Mr David Laws (Yeovil, Liberal Democrat)

I beg to move amendment No. 156, in

clause 20, page 10, line 36, leave out 'of £300' and insert 'not exceeding £3,000'.

Mr Joe Benton (Bootle, Labour)

With this it will be convenient to discuss the following:

Amendment No. 186, in

clause 20, page 10, line 36, leave out 'of £300' and insert

'not exceeding £3,000 or a period of imprisonment for a term not exceeding 1 year'.

Amendment No. 187, in

clause 20, page 11, line 14, leave out '£300' and insert '£3,000'.

Amendment No. 188, in

clause 20, page 11, line 20, leave out subsection (5).

Amendment No. 189, in

clause 20, page 11, line 41, leave out '£300' and insert '£3,000'.

Mr David Laws (Yeovil, Liberal Democrat)

We now move on to a slightly more mundane subject: the penalties that can be imposed by the Inland Revenue in respect of fraudulent or negligent claims.

Amendment No. 156, which the Liberal Democrats have tabled, and amendment No. 186, which the hon. Member for Tatton will discuss, deal with subsection (1), which allows the Inland Revenue to impose a penalty of £300 on anyone who fraudulently applies to open, makes a withdrawal from or secures the opening by the Inland Revenue of a CTF account. Subsection (2), which we must also hold in our minds when we consider the issue addressed in amendment No. 156—and to some extent amendment No.186—also allows the Inland Revenue to impose a penalty not greater than £3,000 on

''(a) an account provider who fraudulently or negligently makes an incorrect statement or declaration in connection with a claim under section 8 or 9 or regulations under section 10 or 13, and

(b) any person who fraudulently or negligently provides incorrect information in response to a requirement imposed by or under regulations under section 15.''

Is the £300 penalty in subsection (1) an adequate deterrent? Is it proportionate compared with the penalty in subsection (2)? In tabling amendment No. 156 I was concerned that the £300 penalty seems low compared with the potential to defraud a CTF account of up to £500—the sum involved if the account is being opened with the larger Government contribution. There is an element of tough liberalism here, as my hon. Friend the Member for Winchester (Mr. Oaten) would say.

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

But it is not as tough as Toryism.

Mr David Laws (Yeovil, Liberal Democrat)

No. I will deal with that in a moment. It is not every day that we suggest that the Government have been too weak in giving themselves the power to impose a fine of only £300. We have suggested instead that the penalty could be greater than that and may increase up to £3,000.

We tabled the amendment only to be ruthlessly outflanked by the hon. Member for Tatton, who not only wanted to allow the penalty to be raised from £300 to £3,000, but would give the Inland Revenue the option of a period of imprisonment for a term not exceeding one year. It would be appropriate for the Minister to say whether she wants to take on powers of imprisonment. I am a little bit concerned about the hon. Gentleman's proposals.

As I understand it, clause 21 makes it clear:

''It is for the Inland Revenue to propose a penalty under section 20.''

Perhaps I have got that wrong. It seems as though the hon. Gentleman would give the Inland Revenue the power to imprison people, which is something at which even the Prime Minister and the Home Secretary would baulk, or perhaps not. We wait to see whether the Government will table their own amendment, which may have an even more draconian effect and send people away to some offshore island to do hard labour. I am not sure whether I would go as far as the hon. Member for Tatton. He will speak to his own amendments in a minute.

There is a question whether the £300 penalty is sufficient. I also question whether it is proportionate, considering that a penalty of £3,000 has been allowed under subsection (2). I acknowledge that the higher penalty is for the providers; presumably, the Government consider that a higher penalty is appropriate for them because they would have a greater ability to pay. However, the clause says that account providers would be subject to the £3,000 penalty for fraudulent and negligent claims. It seems disproportionate that under subsection (1) there is the power to impose only the £300 penalty on somebody who wilfully intends to defraud the Exchequer on opening a CTF account, or withdrawing money from one, whereas under subsection (2) somebody who merely makes a negligent claim can be subject to a £3,000 penalty.

I hope that the Minister will consider that tough liberalism approach, and the potential benefits to the Exchequer of the additional fine income that would result, which I am sure she would be able to spend in many interesting ways.

Mr George Osborne (Tatton, Conservative)

In alliance with my Liberal Democrat colleague I am attempting to be tougher on crime and tougher on the causes of crime. I support amendment No. 156, which increases the maximum penalty from £300 to £3,000 for persons who fraudulently seek to open a child trust fund and exploit the scheme. As he said, it seems strange that although they stand to gain £500 from trying to fraudulently open a fund, the penalty is only £300. That makes no sense, because it provides a clear financial incentive to have a go. My amendment would add the possibility of a period of imprisonment. I am not seeking yet to reopen debtors prisons throughout the country but, as the Minister says, the Inland Revenue would not be in a position to lock up people in the bowels of the Treasury. However, the principle, if not the practice, of what I want to achieve is correct.

Surely the Crown Prosecution Service should at least have the option of applying for a custodial sentence, and judges and magistrates should have the option of imposing one. I say that because it is possible to imagine not merely one-off frauds or negligent claims, but large-scale fraud. We are hoping that that will not be the case. I think that the Government are right to say that the product will be a low risk in terms of fraud, but it is possible to imagine a scam in which someone opens hundreds of CTF accounts and, in those circumstances, it would be strange if there were

no prison sentence. Perhaps the Minister will say that, in the process, people are bound to break other laws that will give the courts powers that the Bill does not. I should be interested to hear that from the hon. Lady.

Amendment No. 187 would increase from £300 to £3,000 the penalty on a financial provider that fails to make a claim for the initial, supplementary additional contribution. It is only fair to give the courts or the Inland Revenue, in this case, some discretion. It is possible that, through blatantly poor management, a financial provider will not do its job properly and, as a result, people lose out because their fund is not accumulating income. The Inland Revenue should therefore have a wider scope of financial penalties available to it.

Amendment No. 189 would do the same for other regulations in respect of account providers. Amendment No. 188 would remove from the clause subsection (5), which states:

''No penalty . . . may be imposed on a person in respect of a failure after the failure has been remedied.''

That seems unnecessarily lenient. Let us suppose that someone goes to a provider, opens a CTF account, expects the provider to apply to the Inland Revenue to put initial funds into the account so that some income can start being earned, but the provider fails to take such action. What will happen a year later when the person is sent an annual statement, notices that he does not have a child trust fund and complains?

As I understand it from subsection (5), provided that the financial provider steps in immediately and says that the problem will be rectified, so no worry should be expressed about it, no penalties would be available to the Inland Revenue. All I am suggesting is that the Inland Revenue should at least have available to it some flexibility. Even if it is clear that the provider has corrected the mistake, it should be punished for making the mistake in the first place, and that should act as an incentive for it not to make future mistakes. In those circumstances, the Inland Revenue should have at its disposal the power to impose a fine.

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

Much as, I am sure, the Inland Revenue would love to have the power to lock people up for fraudulently claiming child trust funds, our aim is to develop a proportionate regime. At investor level, it is conceivable that there could be attempts to counterfeit vouchers and to open fraudulent or even multiple CTF accounts. However, the system that we have designed means that we will identify the vouchers when they are presented and, most importantly, before any Government endowments are paid into the account.

We have tried in the clause to mirror as closely as possible the penalty provisions that already exist in the system. The sum of £300 regularly appears in income tax and tax credit penalty provisions. Levying a fixed penalty of £300 will provide certainty, and we will avoid having to administer an abatable penalty, which can be reduced to take account of factors such as gravity, co-operation and disclosure, if a sum is sought that the Inland Revenue can levy without having to take account of such complexity. Of course, we would attempt to recover any Government endowments, if they had been paid, and the tax relief that was paid into

the child trust fund. I believe that the penalty provision in the Bill is sufficient to deter non-compliance and is commensurate with the risk in all but the most serious cases.

The hon. Member for Tatton outlined some examples of what might be considered to be a serious case, such as a multiple fraud. In all such cases the Inland Revenue would seek to prosecute and not to levy penalties. That is an option. There is no reason why a serious term could not be imposed for serious fraud.

There is no reason, on the face of the Bill, to put down such a penalty of imprisonment. The penalties for child trust fund providers are very much based on existing penalty provisions for ISAs and other similar schemes. The reason that the penalty has been set at £3,000, rather than £300, is not because providers are more able to pay, rather that there is more money at risk. If the provider, as it were, deals with a particular account in a certain way, it is much more likely that other accounts will also be affected.

The child trust fund has been modelled, to a considerable extent, on ISAs. The Inland Revenue's experience of administering ISAs and other schemes shows that the penalty levels are sufficient to ensure compliance with the operational rules. I certainly believe that the penalties, as set out in the Bill, are sufficient to ensure compliance and that they are proportionate. I would ask the hon. Gentleman to withdraw his amendment.

Mr David Laws (Yeovil, Liberal Democrat)

I shall not press this to a vote. I am reasonably reassured by the Financial Secretary's comments, particularly the clarification that the Government and the Inland Revenue would seek to prosecute in very serious circumstances. I am not sure that the Financial Secretary's statement that the fine is intended to be proportionate to the amount at risk necessarily holds. I believe that those penalties also relate to withdrawal from child trust fund accounts that have been ongoing and in existence for a period of time, where potentially somebody could withdraw a much larger amount. However, in view of the assurances from the Financial Secretary, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 20 ordered to stand part of the Bill.

Clauses 21 to 26 ordered to stand part of the Bill.