Mr George Osborne (Tatton, Conservative)

I beg to move amendment No. 15, in

clause 5, page 3, line 35, leave out from 'may' to 'apply' in line 37.

Mr Joe Benton (Bootle, Labour)

With this it will be convenient to discuss the following amendments:

No. 192, in

clause 5, page 3, line 36, leave out from 'within' to 'apply' in line 37 and insert

'a period of six months beginning with the day on which the voucher is issued'.

No. 17, in

clause 5, page 3, line 39, at end insert

'in accordance with the provisions of subsections (3A) and (3B).

'(3A) An application for the opening of a child trust fund may take the form of the responsible person—

(a) giving the voucher to an account provider, or

(b) otherwise informing the account provider that he is a responsible person who has been issued with a voucher.

(3B) Regulations may prescribe—

(a) the period beginning with the day on which the voucher is issued within which an application may be made, and

(b) the means by which information given in accordance with subsection (3A) must be provided and authenticated.'.

No. 18, in

clause 5, page 3, line 40, leave out 'receipt of the voucher' and insert 'provision of the application'.

No. 115, in

clause 5, page 3, line 40, leave out 'must' and insert 'may'.

No. 116, in

clause 5, page 3, line 43, leave out 'in accordance with regulations' and insert

'within four weeks of receipt of the voucher'.

No. 118, in

clause 6, page 4, line 9, leave out 'in accordance with regulations' and insert

'within four weeks of receipt of the application'.

No. 25, in

clause 6, page 4, line 15, leave out '5(3)' and insert '5(3B)(a)'.

No. 166, in

clause 12, page 6, line 43, at end add—

'(4) The Inland Revenue shall publish proposals for subscriptions to be made to child trust funds by electronic means.'.

Mr George Osborne (Tatton, Conservative)

This group contains two sets of amendments that would do different things. I shall treat them separately, and shall come on to the more

important set of amendments in the second half of my remarks.

Amendments Nos. 116, 118, 25 and 192 would write or amend on the face of the Bill what we know that the Government intend to do by regulation. Subsection (3) states:

''A responsible person may, by giving the voucher to an account provider within such period beginning with the day on which the voucher is issued as is prescribed by regulations, apply to open for the child . . . a child trust fund''.

The explanatory notes state:

''The Government has proposed that that period be one year.''

In English, that means that if a parent or guardian had not opened a child trust fund after one year, the Government or the Inland Revenue would step in and set up an account for them. Amendment No. 192 is merely a proposal that that period be made six months, principally to provoke a debate about why the period of a year has been chosen. Six months seems quite a long time in which to apply for and set up a child trust fund. I cannot imagine that many people would not have done so in the first six months but then would do so in the six months after that. I suspect that a small number of the people applying would do so in the latter half of the year in which one can open a child trust fund.

Of course, income is forgone and no investments are made for the period in which an account is not set up and a voucher is not lodged in a child trust fund account. The child loses out because of the negligence or incompetence of their parents. I am not sure why the period of a year is required; why not make it six months? Six months is a long time after the birth of a baby to get around to opening a child trust fund. If the period is going to be one year, will the Government send a reminder after six, eight, or 10 months, stating that the person involved has not opened a child trust fund? If not, there is no point having a period of a year. The voucher will have been sent, but it will sit at the bottom of a pile of paper, or might be thrown out, and the parents will not open it. Amendment No. 192 would deal with that point.

Subsection 4(b) of the clause states that the account provider must, in accordance with regulations, inform the Inland Revenue that they have received the voucher. We know that the Government intend financial providers to do so within a fortnight. The White Paper states:

''For new or transferred accounts providers will be required to make a fortnightly return to the Inland Revenue including the name of the child, the unique reference number and the amount to be credited to the account.''

As I said, the amendments are probing. I seek to clarify why that period should not be a month. Is it really necessary to require financial providers to make fortnightly returns? That seems excessive. Surely a slightly lighter touch would involve a financial provider merely making a monthly return to the Inland Revenue.

Amendments Nos. 17 and 18 are more substantial. I will let my Liberal Democrat colleague speak for himself, but I believe that his amendment seeks a similar aim—to try to move away from the Bill's

ludicrously bureaucratic and outdated voucher system. Of all the things that we can debate, such as the principles of the Bill or whether it should be extended to different age groups, what strikes one as truly prehistoric is the paper-based voucher system. I believe that I am right in saying that every major financial institution, and every organisation representing financial institutions, has made the point that it is totally unnecessary. I will discuss their comments in a moment.

By all means, send parents such as me a nice certificate saying, ''You can open a child trust fund for your child,'' but why require them to take that voucher to a bank, building society or other financial provider? Why on earth will the Government not allow people to do that on the phone or via the internet? As I said, it seems extraordinarily old fashioned. The White Paper makes it clear that the parent or guardian will have to give the voucher to their chosen provider. Several financial institutions have responded to that point by saying that this is totally unnecessary. The Children's Mutual said:

''We stress the point of the administrative burden of providers physically having to receive and store CTF vouchers in all cases. This process should be made as simple as is possible making use of the latest technologies that are available to providers and the public. If the IR can request a provider to open an account without issuing a voucher, we would advocate that this approach could work for the providers and the responsible person.''

The Norwich Union says:

''Putting the onus on parents to approach a provider to open their account via use of a voucher system may not compel them to do so—thereby increasing the number of 'shell' accounts which do not attract further contributions other than the government's initial amount and not meeting the long-term savings aim of the CTF. Physical collection of vouchers may also lead to higher administrative costs if providers need to pursue parents to send them in.''

The Association of British Insurers also makes that point. It says:

''One minor example may help to illustrate the way that additional and unnecessary costs may be imposed which deliver no obvious benefit to the consumer'',

and that the requirement to provide vouchers

''negates the possibility of providers keeping costs to an absolute minimum by enabling parents to open CTF accounts by more cost-effective and customer-friendly means—e.g. over the telephone or on the internet. The requirement to collect the vouchers means that even if such methods are used to register an account, it cannot be authorised unless the voucher is physically sent to the provider. This, in turn, creates additional administrative complexities (and associated costs) for providers who must (i) make sure that the voucher has been received; (ii) chase individuals who fail to send it in; (iii) cancel accounts where the voucher is never received; (iv) store the vouchers for no discernible purpose. Although a very minor example, such requirements make it more difficult for providers to operate efficiently and offer consumers value for money. Moreover, such requirements may also have an adverse effect on take-up, given that it is generally true that the more complex the procedure to open an account the higher the drop-off rate.''

Those are very good points, made by organisations that, after all, have a lot of experience in handling complex financial transactions. They make two points: first, the requirement will deter some parents, who would much rather simply pick up the phone or go online to open their child trust fund account; secondly,

it will impose an unnecessary burden on financial providers. As all those organisations have made clear, not only will they have to chase parents who do not send the voucher and send out letters, which add to the cost of managing the account, but they will have to store the vouchers until the child reaches the age of 18. That conjures up a Dickensian view of financial institutions as counting houses with massive underground vaults and filing cabinets full of child trust fund vouchers. That is not how the modern financial industry operates. Many people bank online or over the telephone, and that involves much larger sums than child trust funds.

The Government's counter-argument is that, without the voucher, there is a risk of fraud. First, many more complicated and valuable transactions are completed online every day in the City of London, and they do not require vouchers. Secondly, parents will receive a unique child trust fund number on the voucher or letter that is sent to them. If someone has the correct date of birth, name and number, the risk of fraud is minimal. Indeed, the Government previously put the proposal down as having a low risk of financial fraud. Money laundering regulations that the Government have introduced in the past couple of years do not cover child trust funds because they are deemed unlikely to be used for fraud or money laundering.

It is strange that the Government are insisting on such a bureaucratic process. I suspect that they are nervous that it will not work and that they want an old-fashioned paper system. However, that might increase complexity and deter people from sending in vouchers. It might deter those parents, such as myself, who will receive the voucher and think, ''I must open this child trust fund. I will do it on the telephone.'' If parents have to find an envelope and a stamp, they might not get round to applying. Sadly, the irrationality of the consumer, which we discussed in a previous sitting, is a fact of life.

Finally, I remind the Minister that the Government have an e-envoy and a vicious target of delivering all Government services online by 2005. I am not sure how they are proceeding with that target, but the Minister is not pulling her weight with child trust funds.

Mr David Laws (Yeovil, Liberal Democrat)

I shall not repeat the hon. Gentleman's comments on the first amendment, since they were designed to probe the Government's intentions for the time period that will be set out in regulations and the Bill. I shall briefly comment on the second issue that he raised, which was the means of contributing to the child trust fund, and whether that should be restricted to vouchers and cash amounts, or whether the Government should consider electronic payments.

Amendment No. 166 to clause 12, which sets out subscription limits, would require the Inland Revenue to publish proposals for subscriptions to be made to child trust funds by electronic means. Under clause 12, there is a restriction to ensure that contributions can be made only in monetary form and not with other products, such as equity products. However, as the hon. Gentleman indicated, the Government have

been reticent about embracing new technologies available to facilitate payments into child trust fund accounts.

The initial voucher payment made in paper form by the Inland Revenue may help consumers understand that a new product is being launched. The Minister is nodding and I hope that she will still be nodding after my second comment. She has a tendency to nod and then say something contradictory later. I accept that a voucher might be helpful when setting up the child trust fund, so my moderate amendment merely asks the Minister to consider publishing proposals to allow future subscriptions to child trust funds to be made electronically. Given the amendment's extreme moderation, I hope that she will back up her nodding by making constructive proposals and assuring us that the Government are not luddite on contributions to child trust funds and will help to stimulate payments by other means, including electronic means.

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

The hon. Member for Tatton started by asking a couple of more detailed questions about the structure of the child trust fund, including why we allow parents a year in which to exercise their free choice as to the provider of the child trust fund account. Clearly, we want the maximum number of people to exercise their free choice as to the provider, partly because through exercising that choice they begin to increase their financial awareness. We can use the opportunities for financial education around that. Those are two key objectives of the child trust fund. Indeed, the fund provides a tremendous opportunity for parents who have not so far engaged with the financial services industry to do so. It is far better for parents to exercise that choice than it is for the Inland Revenue to allocate families a child trust fund provider.

The hon. Gentleman rightly points out, however, that there is a trade-off between allowing parents the maximum possible time and allowing the maximum time for the endowment to grow for the child's benefit. We have chosen the period of a year to strike a reasonable compromise between those two positions. We shall allow parents the opportunity to consider the information pack that is sent out alongside the voucher and to become aware of the publicity campaign that accompanies the launch of the child trust fund.

We shall attempt to monitor the number of accounts that are opened over the first year of operation and into the future to see how long it takes the average parent to open an account and how many parents are failing to open an account as we approach the final months in the build-up to the cut-off point of a year. If a substantial number of families fail to exercise their free choice, the Inland Revenue will consider ringing them and reminding them that it would be in their interests to exercise that choice. We shall monitor that over the long term as we monitor and evaluate the policy itself. A year strikes a reasonable balance between the two objectives.

Mr George Osborne (Tatton, Conservative)

I do not know the answer to this question—one is always advised against asking such a question in Parliament—and perhaps the Minister can write to me if she does not have the answer to hand, but I should like to know what period people have to apply for child benefit and to have it backdated to the date of their child's birth. In addition, given that the Inland Revenue now administers child benefit, what modelling has taken place? Is there a clear pattern that if people do not do that in the initial few months, they will not do so at all and will have to be reminded? If so, perhaps the Minister could look again at the period of a year. It might help her to see the pattern for child benefit, because I suspect that the one for child trust funds will be very similar.

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

The hon. Gentleman makes an interesting point. He will be aware that I am not the Minister responsible for child benefit, but I will certainly consider that issue. Given that this is a new policy, I think that it is right to give people the maximum flexibility and opportunity to hear the financial education messages that the Government and, no doubt, providers and voluntary organisations will put out at the relevant time. We shall have an opportunity to remind parents during the year if we find that they are not opening accounts promptly.

The hon. Gentleman also asks about fortnightly returns. Up to a point, that is the same issue. It has to do with a trade-off between providing maximum opportunity for the account to grow, and minimising any potential burden on providers. We do not think that it is necessary for providers to contact the Revenue on a daily basis to say whether they have received any new accounts. On the other hand, a month in the scheme of an 18-year policy is a significant amount of time. We think that two weeks is more appropriate, and that fortnightly returns should be created electronically by the providers using their software systems. The returns will be sent electronically via the internet. We do not think that sending fortnightly returns will place any significantly greater burden on providers. Indeed, the informal contact that the Revenue has had with providers exploring the issue suggest that they do not have a significant problem with that. In the interest of maximising the value of the endowment on behalf of the child, I suggest that a fortnight represents the appropriate length of time.

To turn to the more fundamental issues—how we communicate the policy to parents, and whether a voucher is appropriate in the circumstances—I draw the Committee's attention to the Bill's objectives. Those are: to increase savings habits; to increase a person's assets at the age of 18; to create responsible consumers and—a key objective—to build financial education. I would argue that sending a family a voucher with the child's name on it, with the amount clearly expressed, is a valuable tool to increase financial awareness and will lead to an increase in habitual saving.

I note that, in evidence to the Treasury Committee, the National Consumer Council, which carried out significant qualitative research among young people

and parents, found that the voucher was very attractive. It said:

''The £250 voucher will act as a trigger to parents to start, and to add to, a savings fund for all children born after September 2002 . . . It appears the prospect of a voucher with their child's name on it provided by the government, helps people feel that they are to be given a helping hand in meeting their personal financial needs. The CTF is regarded as providing a framework for giving their family a financial start, in a way that they could see as beneficial to them.''

Mr George Osborne (Tatton, Conservative)

I agree with everything that the Minister has said in the last few minutes. I am happy that people will be sent vouchers. I think that they will act as an incentive, and that it will be great to send people a cheque for £250 or £500. However, once people have received the voucher, they do not then have to take it to a bank or a building society to open the account. The voucher will have a unique number on it: people can then phone the bank, or go online and do it via the internet. That is my argument, and the Minister knows it. She is also aware that almost every financial provider that she has consulted has made that argument.

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

I am well aware of the point that the hon. Gentleman makes; he is quick to jump to his feet before I develop my argument. The voucher is, in principle, a powerful way of reminding people that they have that asset on behalf of their child. There is, of course, nothing to stop providers handling the administration of child trust fund accounts, either electronically or by telephone. The point that the hon. Gentleman makes is that we are insisting that, in due course, the paper voucher is produced, either in the post or personally. That does not strike me as an unreasonable requirement. Indeed, one of the requirements of the individual savings account, for example, is that providers store the application form for the account. The child trust fund is closely modelled on ISA provisions.

I should like to correct a couple of misapprehensions under which the hon. Gentleman seems to be labouring. The first is that providers would have somehow to store a paper voucher for 18 years. In fact, a provider can scan the voucher in to the system and needs to store that scanned version for only three years, directly in line with the provisions of ISA accounts. That should not be such a burdensome requirement. The paper voucher also plays a vital part in reducing fraud, to which the hon. Gentleman alluded. While sophisticated fraudsters can produce a copy of any document, the voucher will be designed in a way to make copying difficult for the less sophisticated. The child trust fund providers will have a certain degree of confidence that a voucher accompanying an application to open the child trust fund is genuine. An electronic process would not provide that degree of certainty and could allow internet hackers to open multiple child trust fund accounts.

The paper voucher will contain vital information in the form of a barcode or microline that will allow providers to scan the voucher and keep that information electronically. That is crucial for child trust funds, as Government contributions will be

paid only where providers' claims reconcile with the Inland Revenue's child trust fund database.

The hon. Member for Yeovil asked whether we would consider electronic payments to child trust fund accounts. I can inform him that this is possible under the legislation. The child trust fund account is modelled on the ISA model, where payments can be made by a number of means, including electronic means, and this is envisaged in the current set-up for child trust funds.

Mr David Laws (Yeovil, Liberal Democrat)

Will the Minister inform me—it is possible I have missed the paper—about where the Inland Revenue has described in detail the mechanisms that can be used to make subscription payments by electronic or other means? Is there a paper that sets out the detail of how that can be achieved, or is one due to come out?

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

The hon. Gentleman will be pleased to know that the detail of those proposals will be set down in regulations, which we will publish shortly.

Mr David Laws (Yeovil, Liberal Democrat)

On what I hope is a legitimate point of order, Mr. Benton—although I am sure you will tell me if it is not—we had hoped that we would have the regulations in order to debate the issue in Committee. You will appreciate, having chaired these proceedings for some time, that many of the issues in these clauses are fundamentally affected by the information contained in the regulations. Is it in order for us to ask when the regulations will be published so that they can inform the debate rather than us remaining in a state of partial ignorance until Committee proceedings have finished?

Mr Joe Benton (Bootle, Labour)

It is in order to ask, but I am afraid that the Chairman may not respond to the question. I suggest that the hon. Gentleman ascertains that information through the usual channels.

Mr George Osborne (Tatton, Conservative)

In this Committee I have not pressed any amendment to a Division and I have generally been happy, where I have had issues of substance, to have the Minister agree to consider them. She agreed to consider the idea of extending the child trust funds to children born before 1 September 2002; she said it could be done through regulation and that she would talk to the financial providers. She also agreed to consider allowing 16 and 17-year-olds in England, Wales and Northern Ireland the same powers and rights that 16 and 17-year-olds in Scotland will have, and I was satisfied with that response.

However, I do not follow her arguments in this case. I accept—I made this point in an intervention—that the Inland Revenue should send every parent a child trust fund voucher, just as a parent of a recently born child receives a letter from the Inland Revenue saying that they can claim child benefit. That is perfectly appropriate; I do not mind whether the voucher is fancy and looks nice and encourages people to start saving and so on. But it seems ridiculous that the person then has to send the voucher to a bank or building society. The Minister rests her arguments on the idea of fraud and internet hackers. As she knows, every day complicated financial transactions worth many billions of pounds take place over the internet,

and over the telephone in the dealing rooms of the City of London. Every day, people buy books or other products online. There is not a major problem of internet hackers accessing my Amazon account, buying books in my name and sending them to some other address.

In the 21st century, it is possible to devise a simple internet system that would allow people to register online for their child trust fund. Given the fact that the Inland Revenue will give everyone a unique number, it will be easy for it and for the financial providers to check, before opening an account, that someone has not already opened an account elsewhere. It defies belief that the Government are ploughing on with this old-fashioned system.

The Minister said at the beginning of her remarks that this measure was about financial education for people. Does she really think that in 18 years' time the vast majority of the financial transactions into which we enter will not be done either electronically or over the telephone? If the intention is to educate people who may have very little financial education, a good place to start would be to give them the option of doing this kind of thing over the internet or the telephone. I suspect that the better-off people in society do more internet banking and telephone banking than the less well-off, so if we want to enhance financial education, this would be a good place to start.

As the Minister knows, it is not a credible argument that the only way to protect against fraud in such cases is to have a paper voucher that must be handed in to a provider. I shall therefore reluctantly press amendment No. 17 to a vote.

Mr Joe Benton (Bootle, Labour)

Order. The hon. Gentleman must seek a Division on amendment No. 15 as the lead amendment, not No. 17.

Mr George Osborne (Tatton, Conservative)

You are an expert in parliamentary procedure, Mr. Benton, and I am a total novice. I will therefore press amendment No. 15 to a vote, to make my point. I conclude by asking this simple question: what happens if someone loses their voucher? What happens if, during the year when they can open an account, they are unable to find it? Will there be some procedure through which they can open an account over the telephone? Do they have to telephone the Inland Revenue and say that they have lost the voucher? There are evident problems with a paper voucher system.

As I understand it from the Minister, there will be a process in which a computer will identify the people who are entitled to a child trust fund. They will be sent the paper voucher, and they will then have to take the paper voucher to a financial provider, who can then electronically store the information and electronically make returns to the Inland Revenue. That is crazy. In the time available before the legislation is introduced I ask the Minister to think about the issue again. All the financial providers to which I have spoken have made that point to me, and I ask the Minister to reconsider.

Question put, That the amendment be made:

The Committee divided: Ayes 3, Noes 10.