Mr George Osborne (Tatton, Conservative)

I beg to move amendment No. 9, in

clause 3, page 2, line 31, at end insert—

'(1A) Regulations under subsection (1) may not impose a requirement that the charge levied by the account provider must be set at less than 1.5 per cent. of the total value of the relevant funds under management by the account provider, divided by the number of child trust funds held with the account provider.'.

I should like to welcome you to the Committee, Mr. Amess—[Interruption.]

Normally, hon. Members try to get out of Committees, not into them. The hon. Gentleman is a keen Treasury Minister who wants to check up on his colleague.

Amendment No. 9 is about the charge cap, which is one of the most important unresolved issues in the Bill. I propose that the regulations may not impose a requirement that the charge levied by the account provider must be set at less than 1.5 per cent., and later I shall say why I chose that figure. This element of the Bill is crucial. Many financial providers argue that the level of the charge cap will be fundamental to the success of child trust funds. Does the policy encourage lower-income families who do not currently save for their children to do so? That will be the test of whether child trust funds really work.

I know that the Minister has set out various objectives for this policy—we debated them on Second Reading—among which are encouraging savings, building assets, and helping people to understand the benefits of savings and make better financial choices. Those are laudable objectives, but I suggest that the last three are dependent on the first. If the proposal does not get people saving, they will not understand the benefits of it, they will not build a substantial asset, and they will not be able to make the better financial choices that we all want to see.

Regardless of how the Minister will judge whether the policy is successful, it is clear to members of the Committee and the wider world—or at least those who are remotely interested—that child trust funds will

succeed only if it is clear that lower-income families who do not currently save are using them as a vehicle for saving and building up assets of their own.

Mr Andrew Love (Edmonton, Labour/Co-operative)

I am intrigued by the fact that the hon. Gentleman's amendment contains a minimum for the charge cap but not a cap on the maximum that may be charged.

Mr George Osborne (Tatton, Conservative)

Mr Michael Jabez Foster (Hastings & Rye, Labour)

Despite the eloquence of the argument of the hon. Member for Tatton and his campaign for those financial institutions, I think that the amendment is unnecessary, and I hope that the Minister will not be persuaded by it.

This is a market issue. Some organisations have said that they will not take part, and that is well and good, because others will take part at the 1 per cent. that the Government initially suggested. I hope that the Minister will not be persuaded that a higher charge is required. I say that for a number of reasons. First, this is a simple product; it does not require lots of those glossy brochures, which we get in our post, that persuade us to invest in all sorts of things. All that is required is something simple. When people get Sainsbury's Nectar vouchers, they understand that they should spend them; they do not do nothing with them. I suspect that families of all social classes and groups will do something with their child trust fund voucher when it is posted to them. If not, the Bill makes provision for something to be done on the child's behalf. The costs will therefore be low.

Mr George Osborne (Tatton, Conservative)

The hon. Gentleman is focusing only on the setting-up of the account. What I am talking about, and what I am sure he wants to see, is parents and other relatives making regular contributions to child trust funds so that they build up during a child's life. I do not think that anyone on the Committee wants there to be millions of accounts worth £900 to the holder at the age of 18 because no one has put any money into them. If such contributions are to happen, financial providers will have to send that glossy literature that the hon. Gentleman talked about.

Mr Michael Jabez Foster (Hastings & Rye, Labour)

I understand the hon. Gentleman's point, but that would not add significantly to the costs. Certainly, we want people to make regular payments so that the funds build up. However, as they do, the 1 per cent. charge would be levied not on £250 or £500, but on the total value each year. Assuming a 4 per cent. rate of return, which would not be unusual at present, a quarter of that total return would be taken in charges to pay the costs, and if the charge were as great as 2 per cent., half the return would be going in charges. That would be wholly unacceptable; we might as well not have the scheme at all but just send out the voucher.

For the reasons that I have given, I hope that the Government will hold firm to the lowest possible cost and test the market. If the market says no, then of course we must think again. However, I am pretty confident that 1 per cent. will be sufficient.

Mr David Laws (Yeovil, Liberal Democrat)

I, too, welcome you to the Chair, Mr. Amess.

We should be grateful to the hon. Member for Tatton for tabling the amendment and provoking a debate on a key issue. We should also be grateful to him for explaining the scientific process by which he arrived at the figure of 1.5 per cent., which we could term ''splitting the difference''.

I have a degree of sympathy with the Government. It is immensely difficult to calculate a charge or charge cap that would strike precisely the right balance

between the interests of those owning the trust fund accounts and the providers, who will utilise the accounts and make sure that they earn high returns for the investor. We should approach with some scepticism the representations made by the commercial entities involved in the consultation. I say that as one who used to work in the financial services industry. After all, it is the job of those entities to make sure that they get the best deal out of the Government scheme. They therefore have a clear commercial interest in arguing for the charge to be as high as possible.

We should approach with appropriate scepticism the claims, which a number of institutions are making, that they would not take up the scheme at all. One suspects that there will be a lot of spin-off benefits to financial institutions that get people to open child trust funds with them. Those funds are bound to offer future cross-selling opportunities, for products for which financial institutions have offered people incentives in the past.

The hon. Gentleman makes a particularly important point in saying that it is difficult to make a judgment about the right level for the charge cap without understanding all the other elements of the Bill. We are still waiting for the regulations on many of those elements. The right level for the charge cap will depend on various administrative and other costs and on Government proposals on transfers. All those issues will have implications for the costs of running the accounts, so it is genuinely regrettable that the Government have not come forward with a figure. I notice that the Financial Secretary is nodding enthusiastically, so perhaps she is about to reveal herself to us and give us the figure.

The fact that we do not have the figure makes it doubly difficult for us to say anything intelligent about the appropriate level for the charge cap. We are forced to fall back on the sort of calculation that the hon. Member for Tatton made, which we all chuckled over, but which is probably no better or worse than any other calculation—he is right about that. The issue is particularly important when we consider the substance of the Government's proposals in the Bill, and how much money is likely to be in the accounts as a consequence of the various regulations and detailed measures that the Government are introducing.

The Government's consultation paper, published in 2003, contained an illustrative table to show projections for future fund growth. The Financial Secretary will want to confirm that the table used a nominal rate of return of 7 per cent. That gave people the impression not only that it was reasonable to assume such a return, but that there would not necessarily have to be any deduction for charges from that 7 per cent. Since the document was released, the Financial Secretary and others have spoken of the figures that it suggests one would arrive at after 18 years as if they were a legitimate description of the likely outcome, whereas if a charge of 1 per cent., 1.5 per cent. or 2 per cent. were levied, it would have a significant impact on the returns to the account. It

might also have an impact on the extent to which people should be encouraged to take a large amount of risk with the account.

If people took such a risk and, as a consequence, ended up paying a higher charge to financial market providers, that could wipe out any alleged advantage from high returns in the equity market when compared with putting the money on deposit, or in a long-term bond with far lower risks. A substantive issue concerning the returns from child trust funds arises from the assumptions that we make.

Another important issue that I hope that the Minister will take particularly seriously, and that the hon. Member for Tatton alluded to, is how far the accounts will be structured so as to help people on low incomes to save. The Minister referred a number of times, when giving evidence to the Treasury Committee, about people on low incomes who might be saving some £5 a month, which is not an unreasonably low amount for people on the very lowest incomes who are reliant on means-tested benefit. It was clearly in the mind of Ministers that people might be saving as little as £5 a month, or £60 a year.

The Minister will be aware that many of the financial market providers suggested, in their evidence, that they would not wish to accept monthly deposits of anything less than £20, or in some cases £50. Obviously, that would depend in part on the charge that they levied for administering the account. The implication is that the more small payments are received, the higher the charge that they would want to set. I am concerned that if the charge is set at the wrong level, it could not only erode the yield from the child trust fund accounts in a serious and unnecessary way, but make it difficult for the Government to achieve their objective of encouraging those on very low incomes to use the child trust fund to save.

Mr George Osborne (Tatton, Conservative)

Having been rude about the way that I came up with my calculations, the hon. Gentleman now seems to be coming up with exactly the same numbers. He says that, on the one hand, the charges cannot be too high and, on the other, they cannot be too low.

Mr David Laws (Yeovil, Liberal Democrat)

I thought that I was extremely generous to the hon. Gentleman, because after teasing him about the back-of-the-envelope method that he used for his calculation, I suggested that that was perhaps the only legitimate way of arriving at a reasonable number, given that the Government have put so little information into the Bill and have left so much to regulations that we do not know, and cannot easily assess, what the cost will be to financial market providers.

For all those reasons, I hope that the Financial Secretary will follow through on her enthusiastic nodding at the beginning of my speech, and tell us what she has in mind for the charge cap.

3 pm

Ms Ruth Kelly (Financial Secretary, HM Treasury; Bolton West, Labour)

I am grateful to the hon. Member for Tatton for setting out the objectives behind the child trust fund, which are to encourage savings, to encourage people to understand the benefit of savings, to make better financial choices and to have the benefit of a financial asset.

However, the hon. Gentleman falls in to the trap that is all too common among his hon. Friends: he assumes that an asset that builds up to about £1,000 at the age of 18 is of no material relevance to the average 18-year-old. I strongly dispute that and I remind the Committee that research based on the national child development survey shows that an asset sum of about £300 will have a material impact on a young person's opportunities at the age of 18. We hope that it will also encourage savings and that children will contribute from their own funds and that parents, grandparents and other relatives will do so on the child's behalf, so that the asset builds up to a higher amount. There will be a further Government endowment when the child is seven. Encouraging the level of savings is just one of the objectives of the child trust fund; it is certainly not the only one.

Mr David Laws (Yeovil, Liberal Democrat)

Since the Financial Secretary gave an example to the Select Committee on several occasions of someone on a low income saving £5 a month, can she give the Committee a cast-iron assurance that when the level of charges is set, it will not be such that it will prevent such low contributions being made?

Ms Ruth Kelly (Financial Secretary, HM Treasury; Bolton West, Labour)

Perhaps the hon. Gentleman will be patient, as I shall come to arguments about the charge cap in a moment.

All our evidence is that young people between the ages of 18 and 25—the only category that is measured at present—have, on average, zero financial assets. Even a small amount of capital behind them can make a difference to their opportunities. Other recent evidence suggests that a small windfall to a child can have a significant impact on their future savings behaviour. Recent evidence from a survey undertaken for the Department for Work and Pensions showed that of young people between the ages of 16 and 19 who received a small windfall—an average of about £57—40 per cent. went on to save further, whereas only 25 per cent. of a similar reference group who did not have that windfall saved. A Government endowment or another windfall in an account can have a significant impact on future savings behaviour.

On our promise in the White Paper to publish the regulations and the charge cap towards the end of last year, I admit that that was our intention then to do so. However, we also made it absolutely clear that we were dependent on the Financial Services Authority to look at the sales regime and to come up with a figure that took into account the nature of the sales regime behind the product. It would not make sense to consider the two things in isolation. As the hon. Gentleman is aware, we are considering not just the child trust fund but the range of other stakeholder products—pension and medium-savings products, too. It is important to take the two decisions in tandem.

Given that the FSA has told us that it is not yet in a position to announce the proposed sales regime, we have decided to announce the level of the charge cap on the child trust fund in advance of the announcement on the other products, partly because the child trust fund product is far less dependent on the sales regime than the other products. Indeed, many providers have said that they intend to use direct offer as the main channel in selling the products; in most cases there will not be face-to-face sales advice.

Mr George Osborne (Tatton, Conservative)

I am struggling to follow the Financial Secretary's logic.

She told us that it was important to consider the sales regime and charge cap in tandem. Now she says that because there has been a problem with the FSA, she will have to announce the charge cap on the child trust fund early. Where is the logic in that?

Ms Ruth Kelly (Financial Secretary, HM Treasury; Bolton West, Labour)

I think that the hon. Gentleman has misunderstood. It is important to announce the two aspects together for the majority of stakeholder decisions, and we intended to announce the whole package before Christmas. In fact, the child trust fund is the least dependent on the sales process. The stakeholder pension product is far more dependent on the sales process, and it would be nonsensical to decide the level of the charge cap without understanding the sales regime under which it was being offered. However, providers have made it clear that the child trust fund, because it is universally available, will tend to be offered by direct offer without a sales process. Therefore, we can de-link the decision for the child trust fund. I have made it clear, given the natural parliamentary interest and concern in the level of the price cap, that we will publish draft regulations on that shortly.

Mr George Osborne (Tatton, Conservative)

We may press the Financial Secretary on what she means by ''shortly''. However, she seems to be saying—and this would be welcome—that there will be no requirement under the sales regime for face-to-face interviews, or for applicants to go through the questionnaire that the FSA is developing and having problems with. If that is what she is saying, she is giving us a hint about what the regulations on the sales regime will be.

Ms Ruth Kelly (Financial Secretary, HM Treasury; Bolton West, Labour)

I am not saying that. People will still be able to use an advised channel to buy a child trust fund.

Mr George Osborne (Tatton, Conservative)

But they will not have to.

Ms Ruth Kelly (Financial Secretary, HM Treasury; Bolton West, Labour)

The hon. Gentleman is correct that they will not have to; they will be able to take it up through direct offer. Therefore, the commercial considerations for providers are much less dependent on the nature of the sales process than in the case of stakeholder products. We are planning to publish regulations that set out the level of the charge cap shortly. I refer him to my comments on Second Reading that committed me to publishing the regulations during the passage of the Bill in the Commons, so that hon. Members will have an opportunity to comment on the level of the charge cap.

I shall return to the subject of what the charge cap should be. The hon. Member for Yeovil (Mr. Laws) eloquently set out the balance that must be struck between commercial considerations and value for money for the consumer. My hon. Friend the Member for Hastings and Rye (Mr. Foster) made a powerful case on behalf of consumers that they, and not the commercial providers, should reap the benefits. Given the significance of the decision, we commissioned independent research by Deloitte into the potential trade-offs between the rate of return for an efficient provider and providing value for money. That will not produce a precise figure, but it will illustrate the potential trade-offs.

Mr David Laws (Yeovil, Liberal Democrat)

The Financial Secretary mentioned the report that Deloitte is compiling. Has the report been completed and returned to her in its entirety? If so, will it be published in the near future?

Ms Ruth Kelly (Financial Secretary, HM Treasury; Bolton West, Labour)

The report will be published, and I dealt with that point in the Treasury Committee.

The research on which the child trust fund hinges is part of wider research that has implications for the whole range of stakeholder products. We cannot publish that research until we make an announcement on the charge cap for the other stakeholder products. I do not think that Deloitte would be prepared to have some of its comments taken out of context. The research will be put into the public domain, but I am not prepared to commit myself on when that date will be. It should not take too long because we hope that the FSA will produce the results of its sales process in the next few months.

Mr George Osborne (Tatton, Conservative)

The Financial Secretary seems to be saying that she has commissioned research into what the charge cap will be and that the research has been carried out by Deloitte, but she has not asked it to produce a figure—presumably she would not have the flexibility to disagree with a figure. However, she will not publish the report until after she has set the level of the charge caps. We, in Parliament, will not be able to judge the basis on which she has decided on the charge cap.

Ms Ruth Kelly (Financial Secretary, HM Treasury; Bolton West, Labour)

I am saying that it is not possible to pre-empt the ongoing work with the FSA on the sales process. That work is being finalised, and if we took out the one part of it referring to the child trust fund and put it into the public domain now, that would lead people to draw conclusions. It is unfortunate; I would have liked to publish the entire piece of independent research at this point, but that is not possible. However, I assure the Committee that Deloitte's research does not suggest a figure, but illustrates the trade-offs that can be made. The trade-off that one might choose would be dependent on figures such as what we chose as a minimum contribution level, or what the exit penalties might be, or otherwise, for changing from one child trust fund provider to another child trust fund provider. The trade-offs would be dependent on ministerial decisions.

Mr David Laws (Yeovil, Liberal Democrat)

The Financial Secretary is getting very close to the part of her speech in which she will answer my earlier question, which was whether, in making those trade-offs, she will ensure that the charge is set at such a level—as in the example that she gave several times to the Select Committee—that someone is able to save just £5 a month.

Ms Ruth Kelly (Financial Secretary, HM Treasury; Bolton West, Labour)

I am certainly aware of the impact of minimum contribution levels for people in the lower socio-economic groups, and want to ensure that the child trust fund is available to them as a savings vehicle. That is one of the matters that I will bear in mind. The minimum contribution level will be set out in the regulations, alongside the level of the charge cap.

In the detailed proposals to which the hon. Gentleman referred, he may have missed that the level of the charge was included in the figures. A footnote was omitted from the detailed proposal document, so the £911 figure to which he referred actually includes a 1 per cent. charge for illustrative purposes.

When the detailed regulations are set out—shortly—we will publish a range of illustrations on our website to guide people as to the level to which the asset might accrue by the time a child reaches the age of 18. The document contains only one illustrative example, but includes a 1 per cent. charge on the fund. I hope that that reassures the hon. Gentleman.

Mr George Osborne (Tatton, Conservative)

Given that the Financial Secretary repeated the 1 per cent. figure, and said that it was used in the calculations in the White Paper, would it be fair to say that there is still a high threshold of persuasion to move away from the 1 per cent. figure?

Ms Ruth Kelly (Financial Secretary, HM Treasury; Bolton West, Labour)

We have always made it clear that there is a high threshold of persuasion: that is why we commissioned independent research to examine the matter. We will take the decision in an unbiased way, ensuring the best possible trade-off between value for the consumer and a reasonable return for an efficient provider. I reassure the Committee that the regulations will be available during the passage of the Bill through the Commons. On that basis I ask the hon. Gentleman to withdraw his amendment.

Mr George Osborne (Tatton, Conservative)

I suspected that this would be the least satisfactory of the debates that we will have in the Committee. We do not know what the charge cap will be, and are being told by the Financial Secretary that the figure will be available during the passage of the Bill through the Commons. We are now in Standing Committee, the proceedings of which will be fairly brief, and Report will probably take place in a couple of weeks' time, so we are on the threshold of getting that figure. However, we do not have it now, but are debating it in Committee. That is unsatisfactory.

We do not know what the sales regime will be. The Financial Secretary revealed a little today, when she said that the Government would not require parents to go through the questionnaire that the FSA is developing for other Sandler products. As far as I know, we have discovered that fact today.

We do not know what the minimum contributions will be. On a couple of occasions, the Financial Secretary evaded the question put by the hon. Member for Yeovil about whether she will set the charge cap at a level that will allow people to make monthly contributions of £5—an example that she herself has used on several occasions—which would seem reasonable if the Government are trying to attract savers from low-income families. Moreover, we will not see the research by Deloitte, on which this is all based, until long after the Bill has passed through the Commons, and possibly through the Lords as well. That is also unsatisfactory. Despite that, I do not want to force my provision for a figure of 1.5 per cent. on to the Bill. I have a hunch that I may be right; I am a lot cheaper than Deloitte. However, I shall not press for a vote, so I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Mr David Laws (Yeovil, Liberal Democrat)

I beg to move amendment No. 143, in

clause 3, page 2, line 33, at end insert

'and it meets risk and transparency criteria set down by the Financial Services Authority'.

Mr Joe Benton (Bootle, Labour)

With this it will be convenient to discuss amendment No. 162, in

clause 3, page 2, line 33, at end insert—

'(2A) Prescribed accounts will include—

(a) bank accounts,

(b) building society accounts,

(c) equity-linked investments.'.

Mr David Laws (Yeovil, Liberal Democrat)

We are now moving to a slightly different issue. Amendment No. 143, to which I shall speak, relates to subsection (2) of clause 3, to the end of which it tacks a requirement that the accounts that the Government approves in relation to the child trust fund should meet

''risk and transparency criteria set down by the Financial Services Authority''.

I would characterise the amendment as wide-ranging and probing. It is designed to give the Financial Secretary an opportunity to tell the Committee how the Government would ensure that people who put money into child trust funds—which, as financial products, will vary to a great degree between different providers and different types of account offered—invest wisely and do not end up putting their money inappropriately at risk. Many people who do not have great financial literacy would invest and it is, after all, one of the Government's aims to boost financial literacy as a consequence of their child trust fund initiative.

Hon. Members who have sat for any period of time listening to the Treasury Committee—even without hearing the evidence in its recent inquiry into the savings and investment markets in the UK—will be conscious of the fact that there are often widespread allegations of various forms of mis-selling of financial products. Sometimes, such allegations genuinely relate to misrepresentation by market providers, but quite often, they relate simply to consumers misunderstanding the products that they are buying.

The amendment gives the Financial Secretary an opportunity to describe in general terms how the Government and the FSA would ensure that people invest their money wisely, in a way in which they would be conscious of the risks that they are taking, and in a way that would not rebound against the Government later when people came along with a large range of claims that the Government might have been involved in mis-selling.

Mis-selling is particularly an issue for stakeholder child trust funds, which would essentially be the default option for the Government and the Inland Revenue for those people who have not taken out child trust funds for their children and for children in care. I am talking about a particular sector of the population whose financial literacy is likely to be a lot lower than that of others. Hon. Members will know that the Government have taken a decision that the default option for those children who would not otherwise have a child trust fund, is to have a stakeholder child trust fund, which will be heavily—certainly significantly—invested in equities.

In the evidence sessions held by the Treasury Committee, that issue arose during the grilling of officials and also during the Minister's evidence. What was striking during the evidence given by officials and the Minister herself, was the extent to which she and her colleagues were willing to go to sell and promote the equity option, in effect, to those people who would take up a child trust fund, and to those who would not have a choice and would be depend on a decision made by the Inland Revenue. I refer hon. Members to only a few of the exchanges that occurred in the Committee hearings.

On 12 November Miss Rookes of, I assume, the Treasury, in giving evidence said that,

''one of the things we are trying to do is to encourage families to take out equity accounts''.

She did not say ''to give families the option of taking out equity accounts'' or ''to let families know the historic returns on equities versus cash deposits''. She said that she wanted positively to encourage families to take out equity accounts.

Mr Holgate, also of the Treasury, in the same evidence session on 12 November said:

''We think that is the most sensible thing for the great majority of people to do''.

In other words, there was a deliberate attempt by officials as well as the Minister to encourage people to take out equity accounts. Mr Holgate went on to say to one of the Committee members, the hon. Member for Newcastle upon Tyne, Central (Mr. Cousins),

''I think you will find that over any respectable length of time equities have, on the whole, produced better returns''.

He then appeared to contradict the line taken by the Treasury, saying:

''I should again enter a caveat here that I am not qualified to offer financial advice, but I can read the numbers off a table''.

The Committee returned to precisely that issue when the Financial Secretary came before them on 3 December. Asked by the hon. Member for North Norfolk (Norman Lamb) whether she was keen to

promote the equity product, the Financial Secretary replied in the affirmative. In further evidence to the Committee, she went on to say:

''The fact remains that over 18 years the best bet is to invest in equities rather than cash''.

That exchange caused the comment to which I referred earlier from the hon. Member for Newcastle upon Tyne, Central, who described the Minister as someone who would make a charming and persuasive member of a sales force. I presume that he was thinking of someone who would be particularly active, not only in selling Government policies, but potentially, if the hon. Member for Tatton's cardigan strategy ever pays off and the Conservatives win Bolton, West, certainly there will be a job opportunity.

The hon. Member for Newcastle upon Tyne, Central, who is one of the most longstanding and respected members of the Treasury Committee, went on to express his grave concern that essentially the Treasury is not only obliging individuals who do not make the decisions themselves or who have children in care to take up an equity option, it is also going way beyond providing information that suggests that the equity option is likely to be the most favourable in actively promoting that option. If so, I hope that the Financial Secretary will tell us in respect of this amendment how the Financial Services Authority can have an involvement in these products to describe and control to some extent the risk taken and to respond to changes in risk in the financial markets over a period of time.

This is one of the greatest concerns about the child trust fund proposals. We are talking in particular of those groups in society that have not been exercising the choice over account type themselves where the account type will be chosen by the Inland Revenue. It seems that all the Minister's comments about the justification of the very much equity-based investments are based on the historic returns available on equities in this country as opposed to in cash deposits. We have questions about the comparator used by the Treasury in relation to cash deposits and whether it included long-term investment in cash deposits or in fixed rate bonds that might have provided a higher return than short-term deposits.

The Minister must also recognise that one of the greatest mistakes that can be made by investors and people in financial markets—I am sure that all regulators in financial markets are keen to warn about this persistently—is that the future can never be relied on to look exactly like the past. That was one of the great themes of the opening paragraphs of John Maynard Keynes's book ''The Economic Consequences of the Peace'', written just after the first world war, in which he warned that the power to become habituated to his surroundings was a marked characteristic of mankind. It seems in this respect to be a marked characteristic of the Treasury.

Mr George Osborne (Tatton, Conservative)

John Maynard Keynes was particularly correct about Liberal Governments. In the previous 50 years there had been almost entirely Liberal Governments—there have been none since John Maynard Keynes wrote that opening sentence.

Mr David Laws (Yeovil, Liberal Democrat)

Indeed. The distinguished economist was exactly right and he showed how things can change radically in the future, which is something to which I am looking forward in my party.

Perhaps I can draw the Minister's attention to some of the evidence about what has happened to stock markets throughout the world. She seems to have confined many of her calculations to recent experience in the UK. Frankly, what happened 50, 60 or even 70 years ago is recent experience in terms of the fundamental assumptions that she makes in promoting the equity product.

In 1987, when I left King's college, Cambridge—the college of John Maynard Keynes—I went into the financial markets and attended a training course in New York. At that time, the Dow Jones industrial average was trading at about 2,000 or 2,500; it is now about 10,000 or 10,500. That will give the Financial Secretary no great encouragement to believe that she is right to force equities down the throats of some of those who will not be able to exercise the choice themselves. She may be less aware that in 1987, when the Dow Jones industrial average was trading at 2,000, the Nikkei stock market was trading at about 26,000. After peaking two years later at 38,000, it traded down to a low of 7,800 about nine months ago. It is still at about 11,000. In other words, the troughs decline over a very long period of time. We are talking about something like 80 per cent. Even today, the Nikkei index is well over 50 per cent. down in total terms on the level that it was at 16 years ago.

The Financial Secretary is therefore being over-optimistic in assuming that people can be encouraged to go into equities without a sense that there is a long-term risk. I hope that the presence of the Financial Services Authority and its commitment to do more to address the concerns of consumers, rather than of the financial services industry itself, will mean that it can play a role in ensuring that particularly those people who do not exercise choice for themselves are protected from what can often be quite volatile financial products.

Mr Michael Weir (Angus, Scottish National Party)

Amendment No. 162 would in many ways do the same as the amendment proposed by the hon. Member for Yeovil, but it comes at the issue from a different perspective. My concern is also that the Government's preference is for the funds to be equity-based investment. As has been stated, the Minister made it clear on Second Reading that that was based on the view that over any 18-year period, equity investments perform better than cash deposits. By focusing on equity investments, however, the Minister may exclude many lower-income families from exploiting the full potential offered by the bonds to save for their children's future.

It was mentioned in this Committee, in the Treasury Committee and on Second Reading that a crucial factor in making the funds work is for parents and others to be able to put in sums additional to the initial investment from the Government to produce funds for the future. We do not yet have the regulations relating

to the final shape of the funds, but if they follow the traditional pattern, it is likely that providers will be looking at funds that have a regular monthly investment or occasional large investment, or a combination of both.

The National Consumer Council in its evidence to the Treasury Committee stated:

''The Government states it will make a decision at a later date on minimum contributions that CTF providers will be required to accept. This should certainly not be more than the £20 minimum that currently applies in the case of stakeholder pensions. Indeed, if the Government wants it to be accessible to disadvantaged families (including children when they get older), then even smaller, over-the-counter contributions will need to be possible.''

I think that that is correct. The tables in the report show an additional monthly contribution starting at £5—the figure mentioned by the Minister. It has been said that £5 is a reasonable monthly investment for families living on lower incomes and benefits, but it is highly likely that many families, especially those with more than one child, would find it impossible to meet a regular commitment to a fund—even of £5 a month, let alone the £20 that was mentioned earlier.

I would be interested to know whether the Minister has had any specific discussions with possible fund providers about the minimum that they would be prepared to accept. I think that that was the question asked by the hon. Member for Yeovil in the previous debate, to which a clear answer was never given. If we do not tackle that point and allow a greater choice in the type of investment that is allowed for the funds, we will end up with a large number of equity-based funds that never contain anything other than the initial investment of £250 or £500. That is not desirable for either the providers or the owners of the funds.

I was interested in the Minister's saying in the previous debate that the providers' main mechanism for selling the funds was a direct offer, with little or no face-to-face advice. If so, that makes an even greater case for allowing those who open the funds to choose something that they are comfortable with. Many people would be much more comfortable if they were able to open a traditional building society or bank account in which to invest the money.

After all, two of the fund's objectives were to

''help people understand the benefits of saving and investing''

and to

''encourage parents and children to develop the saving habit and engage with financial institutions''.

Would it not therefore be more realistic to try to achieve those ambitions by opening up the funds to those more traditional types of accounts? That would allow lower-income families to invest smaller amounts as and when they could afford to do so, without being tied down to saving regularly. Many of them could and should not tie themselves into that. Even the Minister has accepted that sometimes the best financial advice is not to put money into such funds, but to pay off other debts or to deal with other financial needs. By tying the fund to a regular investment, the Government are closing the avenue to many.

I fully accept that the explanatory notes refer to the funds being a glove into which various things can be slotted, one of which is a cash deposit. However, to

follow the ISA model, the only thing that comes to mind is a mini-cash ISA, which generally requires a fairly substantial lump-sum investment or regular monthly investments. It does not allow for irregular investment, which is much more likely to be the way in which low-income families contribute to funds.

I accept that such accounts may not necessarily offer the same benefits as equity-based investments, but they are less risky. Many people, particularly those on low incomes, are risk averse. In response to the hon. Member for Tatton, the Minister mentioned that £1,000 would seem a large sum to many. Yes, it would—and so would £500 to many of our constituents who do not have it. They would be very averse to the risk of putting such a sum into an equity investment that, let us be frank, many of them would not understand. There is a danger that, if the providers' main sales mechanism is a direct offer, people will invest in the accounts without understanding them and be unable to invest further or to follow what is happening to their investments.

It could be argued that the reliance on equity-based investment would encourage people to look further afield and to experiment with new types of investment. I suspect that it would have the opposite effect: there would be a plethora of very small accounts of £250 or £500 floating about. The National Consumer Council went even further and suggested that to ensure the widest possible accessibility to the funds, the Government should look to the Post Office with its large branch network and

''high levels of consumer trust''

to be an effective provider of the funds. That is an excellent idea, which might go some way to helping many sub-post offices that have suffered badly from other Government initiatives, such as removing their role in making benefit payments.

I support the idea of child trust funds, but I worry that by pursuing an unduly restrictive definition, the Government may undermine the concept among those on lower incomes—the very people who could benefit most from the introduction of the funds and particularly from the initial Government investment.

I ask the Minister to consider whether it is possible to design a building society or bank account for such people. It could be linked in some way with an equity investment by tipping into one that is set at a certain level. There must be more thought about the design. I appreciate that the regulations are not before us, but I want to explore the issue and find out the Minister's views on it.

Mr George Osborne (Tatton, Conservative)

I did not table the amendments and I have already spoken enough. However, 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. When I met the Building Societies Association, it made the powerful point that some very small building societies of five, six or seven branches will not be able to offer the stakeholder equity products and will not therefore be able to enter the

child trust fund market. Also, low-income families who save have tended to do so in cash terms—in building societies and cash accounts.

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.

Ms Ruth Kelly (Financial Secretary, HM Treasury; Bolton West, Labour)

I am grateful to the hon. Member for Yeovil for tabling the amendment, which allows me to set out some of the thinking behind the stakeholder product.

We have in the child trust fund an ambitious project, which, as the hon. Member for Tatton rightly says, has at its core the objective of increasing financial understanding, awareness and education. That will be built around the delivery of the child trust fund. My personal view—I think that it is the view of many who deal with and think about financial education—is that one of the key challenges facing us is how to communicate effectively to citizens of this country the nature of risk and how to deal with it in their everyday lives as they take more and more responsibility for financial decisions generally. It strikes me that this is a wonderful opportunity to communicate the idea of investment and investment risk. I am talking not just about children but about their parents and others who have some connection with the child trust fund.

Clearly, financial education is not just a huge challenge. It is our responsibility to ensure that decisions are communicated in the clearest possible way, that people have maximum opportunity to understand the issues involved, and that citizens are able and equipped to deal with the accounts that we are offering them. We have carried out research into how to communicate with parents about the child trust fund and the financial decisions involved. The information pack that will accompany the child trust fund voucher will be specifically developed to meet the needs of those with no or very little experience of savings and investment.

There will be other measures as well. A dedicated website will be developed to meet the needs of parents, and—increasingly—of children. We are working closely with the Department for Education and Skills to develop teaching material that over time could be used in the classroom at both secondary and primary school level.

The FSA has recently set up the financial capability steering group, of which I am a member. It looks in broad terms at the opportunities for increasing the level of financial awareness and education, and has identified the child trust fund as one of the key products and life events around which it can build financial education. That is not in itself sufficient reason to argue that people should have their accounts

invested in equities. I just point out that it is a huge opportunity for us and that we should not forsake it lightly.

The hon. Member for Yeovil may say that this reason is not good enough, but we are arguing that the majority should have an equity-related account because over the past 18 years from 1984 onwards, £100 invested in the stock market would have yielded £321, despite the recent stock market falls, while the same sum invested in a building society account would have yielded just £171.

Mr David Laws (Yeovil, Liberal Democrat)

Will the Financial Secretary give way?

Ms Ruth Kelly (Financial Secretary, HM Treasury; Bolton West, Labour)

I hope that the hon. Gentleman will let me develop my argument for a moment. There is a significant difference in the total yield.

Since 1918, the mean cumulative return over 18 years has been 6.9 per cent. As I have pointed out, that is in real terms, so it is not particularly ambitious to base our predictions on a nominal return of 7 per cent. Over a period of 18 years, it is reasonable to assume that the performance of the equity market will outstrip that of money placed in a bank or building society account.

Mr David Laws (Yeovil, Liberal Democrat)

Will the Financial Secretary give way?

Ms Ruth Kelly (Financial Secretary, HM Treasury; Bolton West, Labour)

If the hon. Gentleman lets me develop my argument a little further, he will see that we are not prescribing that money should be invested in equities. We are saying that the stakeholder accounts should be risk-controlled and lifestyled, which means that the provider should take account of the market situation and the investor's needs and should manage the account. At the beginning, there will be significant growth potential, but as the child approaches the age of 18, the fund will move from a riskier to a less risky asset, such as a cash-based asset. As such, the fund will become much less volatile and the amount reached by the age of 18 much more predictable.

Mr David Laws (Yeovil, Liberal Democrat)

The Financial Secretary is sticking loyally to her script, which we have heard several times and is in her evidence to the Treasury Committee. She said a minute ago that it was reasonable to assume that over an 18-year period returns in the equity market would be positive, substantial and more than in the cash market. However, citing the evidence of one country for one limited period of time will not suffice. What would the Minister say to someone in another major country such as Japan, where the equity market fell over a period of 14 or 15 years by 80 per cent. and is still about 50 per cent. lower than 18 years ago?

Ms Ruth Kelly (Financial Secretary, HM Treasury; Bolton West, Labour)

If the hon. Gentleman had listened to the concluding lines of my argument, he might have noticed that I was not arguing for pure equity investment over that time. I was saying that the equity argument is partly a diversion, because we are not being prescriptive in the Bill. We are setting out regulations that are principles-based.

Mr David Laws (Yeovil, Liberal Democrat)

I hope that the Minister is clarifying her earlier comments and making it clear on behalf of the Treasury that it is not reasonable to assume that equity markets will always produce positive returns over an 18-year period.

Ms Ruth Kelly (Financial Secretary, HM Treasury; Bolton West, Labour)

Of course I am not saying that in every situation the equity market returns will always be positive—that would be completely unreasonable. I am pointing to a very long period in which that has happened. We have left that decision to the providers' discretion. They must provide an account that is appropriately risk-controlled and moves from riskier assets in the early years to less risky assets as the account matures. That leaves a discretion to invest less in equities and more in some other product— for instance, if they are operating in a bear market. However, that would be policed by the FSA and would be a responsibility of the provider.

Mr Michael Weir (Angus, Scottish National Party)

I understand the Financial Secretary's point, although it seems that the return will very much depend on the investment strategy of the firm managing the account, and there have been some spectacularly bad investment strategies in recent years. I can foresee many accounts containing £500 or £250 for over 18 years and I doubt there will be much management of those accounts and the lifestyling she describes. There is a danger of many of them being left doing very little for a great number of years unless people can be persuaded to invest more in them by making them attractive and easy to operate.

Ms Ruth Kelly (Financial Secretary, HM Treasury; Bolton West, Labour)

On the contrary, it will be a requirement of the stakeholder account that they are lifestyled. Providers will have to offer that management strategy to lifestyle the accounts. Significant consumer protection is built into the system because only those firms that have been authorised by the FSA will be able to enter the market in the first place. They will then have to get Inland Revenue approval and so must meet the requirements of the regulations. The Inland Revenue will visit the firms on a regular basis to check that they are operating the accounts appropriately. The financial ombudsman service will operate for complaints about firms' investment advice and the financial compensation scheme will act as a safety net if the firm goes out of business. The appropriate consumer protection vehicles will still be there. The option of investing in a riskier asset towards the start of one's life and moving into a less risky asset as the account progresses is the right one.

Mr George Osborne (Tatton, Conservative)

The Minister should not rest too much on lifestyling, to use the buzzword. By my calculation this would not have worked for children born in 1982. Just as they were coming up to the stock market boom of the late 1990s their returns would have been frozen and they would not have benefited from the gains because their account would have moved out of equities. Indeed, if they had been born in 1988 and were approaching 18 now they would be locked into the losses of the stock market in the late 1990s and the present decade and would be moving into bonds at a

time when they probably should be moving into equities. Lifestyling may be a buzzword but it does not eliminate risk and it does not protect people from the ups and downs of the stock market.

Ms Ruth Kelly (Financial Secretary, HM Treasury; Bolton West, Labour)

Some assets can be classified as riskier than others and some as less risky. Of course, one may miss out on the peaks but one also misses some of the troughs. It will not be completely stable because no asset return is completely stable. One cannot eliminate risk entirely, but I would suggest that the lifestyling requirements are the appropriate way of managing these funds. On that basis I ask the hon. Gentleman to withdraw his amendment.

Mr David Laws (Yeovil, Liberal Democrat)

I am not sure that I am necessarily minded to press the amendment to a Division, but I am not entirely comforted by the Minister's comments either. She will understand from her own recent experiences, not least with Equitable Life and many of the other financial market products with which there have been problems over the last couple of years, that there is a great deal of consumer ignorance about some financial products and consumers tend to expect compensation to be paid when things go wrong. The Government have quite a job to do to extend financial education to overcome those problems. I hope that the FSA will play an active part in that.

I am more concerned about those accounts that are essentially managed by the Inland Revenue where it takes on the role and responsibilities of parents. That is particularly the case for children in care where there might be an expectation that the Inland Revenue will have the care and responsibility for those accounts over a person's entire childhood and certainly for a long period. In such cases we understand from the Financial Secretary and from the Bill and all the other documents that the chosen child trust fund product will be the stakeholder product that will have a significant equities element in it. In other words, the Government will make a positive decision to ensure that those individuals who have nobody to manage that risk for them and who will not be expected to manage that risk will be invested quite heavily in equities.

I ask the Minister to envisage the circumstances in which there could be a significant long-term bear market in equities such as there has been in Japan since the late'80s when the stock market has fallen by as much as 80 per cent. One could envisage a situation in which many ordinary consumers opt for very different child trust fund accounts. Perhaps cash and bonds will come back into fashion—they will if bond yields go up a great deal. People could choose to place their initial endowments on long deposits at much higher interest rates. One could envisage a worst-case scenario where the Government and the Inland Revenue loyally went on placing the money of children in care into equity accounts that had a much higher degree of risk than was chosen by many other individuals who chose accounts on behalf of children.

If we were faced with many vulnerable individuals with accounts that were being managed by the state and who were experiencing losses of 50, 60 or 70 per

cent., there would be public outrage. There would be great pressure on the Government to compensate the children whose accounts had suffered for the losses that they had experienced. As was suggested by the hon. Member for Newcastle upon Tyne, Central during the Select Committee hearing, it would be a great temptation for lawyers to go back on the words of the Financial Secretary and Treasury officials, and demonstrate that they were actively promoting the equity component of the child trust funds, while essentially undertaking a management role themselves in choosing equities. They, as a consequence, would be responsible for losses.

I urge the Minister to consider whether the management of those particularly vulnerable accounts, which the Inland Revenue is essentially managing for individuals, should be policed by the FSA rather than simply by the product provider chosen by the Treasury and the Inland Revenue. The Minister should be concerned about that. Should the FSA have a policing role that could reflect the fact that large amounts of the child trust funds belonging to individuals with small financial assets could otherwise be lost? When individuals in financial markets choose the financial products that they invest in, it is significant that those individuals with the lowest quantity of financial assets will often choose the financial assets with the lowest risk because they can afford to lose a lot less than somebody who has a £100,000, £200,000 or £1 million. It is quite possible that the Government might therefore be investing that small amount of money that children in care have in a way that is totally different from how they would choose to invest that small pot of money if they had the choice themselves. I hope that that is a problem that never arises, certainly in our lifetimes, but as the experience of Japan has shown it is not inconceivable. I hope that at some stage the Minister will consider whether the FSA has a role to play in policing the level of risk accepted by accounts that are managed by the Inland Revenue. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Mr George Osborne (Tatton, Conservative)

I beg to move amendment No. 105, in

clause 3, page 2, line 34, leave out subsection (3).

I trust that this will be a short debate. I tabled the amendment to find out from the Minister the purpose of subsection (3) and I thought that the best way to do that was to propose that we leave it out.

Subsection (1) states that financial providers must be

''approved by the Inland Revenue''.

Subsection (2) states:

''An account is not a child trust fund unless''

it conforms to regulations introduced by the Inland Revenue. So why do we need subsection (3)? It says that financial providers will only be approved as child trust fund providers if they provide accounts that are child trust funds as defined by subsection (2). That is self-evident if one reads the clause carefully—or so it seemed at midnight last night. What is the point of subsection (3)?

Mr David Laws (Yeovil, Liberal Democrat)

I am largely content to hear what the Minister has to say to justify the clause, but I wonder whether she has in mind restricting the number of financial market providers that can offer alternative CTF accounts that are solely cash based. I am not sure that there is a strong argument for restricting consumer choice in that way. If that is the intention, I urge her to think again.

Ms Ruth Kelly (Financial Secretary, HM Treasury; Bolton West, Labour)

As the hon. Member for Yeovil (Mr. Laws) said, under subsection (3) the regulations may require providers to offer a certain type of child trust fund account as part of their range of child trust fund products. The regulations will require all providers to offer a stakeholder child trust fund account that follows the principles, is simple, low cost, accessible and allows control. If we did not force all companies offering the child trust fund account to offer a stakeholder product, some—perhaps small building societies and others, including those with links with local communities—might have decided to offer only cash-based products. Such companies may have a relationship with a low-income community, which would mean that that community would not be offered a product that was comparable with the opportunities for greater returns over the 18-year period.

Perhaps that is not an obvious argument, but having thought carefully abut it we considered that significant segments of the population could have missed out on the opportunities of having an equity based product if they were presented with only the cash-based product. Subsection (3) will require all companies that offer the child trust fund to offer a stakeholder investment.

Mr George Osborne (Tatton, Conservative)

I am not a parliamentary draftsman, thank God, but could not the Minister achieve that through subsection (1)? Under subsection (1), surely the Inland Revenue could act only in accordance with regulations and would approve only providers offering an equity-based product. The Minister does not need to subsection (3).

Ms Ruth Kelly (Financial Secretary, HM Treasury; Bolton West, Labour)

I have full confidence in the ability of the draftsmen. I urge the hon. Gentleman to withdraw his amendment.

Mr George Osborne (Tatton, Conservative)

I am trying to come up with good, efficient, lean legislation.

Mr David Laws (Yeovil, Liberal Democrat)

As we have established the Government's intention in this section, perhaps the hon. Gentleman could tell us whether he shares the concerns that were discussed a moment ago on the restriction of access to the child trust fund market for a number of smaller building societies that believe that they will find it difficult to offer the stakeholder product. I accept the Minister's concern that everyone should have access to stakeholder accounts with equity elements. However, in denying consumer choice in this way, are not the Government taking this obsession a little bit too far?

Mr George Osborne (Tatton, Conservative)

I dealt with that in my brief contribution to the previous debate. I can appreciate the strong arguments put forward by the Building Societies Association. Some building societies are very small, are not currently under the regulatory regime of

the FSA, would not be able to offer the stakeholder an equity product, and would not be able to participate in the child trust fund market at the moment. However, I believe in a share and capital-owing democracy—as Iain McLeod once put it—and I am persuaded by the Government's arguments that we should, through this vehicle if not others, try to encourage people to take on products that at least have an element of equity.

Mr David Laws (Yeovil, Liberal Democrat)

I am sorry that the hon. Gentleman is not more enthusiastic about consumer choice, which is another Conservative concept, or commitment. Surely, we can be confident enough in the Government's attempts to ensure that people are aware of the opportunities that are open to them that we do not have to restrict the choice of consumers who wish to invest in such building societies. Will he also acknowledge that the issue of the charge cap will be particularly relevant? If it were set at a low level, it may be difficult for some smaller building societies to offer the stakeholder CTF product. They will be locked out of the market altogether.

Mr George Osborne (Tatton, Conservative)

I am beginning to feel like the Financial Secretary defending the Government's policy.

Mr Jim Fitzpatrick (Government Whip (technically Vice Chamberlain, HM Household); Poplar & Canning Town, Labour)

Keep going.

Mr George Osborne (Tatton, Conservative)

Perhaps one day, when the constituency of Bolton, West falls to the Tories.

I do not accept the arguments that have been advanced. If the Government get the charge cap right, there will be a lot of providers. I suspect that many building societies will have relationships with bigger companies to provide products to enable them to enter the market. Although I do not want the market to be restricted unnecessarily, only a small number of building societies would be excluded at present, but I am sure that they would find ways in which to become involved in the market. I do not wish to press the matter to a Division, so I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Mr George Osborne (Tatton, Conservative)

I beg to move amendment No. 106, in

clause 3, page 2, line 44, leave out 'except as permitted' and insert

'other than by the child that is beneficially entitled to the investments under it or by a responsible person in circumstances specified'.

Mr Joe Benton (Bootle, Labour)

With this it will be convenient to discuss the following:

Amendment No. 144, in

clause 3, page 2, line 44, leave out 'as' and insert

'from the accounts of children of 16 years or over where the child who holds the account wishes to withdraw an amount from the account and where permission has been secured from a responsible person and as otherwise'.

Amendment No. 107, in

clause 3, page 2, line 44, leave out 'and'.

Amendment No. 108, in

clause 3, page 2, line 46, at end insert

'and

(f) provide that a responsible person may, at the time of opening an account, inform the account provider that he is a responsible person in Scotland.'.

Amendment No. 110, in

clause 3, page 3, line 8, leave out '18 or, in Scotland,'.

Amendment No. 111, in

clause 3, page 3, line 9, leave out ', in Scotland,'.

Amendment No. 137, in

clause 30, page 15, line 15, after 'Act', insert

'except section [reduction of age of majority in respect of child trust funds]'.

Amendment No. 138, in

clause 30, page 15, line 16, at end add—

'(2) Section [reduction of age of majority in respect of child trust funds] extends to Northern Ireland, but does not extend to Scotland.'.

New clause 4—Reduction of age of majority in respect of child trust funds—

'(1) For the purpose of any contract entered into in respect of a child trust fund, the age of majority shall be 16.

(2) The Family Law Reform Act 1969 (c.46) is amended as follows.

(3) After section 1 insert—

''1A Reduction of age of majority in respect of child trust funds

(1) For the purposes of any matter specified in subsection (2) which relates to a contract entered into in respect of a child trust fund, a person shall attain full age on attaining the age of sixteen.

(2) Those matters are—

(1) any rule of law, and

(b) the construction (in the absence of a definition or of any indication of a contrary intention) of the expressions listed in section 1(2) and similar expressions in—

(i) any statutory provision, whether passed or made before, on or after the date on which this section comes into force; and

(ii) any deed, will or other instrument of whatever nature (not being a statutory provision) made on or after that date.

(3) Subsections (6) and (7) of section 1 shall apply to the provisions of this section as they apply to the provisions of that section.

(4) In this section 'child trust fund' has the meaning given by section 1(2) of the Child Trust Funds Act 2004.''

(4) In section 28(4) (extent), after paragraph (a) insert—

''(aa) section 1A extends to Northern Ireland;''.'.

Mr George Osborne (Tatton, Conservative)

In your wisdom, Mr. Amess, you have put together the two sets of amendments that we are about to discuss. However, I wish to debate them separately if that is all right. Amendment No. 106 would allow children and responsible persons in certain circumstances to withdraw money from child trust funds before the children reached their 18th birthday. One of the worries of the poverty lobby—if I can call it that, or the Child Poverty Action Group—about child trust funds is that it is not necessarily in the interests of low-income families to lock away their savings for 18 years. That might not be the best financial decision for them to make. Inevitably, due to their greater exposure to financial misfortune, they are more likely to have to draw on the funds in unforeseen circumstances. The amendment would allow them to do that, although the nature of those circumstances can be prescribed by the Government.

I envisage people being prevented from withdrawing the initial Government contribution from the child trust fund before their 18th birthday, but I am

exploring whether there will be flexibility to allow them to withdraw other contributions that they have made themselves in cases of unforeseen financial hardship. Indeed, if they at least knew that the money would not be locked away for long periods with no possible access, such flexibility could encourage low-income families to save into child trust funds.

Much research has been undertaken in the United States into individual development accounts. Low-income families who are not used to saving are reluctant—for understandable reasons—to put away their money so that it cannot be touched for 18 years. The purpose of amendment No. 106 is to explore whether such action would be possible or not.

The rest of the amendments deal with persons aged between 16 and 18 who have a child trust fund. When I first read the Bill, I was struck by the fact that if people live in England, Wales or Northern Ireland, they would have no control over their child trust fund until the day on which they turn 18. They cannot manage it. They cannot swap from equities to bonds and take the sort of action that we debated earlier. They cannot change provider. Only the responsible adult who is in charge of them can take such action. However, if the 16 or 17-year-old person lives in Scotland, he does not need his parents to undertake such matters. Such people can manage their accounts as they wish, although they are not allowed to make any withdrawals until they are 18 years old.

First, that creates an enormous range of anomalies. If someone lives just over the border in England, but gets their child trust fund in the local village in Scotland, what kind of account is it—English or Scottish? What happens if I walk into a branch of the Royal Bank of Scotland in Edinburgh—or, indeed, London—and open an account for my daughter? Will she be able to manage the account at 16, or at 18? What happens if I move to Scotland with my daughter? Is she therefore resident in Scotland, and can she manage the account at 16 or at 18?

What of the financial providers? Will companies such as Children's Mutual have to keep track of whether its child trust fund holders live in England or Scotland? Will it have to differentiate between its customers? Will it have to set up special systems to allow those living in Scotland to manage the account at 16? What happens if someone is born in Edinburgh and moves to London? What happens when they turn 16 in those circumstances? The difference is a recipe for total chaos.

I have two approaches to the problem, which appear in the amendments that have been grouped together. Amendment No. 108 would provide one solution. It would allow a person, upon opening the account, to specify whether they want it to be treated as a Scottish account. If they did, it would be set in perpetuity as a Scottish account. That might be one of the attractions that Scottish financial companies could offer people across the United Kingdom. At least it would be clear from the word go whether an account was Scottish or English. The financial providers would not have constantly to keep track of where someone was at any one time.

However, in all modesty, I think that I have a better solution, which is provided in new clause 4. The new clause is an attempt to deal with the reason for the anomaly. The Government say that the Bill will apply different criteria in Scotland because it is only under Scottish law that someone aged between 16 and 18 can enter into contracts to buy or sell equity, and child trust fund accounts, as we have just heard, will include investments in equities. In England, Wales and Northern Ireland, children aged 16 and 17 cannot enter into binding contracts to buy and sell equities. That is why they will not be allowed to manage their accounts.

New clause 4 is pretty ambitious, because it would change the law to allow persons aged 16 or 17 in England, Wales and Northern Ireland to enter into contracts to buy or sell equities, but restricts that solely to child trust funds. I am not proposing to turn all 16-year-olds in England, Wales and Northern Ireland into stock market speculators; I am restricting the measure solely to child trust funds. Of course, that would get rid of the anomaly, because there would then be the same situation in Scotland, England, Wales and Northern Ireland.

As we have already debated, one of the aims of the child trust fund scheme is to improve people's financial education. It seems pretty sensible to at least involve them in the direct management of their own child trust fund once they turn 16. Indeed, that management could be linked to school lessons. If the Government want to engage people in making better financial choices about their lives, why not give them a dry run at the ages of 16 and 17 by letting them make informed decisions, based on their school lessons and so on, about their child trust fund? Given that the children will have just sat through several classes in school about the subject, they would probably be better equipped to make informed decisions than their parents, who will not have sat through such lessons.

That is an unanswerable point, because if the Financial Secretary says that the Government do not think that it is right for 16 and 17-year-olds to make those decisions, and says that they cannot be trusted to manage their own accounts, why are they letting them do so in Scotland? That is an inconsistency, and it is not terribly difficult to change the law to reduce the anomaly. It seems to me that, instead of the Government tackling the anomaly, the Bill has been designed around it. New clause 4 is my attempt to tackle it.

Mr David Laws (Yeovil, Liberal Democrat)

The hon. Gentleman talks good sense on this string of amendments. I will address the general theme—the eccentric way in which the age limits in respect of child trust funds are being applied by the Government in different parts of the United Kingdom and in respect of 16-year-olds' other entitlements. The entitlements of people in this country who have reached the age of 16 are as follows: they can choose to leave education and enter full-time employment; they can have sex, smoke, play the national lottery—a form of gambling if ever there was one—join a trade

union and apply for a passport. The Government are happy for them to pay tax and national insurance and, with parental consent, they are allowed to join the armed forces, get married and leave home. The Government are now actively considering whether 16-year-olds should also have the entitlement to vote.

Like the hon. Member for Tatton, I ask whether it makes sense, given the entitlements at the age of 16, not only to deny people access to their child trust fund and the ability to manage it, but, worse than that, to allow people in some parts of the United Kingdom, but not those in other parts, to manage their child trust funds. An additional anomaly is that parents who are below the age of 18 will be engaged in all those other activities that the Government allow for people of 16 and over, but will not be able to take basic decisions for their child about the management of the child trust fund accounts. Those decisions will instead be left to another body such as the Inland Revenue.

The Government think that it is appropriate that at the age of 17, individuals should take the decisions in respect of entitlements that I mentioned earlier, but not manage the trust fund accounts of their children. Frankly, most people would regard that as utterly daft. I hope that the Financial Secretary will take a fundamental look at the clause—she is not nodding; even when she does so, one does not always get what one is hoping for. We are arguing for flexibility from the Government in four key areas. The first is the extraordinary situation to which the hon. Member for Tatton referred: children over the age of 16 in Scotland will be allowed to manage their own accounts, even if they have an equity element, because the law in Scotland allows people over the age of 16 to be involved in managing equities, whereas children in the rest of the United Kingdom cannot do so until they are 18.

It emerged from the Treasury Committee proceedings that if someone has a cash child trust fund account, in theory, there is nothing in the existing law to prevent a 16-year-old in Northern Ireland, Wales and England from taking decisions about the management of the cash element. However, I presume that under the Bill, such a person would still be prevented from having any involvement. Surely, the idea of the child trust fund initiative is not only that people should sit in dusty classrooms learning about the financial markets, but that they should be encouraged at the earliest possible age to get involved actively in taking decisions, as the hon. Gentleman said. Otherwise, decisions on investment in the child trust fund will be taken by parents, or, potentially by the Inland Revenue—God help us. Surely, individuals should be taking such decisions.

Please will the Government look again at allowing people over the age of 16 in Northern Ireland, Wales and England to be involved in managing their child trust fund accounts? Will the Minister say whether at present people over the age of 16 in England, Northern Ireland and Wales will be prevented from managing even cash accounts, although existing law does not prevent their taking those decisions?

Secondly, I have tabled an extremely mild-mannered and generous amendment that does not even go as far as the views indicated in my comments. I hope that it will appeal to Labour Members who are conscious of the fact that huge cohorts of young people leave school at the age of 16—they do not go to university or stay on for A-levels. Those individuals may want to take advantage of an aspect of the child trust fund, to which the Financial Secretary has drawn attention, that allows them to draw down on their child trust fund and use the money to help them go into work, buy a computer or perhaps set up a small business. Those individuals, more than anyone, would need support at that stage of their career. Amendment No. 144 would lead to individuals over 16 being allowed, even if only with parental agreement, to draw down some element of their child trust fund to support the initiatives that the Financial Secretary seemed to have in mind. It would also allow people entering the labour market before the age of 18 to access the child trust fund account so that it can be used in the way that the Government intend.

We also have the bizarre situation that parents below the age of 18, despite having all the huge responsibilities for a child that they are allowed under the law, will be denied the opportunity to manage the child trust fund accounts for their children. They will instead have to contract them out to the state to make decisions. That is potty, and I hope that the Government will consider that. If they want to encourage people to take responsibility for their financial affairs, they should allow people to exercise independent thought at the earliest possible date.

I hope that the Financial Secretary will now tell us that the clause is a ghastly mistake and that she will correct it during the proceedings on the Bill. Otherwise, we will divide on either the amendment or the clause.

Ms Ruth Kelly (Financial Secretary, HM Treasury; Bolton West, Labour)

The hon. Member for Tatton said that the Bill was designed around an anomaly. I should point out that the anomaly that he referred to is the fact that the general law in England is different than that operating in Scotland. I do not take the view that that is an anomaly that must be sorted out on a case-by-case basis, because Bills are considered in Committee. Others perhaps have different views. However, I point out to him that border issues regarding children resident in Scotland or England, and what happens when they move from one to the other, arise in many instances. They are generally sorted out and there have never been specific difficulties in dealing with them, although I agree that they are a complication. I do not think that it would be appropriate for this Committee to try to level the playing field between the different operation of the general law in Scotland and England.

There is another argument that children under 18 should have an input into the management of their accounts in conjunction with their parents. I hope that they will begin to understand and appreciate the benefits of the accounts. I hope that the accounts will

be used in classroom teaching, so that children grow up to understand the benefits of investment and the concept of risk and reward.

Mr David Laws (Yeovil, Liberal Democrat)

Does the Minister think that the state is better positioned to take investment decisions for a child trust fund belonging to a child with a parent under the age of 18?

Ms Ruth Kelly (Financial Secretary, HM Treasury; Bolton West, Labour)

We are following the provision of general law in this country, and I do not think that there is a clear rationale for departing from that for the Bill. The hon. Gentleman may disagree, but that is my opinion.

Mr George Osborne (Tatton, Conservative)

I am not entirely convinced by the Minister's blanket argument that, because it is the general law of England, Wales and Northern Ireland that 16 and 17-year-olds cannot own shares, it should not be changed for the specific case of child trust funds. Child trust funds are a new concept that will, for the first time, give many children shares. Many of those children have never had shares before; I think that only one in five children have savings put aside for them at the moment. We are, in effect, creating share-owning children. It would apparently not take much to change the general law, as the Minister puts it—I think that it is a common law provision—to enable in this specific case, not in general cases, children aged 16 and 17 in three parts of the United Kingdom to do what children in one part of the UK will be able to do.

Ms Ruth Kelly (Financial Secretary, HM Treasury; Bolton West, Labour)

I take the hon. Gentleman's point, but I was going to say that this is not to do with anomalies between the general law in England and that in Scotland, but with whether, in England, we want children under 18—perhaps those over 16—to have some say in the management of their accounts. I put it to the Committee that there are real difficulties in changing contract law on that point. I certainly undertake to consider whether it is a simple issue, but I suspect that it is much more complicated than hon. Members appreciate. If the hon. Gentleman wishes, I shall come back to him on Report, to give an update on the complexities of changing contract law. I suspect that it would be rather difficult to change the law during the passage of the Bill.

Mr George Osborne (Tatton, Conservative)

I am grateful to the Minister for giving way and for her decision to consider whether it would be possible to change the law. She said that she is not sure that it would be desirable to allow 16 and 17-year-olds to manage their own accounts—maybe I misheard her. There are 6 million or 7 million people living in Scotland; if it is not desirable for English, Welsh or Northern Irish children aged 16 or 17 to manage their accounts, why is it desirable for Scottish children to do so? If I can prolong my intervention a little, putting to one side the question of whether it would be easy to change contract law, does the Minister think that it would be a good idea or a bad idea for 16 and 17-year-olds to manage their accounts?

Ms Ruth Kelly (Financial Secretary, HM Treasury; Bolton West, Labour)

There is a case in principle that people over the age of 16 ought to be able to manage their accounts, but that would depend on the ability to

change contract law, and the administrative burden that providers would face. They would then have to deal with a different responsible person after the age of 16. I have heard no view from providers as to whether that would be a good change, but perhaps the hon. Gentleman has, and he may inform me of his discussions.

Mr George Osborne (Tatton, Conservative)

We are beginning to have a fruitful discussion. Of course, there will be an administrative burden. A big company such as Norwich Union, which would be selling products to Scotland, England, Wales and Northern Ireland, will have the administrative burden of differentiating between those who are 16 in Scotland and those who are 16 in England. It may be administratively easier and less burdensome for companies to decide that all 16-year-olds can be in charge of their accounts. The alternative would be to raise the age in Scotland, and I am not in favour of that, because there are merits in having 16 and 17-year-olds actively managing their accounts.

Ms Ruth Kelly (Financial Secretary, HM Treasury; Bolton West, Labour)

I have said that I am prepared to consider the point and report back on Report, if the hon. Gentleman wishes.

The other amendments referred to the possibility of children withdrawing money from their accounts and, before the age of 18, having access to their own contributions, as well as those of their parents, grandparents and other relatives. I have serious reservations about that, partly because I think that relatives will contribute to the account on the basis that neither the children nor their parents will be able to withdraw money before the child reaches the age of maturity. I think that that will be a strong selling point. I do not think that allowing access, however limited, at the age of 16, is within the spirit of the child trust fund.

Mr David Laws (Yeovil, Liberal Democrat)

I understand the Minister's concerns about introducing complexities and a situation that might not be consistent for all CTF holders, but does she accept that people enter the work force at different ages? Many 16 and 17-year-olds are actively engaged in the work force, and it might be valuable for them to use the proceeds of the child trust fund. Will the Minister consider, in the generous way in which she has considered other points, whether there is scope for allowing 16-year-olds who leave full-time education and go into work to have earlier draw-down of their funds, with parental consent?

Ms Ruth Kelly (Financial Secretary, HM Treasury; Bolton West, Labour)

Some have made representations that young adults should not be allowed to draw down their accounts until the age of 21 or 25. Many have argued that young adults should not be given that opportunity until they are significantly older. Others have argued that once the age of maturity is reached, the fund should be restricted to good uses, such as undertaking education, putting down a deposit on a house, or some other good, which could be defined in regulation. We have attempted to strike a balance between granting a reasonable degree of freedom at an appropriate age—18, the age of maturity—and

respecting a young person's ability to make judgments about their own best interests at that age. I think that that strikes a sensible balance. On that basis, I ask hon. Members not to press their amendments.

Mr David Laws (Yeovil, Liberal Democrat)

On a point of order, Mr. Amess. I seek your advice on that issue. I am relatively encouraged that the Financial Secretary has said that she will report back to the Committee on the wider issue of the management of accounts by 16-year-olds, to establish whether it is possible to explore changes in the situation in Northern Ireland, England and Wales. However, she has not shown any flexibility on the issue of early draw-downs, which is explored in amendment No. 144. Is it possible to have a specific vote on amendment No. 144, rather than on the clause as a whole?

Mr Joe Benton (Bootle, Labour)

It is perfectly in order to have a vote on amendment No. 144.

Sitting suspended for a Division in the House.

On resuming—

Mr George Osborne (Tatton, Conservative)

I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Amendment proposed: No. 144, in

clause 3, page 2, line 44, leave out 'as' and insert

'from the accounts of children of 16 years or over where the child who holds the account wishes to withdraw an amount from the account and where permission has been secured from a responsible person and as otherwise'.—[Mr. Laws.]

Question put, That the amendment be made:—

The Committee divided: Ayes 1, Noes 9.

Mr George Osborne (Tatton, Conservative)

I beg to move amendment No. 109, in

clause 3, page 3, line 1, leave out subsection (5).

I do not wish to detain the Committee for long on this amendment because, as with an earlier amendment to this clause, I tabled it to discover the purpose of the Bill, in this case subsection (5), which states:

''Regulations may impose other requirements which must be satisfied in relation to child trust funds.''

Much of the clause sets out requirements, so why is this final catch-all subsection needed? What are the ''other requirements'' that the Minister has in mind?

Mr David Laws (Yeovil, Liberal Democrat)

I, too, am confused about why we need this subsection. The explanatory notes shed no light on the rationale for it, and I look forward to hearing the Minister's comments.

Ms Ruth Kelly (Financial Secretary, HM Treasury; Bolton West, Labour)

I can inform the Committee that the use of regulations is based on the ISA model. I imagine that the child trust fund providers requested that we base our regulations on a model with which they are familiar, and that we use the ISAs as a precedent. The details of ISAs are set out in regulations, as indeed were their predecessors—personal equity plans. The model that we have followed in the Bill is the one that was followed in those two previous instances.

Mr George Osborne (Tatton, Conservative)

I do not feel that the Minister has answered my question, nor even addressed it. She started discussing PEPs and ISAs, whereas I asked about the purpose of the subsection. What are the regulations that might impose other requirements? What is the purpose of the subsection? What requirements does she envisage that will not be covered by subsections (1), (2), (3) and (4)?

Ms Ruth Kelly (Financial Secretary, HM Treasury; Bolton West, Labour)

As I understand it, the subsection merely allows us to lay the regulations, so as to give us the flexibility to change something quickly and effectively

if that is necessary in light of experience. It provides nothing other than a power enabling us to lay the regulations.

Mr David Laws (Yeovil, Liberal Democrat)

The subsection states:

''Regulations may impose other requirements which must be satisfied.''

Could the Minister list one possible other requirement?

Ms Ruth Kelly (Financial Secretary, HM Treasury; Bolton West, Labour)

The sort of regulations that we have in mind are those that specify the nature of the risk controls on stakeholder products. As the hon. Gentleman knows, we intend to lay such regulations.

Mr George Osborne (Tatton, Conservative)

The Minister's response is unsatisfactory. The one example that she gave could be covered by subsections (2) or (3). However, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 3 ordered to stand part of the Bill.

Further consideration adjourned.—[Jim Fitzpatrick.]

Adjourned accordingly at twelve minutes to Five o'clock till Tuesday 13 January at half-past Nine o'clock.