Clause 5 - Opening by responsible person
Child Trust Funds Bill
9:45 am
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.