Clause 4 - Inalienability
Child Trust Funds Bill
9:30 am
Mr George Osborne (Tatton, Conservative)
I beg to move amendment No. 112, in
page 3, line 18, leave out subsection (2).
Mr Joe Benton (Bootle, Labour)
With this it will be convenient to discuss amendment No. 113, in
page 3, line 25, leave out subsection (5).
Mr George Osborne (Tatton, Conservative)
It is good to resume after a week's gap. My only regret is that my party is not here in full strength, and nor are the Liberals.
Mr George Osborne (Tatton, Conservative)
Sadly, we are not here in full numbers, or we might be able to make some constructive changes to the Bill.
The clause concerns what the Government call inalienability. That is to say, one cannot assign a child trust fund or have an agreement to charge against a child trust fund investment. Subsection (2) states:
''On the bankruptcy of a child by whom a child trust fund is held, the entitlement to investments under it does not pass to any trustee or other person acting on behalf of the child's creditors.''
I tabled the amendment out of curiosity because I want to know under what circumstances a child can be declared bankrupt. Given that we have previously had debates about how they are not able to enter enforceable contracts, it seems a bit harsh to declare a child bankrupt. However, if there are such circumstances, and the Minister tells us what they are, why should creditors, who might be suffering hardship or owed substantial sums, not have access at least to additional savings put into a child trust fund, if not the original Government contribution? I can see why the Government might want to protect their original contribution, but why, in what are presumably extraordinary circumstances, should a creditor not have access?
If one can apportion blame in such cases, and the bankruptcy was the child's fault—perhaps it entered into an ill-conceived and ill-advised financial arrangement that led to the bankruptcy—surely losing the additional savings in the child trust fund would be a good lesson about the dangers of doing such things. However, if the bankruptcy was the fault of the parents, and the additional savings were put in to the child trust fund by the parents, should not the creditors have the right to access them?
Ms Ruth Kelly (Financial Secretary, HM Treasury; Bolton West, Labour)
The hon. Member for Tatton (Mr. Osborne) asks whether a child can be made bankrupt. In law, a
child can be made bankrupt—for example, if he misrepresents himself to be over the age of 18 and enters into contracts, those contracts may be binding on him. In ordinary circumstances, it is not possible to have an enforceable contract, but if the child has misrepresented his age, it can be possible. A child could start a business and buy stock, pretending to be 18. If he could not then pay for the stock, the supplier could sue, resulting in the bankruptcy of the child.
The hon. Gentleman asks why, if there were to be such a case and it was clearly the fault of the child, the child should not lose the assets. This touches on a centrepiece principle of the Bill. The assets should be locked away until the child reaches maturity at the age of 18.
Mr George Osborne (Tatton, Conservative)
Surely, if a child has set up a business under false pretences, and he is being made bankrupt, other people might have lost money in dealing with him. Might he not then, at the very least, lose his precious child trust fund? That would be a valuable lesson to him.
Ms Ruth Kelly (Financial Secretary, HM Treasury; Bolton West, Labour)
The hon. Gentleman makes a good point, but as I was explaining, the purpose of the Bill is that everyone, no matter their history or family history, will have access to an asset at the age of 18, whether it is their own or their parents' fault that they have had financial difficulties in the past. That is a key principle of the Bill, and on those grounds I ask the hon. Gentleman to withdraw the amendment.
Mr George Osborne (Tatton, Conservative)
I shall not press the amendment. It seems a little strange that a 17-year-old, for example, could enter into all sorts of arrangements and cause people to lose money, and then a few months later receive the windfall of the child trust fund. I suppose that there is a question—the Minister need not get to her feet, but might perhaps answer it when she speaks on the next group of amendments, if you allow that, Mr. Benton—whether, once the child is 18 and the child trust fund matures, someone could claim against those assets. Perhaps if there is an ongoing action for bankruptcy, and the creditors are trying to recover money, they will wait until the child is 18. However, I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Question proposed, That the clause stand part of the Bill.
Mr Joe Benton (Bootle, Labour)
With this it will be convenient to discuss amendment No. 136, in
clause 20, page 10, line 41, at end insert—
'( ) any person who assigns, or enters any agreement to assign, investments under a child trust fund or who charges on, or enters any agreement to charge, any such investments.'.
Mr George Osborne (Tatton, Conservative)
Amendment No. 136 applies to clause 20, which we have yet to reach and which sets out the penalties for those who, among other things, make fraudulent claims for child trust funds. The amendment would apply a similar penalty of a fine up to £3,000.
Clause 4 sets out, in the round, the admirable objective of trying to prevent people from in effect mortgaging their child trust fund. In a worst-case scenario, someone could borrow from a loan shark
against their child trust fund, provided that the expected assets of the child trust fund are set as security against a loan. Indeed, I know that some poverty groups have been concerned about that, and one can envisage it happening in some parts of the country. It is a serious risk and we need to protect children and their assets from it.
As far as I can understand the matter—I am happy to be corrected by the Minister—all that the Bill does is render void any charge on funds held in a child trust fund. Obviously, that is quite a deterrent to a loan shark. However, other sanctions could be deployed. I merely propose in amendment No. 136 to give the authorities the power to punish loan sharks and the like, if they try to seize child trust funds.
Mr David Laws (Yeovil, Liberal Democrat)
I want to make a comment somewhat in contrast with that of the hon. Member for Tatton on the amendment and the relevant aspect of the clause. The hon. Gentleman referred to circumstances in which individuals and others might attempt to use the content of the child trust fund as collateral—presumably in a loan agreement—and to draw down the proceeds of a child trust fund earlier than intended by the Government. He invited us to put those cases on a level playing field with attempts to defraud the Inland Revenue in respect of child trust funds.
I do not want to return to our previous argument about whether child trust fund accounts should be open to be drawn down when the child is 16. I expressed concern that the Bill was unnecessarily restrictive with respect to the opportunity to draw down early. However, we can perhaps imagine circumstances in which it might be more acceptable for people to want to gain access to the value of the child trust fund earlier than intended by the Government. The hon. Member for Tatton cited the examples of loan sharks who might want to exploit the collateral value of a child trust fund to make a loan at a high rate of interest. However, there might be extreme but not completely unlikely circumstances in which people might want to draw down from child trust funds. I invite the Minister to contemplate circumstances, which we hope will not arise in the future, in which a young person with severe medical problems might seek to draw down on the proceeds of a child trust fund in order to help contribute to vital medical treatment that might not be available in this country or through the national health service. Such situations do arise.
One can contemplate a situation in which an individual might have several thousand pounds in a child trust fund and might need expenditure for something of particular urgency, such as a medical operation. One can imagine there being a great deal of sympathy in public and press sentiment and in the minds of Ministers, one of whom may be in the Financial Secretary's position at the time, for people who wish to draw down on their child trust funds under those circumstances, particularly if the operation or the event in question is something of great importance in someone's life. There would be enormous frustration that the assets of the child trust
fund were locked up in the way the Government intend.
I do not necessarily expect the Minister to respond immediately with a solution to my problem and to address my concern, because what I have suggested seems contrary to the Government's intention to lock away the proceeds until the age of 18. I am not sure that I want to go as far as the hon. Member for Tatton in putting the attempt to draw down the child trust fund on an equal basis with fraud. I invite the Minister to contemplate whether there may any circumstances in the future in which she might exceptionally be willing to take a more flexible approach to drawing down or using as collateral the proceeds of these funds.
Ms Ruth Kelly (Financial Secretary, HM Treasury; Bolton West, Labour)
I will take the points made by the hon. Member for Tatton first. He answered his own question: the funds would be made legally void as security if someone attempted to use them as security. He asked whether it was appropriate to add the civil penalty to reinforce the point that one should not attempt to use the child trust fund for security against a loan, but that is clearly not the case in law. It is not appropriate to have an additional civil penalty for an act that has been made legally ineffective. If someone attempted to use the fund thus, the fact that there would be no force in law should act as sufficient deterrent in itself.
Mr George Osborne (Tatton, Conservative)
Surely the Minister can envisage a circumstance in which, for example, a 17-year-old is approached by someone who says, ''Listen, in return for your child trust fund I'll give you £500 now''. It is true that that is unenforceable in law, but there will be other ways in which that person may try to extract the money by the time the child is 18. I am suggesting a civil penalty, which may not be used, but would merely be an option for the authorities. It would give them an extra deterrent to stop such people going around knocking on doors trying to get hold of child trust funds.
Ms Ruth Kelly (Financial Secretary, HM Treasury; Bolton West, Labour)
It is certainly possible to imagine loan sharks going round to people's houses and trying to extract value from a child trust fund. However, the young adult will be able to have the full benefit of those funds at the age of 18, so I cannot imagine any advantage to loan sharks in trying to go down that avenue. It would be completely without hope of reward. I am sure that if they took the matter to extremes, they could be pursued in the courts for harassment or other issues that may arise.
The hon. Member for Yeovil (Mr. Laws) made a point about access to the fund before the age of 18 under exceptional circumstances. We have considered that issue in depth. There are of course cases in which people may feel that they should have recourse to the fund, perhaps in exceptional circumstances before the child reaches the age of 18. Unfortunately, we have not been able to devise a solution to that problem. It would be extraordinarily difficult for discretion to be exercised by the Inland Revenue, or any other party that one might think of, and for judgment to be made in difficult situations. On the whole, we felt it better, although one might argue that this is rough justice, that the funds should be locked in until the age of 18.
On those grounds, I ask the hon. Member for Tatton not to press the amendment.
Mr George Osborne (Tatton, Conservative)
If this turns out to be a major problem in 18 years time, the Government of the day will have to tackle it. As we do not know who will be in Government in 18 years time, we will have to wait for that occasion.
Question put and agreed to.
Clause 4 ordered to stand part of the Bill.