Mr George Osborne (Tatton, Conservative)

I beg to move amendment No. 117, in

clause 6, page 4, line 3, after 'selected', insert 'at random'.

Mr Joe Benton (Bootle, Labour)

With this it will be convenient to discuss the following: Amendment No. 149, in

clause 6, page 4, line 20, at end add—

'(6) Accounts and account providers selected by the Inland Revenue under subsection (1) shall meet lower risk criteria set out from time to time by the Financial Services Authority, designed to reduce the risks of significant capital losses from child trust fund accounts which have been opened or selected by the Inland Revenue.'.

Amendment No. 150, in

clause 7, page 4, line 27, at end add—

'(c) a child trust fund opened by the Inland Revenue may be transferred from one account provider to another, or moved from a stakeholder child trust fund account to one of the other account descriptions as prescribed by regulations.'.

New clause 10—Investment information and advice from Inland Revenue—

'(1) The Inland Revenue shall provide summary information on investment options and risks to all those responsible for managing child trust fund accounts.

(2) But the Inland Revenue shall not itself offer any advice on which account types or providers should be selected.

(3) If the Inland Revenue can be shown to have offered advice which has resulted in investment losses then it shall be legally liable for such losses.'.

Mr George Osborne (Tatton, Conservative)

I am still recovering from my shock defeat in the Division.

Most amendments in this group were tabled by the Liberal Democrats, but I tabled amendment No. 117. As we discussed earlier, the Government have made it clear that when parents or guardians fail to open a child trust fund account within a year, the Inland Revenue will do so on their behalf. That is good. The White Paper also made it clear that such accounts will always be stakeholder child trust fund accounts, which include equities. That is also the right way to act, as children should not lose out through the negligence, incompetence or ignorance of their parents. I am sure that the Liberal Democrats will have something to say on that point.

I have a few questions that relate to amendment No. 117. It is made clear that not all financial providers that offer child trust fund accounts will have to offer Revenue-allocated accounts. What estimates has the Minister had of the number of

providers that will offer such accounts? Will there be a wide choice for the Revenue or will only a few providers offer to administer the accounts? From the providers' point of view, it is likely, although not absolutely predictable, that if a parent cannot be bothered to open an account, they will not make substantial contributions to it, so it is unlikely to be lucrative for the provider to administer.

There may be other administrative problems. If the providers have to deal with parents or guardians who did not open the account, they may find it difficult to keep track of where they have moved around the country. If the child comes from a dysfunctional family that splits up, the provider may find it hard to keep track of who is responsible for the account. Some additional administrative costs may be associated with Revenue-allocated accounts, so will the Minister say whether a substantial number of providers will offer them?

The White Paper makes it clear that the accounts will be allocated in turn. I take it from that that there will be a list of providers and the Inland Revenue will simply move down the list to allocate funds on a rota basis. I am suggesting merely that that is done at random, so that there can be no suspicion that people were allocated a duff account provider or poor-performing account. My amendment would mean that we could say with confidence that the accounts were allocated at random.

Amendment No. 117 is a probing amendment designed for discussion of the issue, but there is a serious point. Providers are unable to refuse Revenue-allocated accounts once they have agreed to accept them, but smaller providers may reach a point at which they cannot administer the funds. The current provisions will encourage only large account providers to offer Revenue-allocated accounts. A small building society with only a few branches that has overcome the hurdle of having to offer stakeholder accounts may want to administer a few of the accounts, but would be unable to handle a quarter or sixth of the Revenue-allocated accounts throughout the country. That is an important point in relation to the provisions that require providers to accept all Revenue-allocated accounts, regardless of their situation, once they have accepted the principle of taking such accounts.

What help will the Inland Revenue give to providers of Revenue-allocated accounts in keeping track of the people involved? They are unlikely to have had any direct contact with the parents or family, so will the Inland Revenue inform account providers when the child changes address? That is likely to be picked up by the child benefit administration, but will it pass that information to the account provider? What steps will the Revenue take to remind children throughout their childhood that they have a child trust fund? The children may be completely unaware of the accounts if their parents have not told them about them, and even the parents may be unaware, which is why the account was not set up.

Lastly, will financial providers have to alert children at the age of 18 that they have a child trust fund? Is the

financial provider obliged to track down those who hold such accounts? If one was being cynical, one might say that it was in the provider's interests not to bother tracking down all those with accounts holding £900, £1,000 or £1,100. The cost might be disproportionate, and the provider might not mind having a large number of low-value accounts steadily gaining interest, without anyone being aware that they are entitled to the money.

That is a string of probing questions and I should be grateful if the Minister could deal with some of them.

Mr David Laws (Yeovil, Liberal Democrat)

I want to speak to amendments Nos. 149 and 150 and new clause 10. Clause 6 is extremely important, as it sets out how the state is to exercise its functions in respect of those child trust fund accounts that it opens for children who have no one to take responsibility for the account or whom the states considers are not fit to take such a responsibility. The clause provides that, for those individuals without parents, or those who have no other family members to exercise the responsibility, the state should ensure that every child has an account, even those who are in care, which certainly seems sensible.

The state will therefore exercise a sort of parental responsibility in establishing child trust fund accounts. The Treasury believes that equity accounts will perform better over a longer period than cash or bond accounts, so the Inland Revenue will open all those accounts in a format that has a significant equity investment component. Under subsection (5), however, the Treasury and the state disown responsibility for their decisions when acting as the responsible entity in respect of those accounts. That seems extraordinary, and potentially dangerous. The Minister and the Treasury, doubtless for the most admirable of reasons, indicate that they believe that the equity account will be best for those particular individuals.

I question whether it is right for the Treasury and the Government to give such unambiguous investment advice as that embedded in the Bill and that given by the Minister on Second Reading and in evidence to the Select Committee. I also question whether adequate safeguards have been put in place for those accounts over time, so that a response can be made should the investment environment change. I question whether there should not be more flexibility in relation to the management of accounts. I question also whether it is fair for the Government to give such ambiguous investment advice in respect of equities as a class of investment and then, in subsection (5), to disown responsibility for managing the accounts. My incredulity about the Government's proposals and my sense that they pose a significant risk seem to be shared by a number of members of the Treasury Sub-Committee, not least the hon. Member for Newcastle upon Tyne, Central (Mr. Cousins) in his exchanges with the Financial Secretary when she gave evidence.

The background is the Government's unambiguous judgment that equities are going to be a better investment than cash or bonds. I repeat the evidence

that I cited in last week's debate, when my hon. Friend the Member for North Norfolk (Norman Lamb) asked the Financial Secretary in the Treasury Committee evidence session whether the Government wished to promote the equity product, she said:

''Absolutely, because people tend to do better with equities''.

The Government and the Treasury point out that equities tend to perform better than cash and other investments over time, yet in relation to the safeguard referred to in other evidence given, Ms Rookes told the Treasury Committee that

''we would hope that they''—

the people who make decisions about child trust fund accounts—

''would understand enough to know that, over the longer term, equity accounts do tend to provide higher returns; but, when all is said and done, they will still have the opportunity to move to a cash account if that is what they feel more comfortable with.''

That is absolutely true of those individuals who exercise responsibility over the accounts in question. However, it is not true of individuals who rely on the Inland Revenue to manage the accounts and exercise responsibility over them. Those individuals will have much less protection over time because, it seems, nobody will police their accounts or make decisions in response to changes in the investment climate.

There can be big changes in the investment climate, and I cite the example of the share market in Japan over the last 20 years. The majority of people who exercise responsibility over their own children's accounts might respond to changes by shifting the balance of the investment from equities to bonds or cash. However, those people whose accounts the Inland Revenue are to open will not have that flexibility, which should be a matter for concern. I know that we chortled somewhat over the Nikkei stock index accounts from Japan when we discussed the matter last week, but I invite the Minister to take a longer-term historical look, perhaps at the experience of the United Kingdom, as the Library has information on the share market in the UK that goes right back to 1700. Although I do not pretend that the investment circumstances in all those periods were precisely similar to those in the last 100 or so years, there is no reason why the 1800s and the industrial revolution should have been dramatically different from the last 60 or 70 years.

I invite the Minister to consider whether the results of investment returns from equity products to which the Inland Revenue has alluded are not heavily biased by the experience of the post-second world war period in the 20th century. In that period there were some incredibly high investment returns that have not been matched in many other countries—I mentioned Japan—or in other periods in British economic history. I would be very willing to go over some of the investment experiences of the 1700s, 1800s and the earlier part of the 20th century, although I suspect that you might not want me to do so, Mr. Benton, so I would be happy to pass my notes to the Minister if she would like to see them.

The point that I should like to underline, which should be evident anyway and which the Minister

should promote in her advice, is that, as the Building Societies Association put it in the memorandum that it submitted to the Treasury Committee,

''past performance is a fallible indicator of future returns''.

Yet there is a real possibility that the Government are taking decisions about the equity investment interests of those most vulnerable citizens on the basis of a limited period of years, without thinking about how those individuals could be disadvantaged in the future.

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

I wonder whether the hon. Gentleman would share something with the Committee: would he allocate cash accounts from the Inland Revenue to children in care? Does he seriously suggest that as a possibility?

Mr David Laws (Yeovil, Liberal Democrat)

I am saying clearly to the Financial Secretary that there could be significant periods when vulnerable young people's investment interests could be far better served by investing in bonds, or even in cash accounts, than in equities. I invite the Financial Secretary to consider, for example, the long period in Japan, not in the 17th or 18th centuries but in the past 20 or 30 years, in which there has been a bear market in equities. They have declined from 37,000 or 38,000 until as we speak they are at something like 10,000 or 11,000. I invite the Minister to reflect on whether she would put her money into equity accounts in such circumstances; could we reach a situation in which the accounts being managed, essentially by the state, are dealt with quite differently from those being managed by individuals?

In case it seems too far-fetched to contemplate whether the equity accounts set up for vulnerable children and managed by the Inland Revenue should be managed more proactively in the future, I invite the Minister to go back to the evidence about child trust funds that she and her colleagues gave to the Treasury Committee on 3 December 2003. The hon. Member for Newcastle upon Tyne, Central, who clearly was very concerned about the issue, said to the Financial Secretary:

''There is no question of judgment here, you are binding your successors, they will not be able to exercise judgment, all this money will be placed in equity accounts come what may. That is the issue.''

In response to the hon. Gentleman, Ms Welsh, one of the officials who attended with the Financial Secretary, said:

''Looking at the legislation I think I am right in saying that there is flexibility for the accounts to be specified. I believe that there will be flexibility if the Government is made over time to see that the nature of that account should be changed that that would be a possibility.''

If that is so, I should like to hear more from the Minister because it seems to suggest that there could be significant changes in the equity composition of the accounts in question in circumstances in which equity investment was perceived, by the Government and by individuals taking decisions for their children, as far more risky.

The new clause and the two amendments that I have tabled touch on the issues and concerns that I have outlined today. Amendment No. 149 invites the Financial Secretary to contemplate whether there should be a specific role for the Financial Services

Authority in policing the riskiness of the accounts, and monitoring the risk over time. We debated that issue last week in respect of another clause. I shall not repeat the arguments here.

Amendment No. 150 is a reflection on whether there might be flexibility for the child trust fund accounts opened for the most vulnerable individuals to be shifted around between providers or between classes of child trust fund account. New clause 10 is essentially an over-arching clause that expresses our view about the Government's attitude towards promoting equity investment. It states essentially that the Government's role should be to provide information for all decision makers about the risk that they take in respect of child trust fund accounts, but that the Inland Revenue itself should not be giving such clear advice about the advantage of investing in particular asset classes. Where the Inland Revenue gives that advice and is responsible, potentially, for arranging, for a large group of people, a child trust fund account whose characteristics could mean significant capital depreciation over a long period, it is only right that the Inland Revenue should bear responsibility.

I agree with what I suspect the hon. Member for Newcastle upon Tyne, Central was hinting at in his comments to the Financial Secretary in the Select Committee: that if the equity market were deteriorating in the way that has happened in Japan, and child trust fund accounts of very vulnerable individuals, including children in care, were going down significantly, losing 50, 60, 70 or 80 per cent. of their value, it is inconceivable that the Government and the Minister could escape blame. There would be strong pressure for compensation for people whose accounts were invested in that way, particularly where the Government were perceived to have made that choice for these vulnerable individuals and to have got it wrong in relation to the risks in equity investment compared with bonds and cash.

I make no apology for going back over an argument that we covered to some extent last week. Fortunately, Mr. Benton, you were not in the Chair and so you have not had to listen to some of these arguments twice. We are considering how the Government intend to act in loco parentis to some of the most vulnerable individuals in society. We must ensure that those individuals are not disadvantaged by being locked out completely of an asset class that could appreciate in value. That is clearly the Minister's good intention, but neither must we put them, on the basis of the last 50 years of equity returns, in a position in which they could be significantly disadvantaged in comparison with those individuals whose accounts may be managed more proactively by parents, perhaps with the additional advice of financial advisers.

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

A number of issues have been raised in this group of amendments. The hon. Member for Tatton asked whether a wide choice of providers would offer revenue allocated accounts. At least one provider whom I met stressed how much they wanted to get into this market of offering revenue allocated

accounts. I cannot speak about all the meetings with providers, but officials have been exploring the issue them.

The hon. Gentleman argued that we should move from a system based on a rota for the allocation of Inland Revenue accounts to one that is mathematically random. Most people, while perhaps not mathematically correct, would consider a rota basis to be random. However, he makes a point in theory. The Inland Revenue would not select a particular provider on purpose. It will simply move from one to the next on the list and rotate. He asked whether the Inland Revenue would keep track of all those individuals who have Inland Revenue accounts opened for them. We hope that most of these people will eventually, through financial education and the campaigns that we will run, move provider and exercise their free choice, which they can do at any point without penalty.

We are currently in discussions about what information we should provide to those providers who offer Inland Revenue accounts. I could come back to the hon. Gentleman with more detail on that.

Mr George Osborne (Tatton, Conservative)

When the Minister says officials are in discussion about information, that presumably is in answer to my question about whether the Inland Revenue would send changes of address to account providers. Is that what she was referring to?

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

That is precisely the sort of information that we are in discussion about.

On amendment No. 149, tabled by the hon. Member for Yeovil, the treatment of children in care presents real issues for the Government. I will not conceal from the Committee that those have not been easy issues for us to address. There are some quite difficult issues to resolve. We have been in consultation across Government about the best way to provide for children in care. I am determined to ensure that children in care have the maximum opportunity that we can offer them through this policy. I hope that we continue to work together across Government and with local authorities, voluntary organisations and other parties concerned about children in care and about how the policy can evolve for the benefit of those children. We have a choice. Assuming that we are not to deprive children in care of a child trust fund, what sort of child trust fund do we provide?

I note that the hon. Gentleman shied away from the possibility of suggesting that they should be offered anything other than a stakeholder account when I asked him whether the money should be invested in cash or bonds. We have to provide—

Mr David Laws (Yeovil, Liberal Democrat)

I did not shy away at all. I said that it was possible that for significant periods the returns for these particularly vulnerable people could be higher in cash and bonds, and that the Government proposal did not allow for that.

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

I am going on to suggest how we might deal with that situation. Let me draw the hon. Gentleman's attention to the fact that the majority of children in care have somebody with parental

responsibility. That responsible person will, on behalf of the child, exercise—or not—choice with regard to the child trust fund account. A small minority of children are in care for a prolonged period, and for them the question of legal liability might arise in the way that has been presented. We are asking whether the Solicitor-General's office could act on behalf of those children. I cannot confirm today that that will be the eventual arrangement, because we are in discussion with the Official Solicitor as to whether that will be possible.

Mr David Laws (Yeovil, Liberal Democrat)

I understand how difficult the issue is. Can the Financial Secretary say what her intention is in involving the Solicitor-General in that way? Is it to do with the legal liability for managing the accounts, and the need to insulate that from the rest of Government, or is it suggested that the Solicitor-General might make decisions relating to the investment proceeds of child trust funds, which seems less likely?

Mr. Michael Weir (Angus) (SNP) rose—

Mr Joe Benton (Bootle, Labour)

Order. The Minister must respond to the first intervention.

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

We are not talking about legal liability. The Bill makes it absolutely clear that the Inland Revenue has a duty to provide these accounts for children in care. However, we are talking about who acts on a child's behalf. I cannot reveal the detail of discussions that are ongoing, but I shall keep the hon. Gentleman and the Committee informed of progress.

Mr Michael Weir (Angus, Scottish National Party)

I apologise, Mr. Benton, for an inappropriate intervention. I wanted to follow up the point about the Official Solicitor's becoming involved, and to remind the Committee that there is a different official in Scotland. We should discuss what the position would be in Scotland.

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

We are, of course, mindful of the devolution arrangements, and are consulting the appropriate person in Scotland. I can assure the hon. Gentleman that we are giving the issues serious consideration and that I shall report to the Committee in due course. I would ask the hon. Gentlemen to withdraw the amendments.

Mr David Laws (Yeovil, Liberal Democrat)

I am grateful to the Financial Secretary for giving way. I am a little surprised that her comments were that short; I was hoping that we would get a chance to probe some of her thinking a little more. While I am grateful to hear that she is engaging with the Solicitor-General on this important issue, it is unclear to me how the Solicitor-General's involvement is envisaged in respect of the types of risk that I alluded to in the amendments and their control. I was particularly envisaging some authority with a little more market sensitivity than the Solicitor-General. I do not wish to run down the Solicitor-General, whoever that is. No doubt he is well aware of these issues, but I envisaged the involvement of an agency or authority with a little more market sensitivity and more contacts with financial markets and market risks than the Solicitor-General.

I also hoped that the Minister would go into greater detail about the issue that Ms Welsh touched on in her

evidence to the Select Committee. She said that the Government might, in time, use additional flexibility to see if the nature of the account could be changed if the circumstances that they envisaged, presumably in relation to equity investment, did not come to pass. I hope that the Minister will re-examine that issue. Since she said that discussions with the Solicitor-General continue, and assuming that she has concluded her remarks—

Mr George Osborne (Tatton, Conservative)

She is allowed to speak.

Mr David Laws (Yeovil, Liberal Democrat)

I give way.

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

The hon. Gentleman makes a specific point about flexibility in response to a future change in climate. The risk controls are, of course, set out in regulation, which allows some flexibility, and they will be reviewed periodically as the policy progresses to ensure that we are dealing with stakeholder funds appropriately and specifying them accordingly.

Mr David Laws (Yeovil, Liberal Democrat)

I am grateful to the Financial Secretary. I detect that she is, at least, more sensitive to the concerns that I expressed today than she may have been when we debated a similar issue last week. For those reasons, I shall not press my amendment to a vote, even if I were allowed to do so. I do, however, hope that we may return to the issue, and that the Minister will clarify the Government's intentions further before Third Reading. Perhaps we will have the opportunity to debate the issue again then.

Mr George Osborne (Tatton, Conservative)

I have not engaged in the debate about the philosophy of equity versus bonds, and I shall stick to the grubby details of how the scheme will work in practice.

The Minister deployed against my amendment the best argument that she has deployed against any of my amendments, which was that a rota basis is, of course, random. That is, in fact, a knock-down argument, so it would be foolish of me to press the matter further. However, I raised another point that was not about my amendment. She did not respond to it, and I do not necessarily expect her to do so now, but she did say that she was aware of only one provider that was considering offering Revenue-allocated accounts, with which she had had a conversation.

The legislation contains a requirement that if a provider says that it will offer Revenue-allocated accounts, it must take all such accounts that the Inland Revenue sends its way. That may restrict the number of providers that enter the market. It is perfectly possible to imagine a building society with ties to a particular part of the country that may want to administer Revenue-allocated accounts in that part of the country but not throughout the country. It is perfectly possible to administer a small provider that says that it can handle several thousand, but not several hundred thousand, of those accounts. If the number of providers is small, the Minister may want to consider whether it is wise tying her hands in this way. I believe that that measure is in the Bill. It may be unusual for an Opposition spokesman to say this, but she may want to make it possible to change it by regulation. That may be a subject for another debate. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Mr George Osborne (Tatton, Conservative)

I beg to move amendment No. 119, in

clause 6, page 4, line 16, leave out from 'child' to end of line 18.

The amendment probes the Minister on some of the issues that she and my Liberal Democrat colleague discussed in the previous group of amendments. It leaves out subsection (4)(b), which states that the Inland Revenue can administer an account when

''it appears to the Inland Revenue that there is no-one who is a responsible person in relation to the child.''

It strikes me that when a child is not in local authority care—when they are in local authority care there is usually a responsible person—there must always be a responsible person in charge of them; for example, someone must be collecting child benefit on their behalf. As the explanatory notes explain, the Inland Revenue can act when it is

''satisfied that there is no 'responsible person' able to open an account for that child. This will usually be where the parents are under the age of 18 and not entitled to administer a CTF account.''

It also makes a point about the position in Scotland.

We have already had a debate about 16 and 17-year-old parents and it seems farcical that we trust young parents to raise a child and do many other things but not to handle a child trust fund account. I will not re-open that debate as the Minister said that she would consider the matter.

When there is no responsible person, usually because the child's parents are themselves children, would it be possible for a grandparent, or a relative or friend nominated by the parents, to act as a responsible person? Could a 16 or 17-year-old parent say that they would like their mother or father—the child's grandparents—to act on their behalf in that respect? Surely that is what the Inland Revenue would want because it would not want the job of setting up and administering these accounts.

Are there other circumstances in which a child who is not in local authority care has no responsible person in charge of them?

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

The hon. Gentleman is correct to state that underage parents are the prime source of children in the category of having no one with official parental responsibility for them. But children fall into other categories where no one has defined parental responsibility. I mentioned children who live with grandparents; often, the grandparent does not have full responsibility. There are other situations, too, in which a child is living away from parents with a responsible adult who does not have full parental responsibility. There are many different situations—the child could have special guardians, for example. Other individuals apart from parents—adoptive parents, step-parents and so on—have parental responsibility. Special guardians fall into the second category of person who has parental responsibility. This clause is designed to pick up those children for whom nobody has parental responsibility. Parental responsibility does not refer just to the child trust fund; the definition goes wider than that.

Mr George Osborne (Tatton, Conservative)

I repeat, could 16 and 17-year-old parents nominate their parents—the child's

grandparents—to be the responsible person to set up the child trust fund account, or would the Inland Revenue have to do it on their behalf? It would make more sense to allow a grandparent to do it on the child's behalf.

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

I take the hon. Gentleman's point. I promise to look at the matter and come back to him. There will be categories of person for whom no one is willing or prepared to accept parental responsibility on behalf of the child, and the provision is clearly needed so that the Inland Revenue can allocate the account accordingly. On that ground, I ask the hon. Gentleman to withdraw the amendment.

Mr George Osborne (Tatton, Conservative)

I am grateful that the Minister will consider my specific point about allowing grandparents to act as the responsible person where the parent, for whatever reason—perhaps because they are under age—is unable to do so. With that assurance, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Mr George Osborne (Tatton, Conservative)

I beg to move amendment No. 120, in

clause 6, page 4, line 19, leave out subsection (5).

The amendment touches on an issue raised in the earlier debate between my Liberal Democrat colleague and the Minister. It strikes me that subsection (5), which states:

''No liability is to arise in respect of the selection of an account provider, or a description of child trust fund, by the Inland Revenue under this section'',

is an attempt by the Inland Revenue to duck its proper responsibilities. No one, apart from perhaps the hon. Member for Yeovil, would expect the Inland Revenue to be held accountable if a Revenue-allocated account performed poorly because the stock market went down. Investments hold inherent risks, and even this Government are not to blame for them—at least, they are not to blame only when the stock market is increasing.

It is possible to imagine circumstances in which the Inland Revenue chooses a financial provider that is not up to administering Revenue-allocated accounts, when the Inland Revenue should have foreseen that. As I interpret subsection (5), and maybe the Minister will correct me, the child trust fund holder would not have recourse against the Inland Revenue in those circumstances. The explanatory notes state clearly that subsection (5)

''provides that the Inland Revenue will not be liable as a result of the choice of account provider''.

As I say, the Inland Revenue may not have properly assessed whether an account provider is able to administer Revenue-allocated accounts. Surely in those circumstances, where the Inland Revenue is at fault for not doing its job properly in selecting account providers, a child trust fund provider should have recourse to law and the Inland Revenue should be held responsible for its actions.

Mr David Laws (Yeovil, Liberal Democrat)

I am not going to be as generous as the hon. Gentleman, although we have signed up to his amendment. I am concerned that the clause involves

the Inland Revenue and the Treasury essentially giving advice and making decisions, but then accepting no responsibility for the providers selected or for the asset classes in which the child trust funds are invested on behalf of those individuals for whom the Inland Revenue assumes responsibility.

I understand why the Minister is concerned that we ensure that those people who do not have family to manage their child trust fund accounts have their interests taken into account, and have the returns from their account maximised. That is why the Minister made the decision about the equity-skewed account. However, if the Minister is going to act in loco parentis to that extent, it is not good enough for the Inland Revenue to simply wash their hands of the credit and other risks that may be assumed to be dependent on the provider involved in an individual's account and the performance of the investment over a long period. I am not going to go back over the examples that I cited earlier, but they are relevant to this amendment.

If the Inland Revenue tries to exercise responsibility for, and take an interest in, particular vulnerable group of people, as implied by its decision to select an equity investment, that cannot be the limit of its involvement in respect of credit risk and market risk. I can only hope that the Minister's comments about the potential involvement of the Solicitor-General indicate some flexibility on this point.

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

It is important to say that even if the Inland Revenue has allocated an account, it is perfectly possible, indeed desirable, for parents to exercise their free choice and change the provider of the account at any time during its operation, even when children are in local authority care. With the vast majority of children, it remains the case that somebody exercises parental responsibility on their behalf. We would expect them to exercise that choice in due course and to move to a different provider if they thought that that was the better option for their child. I do not believe that the Inland Revenue will act as a financial intermediary, as the hon. Gentleman suggests.

If there are issues surrounding providers and the accounts that they offer, consumer protection will be delivered. The FSA approves providers of CTF accounts, and the financial ombudsman exists to deal with complaints about firms and investment advice. The financial services compensation scheme acts as a safety net if FSA-authorised firms go out of business. However, there will be no market relationship between the Inland Revenue and the child. We have tested that advice legally, but the Government have a duty to ensure that the accounts are allocated to children.

Mr David Laws (Yeovil, Liberal Democrat)

Will the Minister tell us more about the extent of the compensation that would be involved if a CTF provider were to go into liquidation? What amount of investment in a CTF account would be covered in those circumstances?

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

The hon. Gentleman may be aware of the limits that operate under the financial services compensation scheme, but if he is ignorant of them, I will inform him. The maximum level of compensation

for deposits is 100 per cent. of the first £2,000, and 90 per cent. of the next £33,000, so a child trust fund holder could lose 10 per cent. of the value of the fund in excess of £2,000, but that first £2,000 would be fully covered. That offers adequate protection while ensuring that there is no risk of moral hazards arising for providers.

Mr George Osborne (Tatton, Conservative)

Before the Minister finishes I want to turn her attention to a point that I raised. The FSA will certify providers as being able to provide Revenue-allocated trust funds, but not necessarily in large numbers. If it were able to do so, the burden would fall on it. However, if the Inland Revenue is to decide whether companies are able to provide Revenue-allocated accounts, subsection (5) should not remain in the Bill.

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

No, I make it clear that the FSA is responsible in that situation. However, if the Revenue has independent information about a provider, it would be up to it to notify the FSA of any concerns. It is also incumbent on us to ensure that adequate information is available to parents, even if they do not exercise their choice of provider. We have commissioned research into the best way to communicate with parents when they receive a voucher for the child trust fund on the birth of their child. We intend to build on that in future to maximise parents' opportunity of understanding the product on offer and exercising their choice in the best interests of their child.

Mr George Osborne (Tatton, Conservative)

It is interesting that, as the Minister just said, if the Inland Revenue had independent information about a financial provider, it would be forced to pass that information to the FSA, because one could read subsection (5) as giving it immunity from being held responsible for any failure to do so. However, I will not push for a vote on the amendment, because I suspect that the courts would ignore subsection (5) and hold the Government to account.

The hon. Member for Yeovil was surprised that the Minister knew all about financial compensation. He will remember that she is one of the few people who have read the Penrose report; those issues are at the forefront of it. I will not embark on a debate about that or I will receive a thousand letters. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 6 ordered to stand part of the Bill.