intended for children who are settled in the UK. If the hon. Gentleman wants a definition of how that will apply, I will write to him. The child trust fund is primarily for children who are ordinarily resident in the UK and who intend to stay. It is a long-term savings policy and it is right that it is awarded on that basis.
Mr Michael Jabez Foster (Hastings and Rye, Labour)
In matrimonial law, the word ''domicile'' is often used, which gives a better definition of what we are talking about than ''ordinarily resident''. Has the Minister considered using a different definition, because ''ordinarily resident'' may create all sorts of definitional problems, particularly with regard to EU law, and especially for workers with short-term contracts and so forth?
Ms Ruth Kelly (Financial Secretary, HM Treasury; Bolton West, Labour)
I have been assured that ''ordinarily resident'' is an appropriate term in this context, but I will consider my hon. Friend's point and inform him of the result of the investigations.
I draw the Committee's attention to the important point that if a child who was resident abroad comes back to live in the United Kingdom, the moment that there is an application for child benefit for that child, he or she will be entitled to receipt of the child trust fund. No child will miss out by being temporarily away from the UK. For those reasons, the hon. Gentleman should consider withdrawing amendment No. 6.
It being twenty-five minutes past Eleven o'clock, The Chairman adjourned the Committee without Question put, pursuant to the Standing Order.
Adjourned till this day at half-past Two o'clock.