Mr David Laws (Yeovil, Liberal Democrat)

I beg to move amendment No. 145, in

clause 27, page 15, line 12, after 'section', insert

'section [report on savings effect of child trust funds],'.

Mr Joe Benton (Bootle, Labour)

With this it will be convenient to discuss the following: Amendment No. 147, in

clause 27, page 15, line 17, at end add—

'(4) No order may be made under subsection (3) until the report specified in section [report on savings effect of child trust funds] has been laid before Parliament.'.

New clause 5—Report on savings effect of child trust funds—

'The Treasury shall lay before each House of Parliament a report setting out the Treasury's estimate of the net increase in saving which will result from the provisions of this Act.'.

New clause 13—Annual report on effect of child trust funds on wealth distribution—

'The Treasury shall lay before each House of Parliament every year a report setting out the Treasury's assessment of the effects of the provisions of this Act on wealth distribution in society.'.

Mr David Laws (Yeovil, Liberal Democrat)

Amendments Nos. 145, 147 and new clause 5 should be taken together, because amendments Nos. 145 and 147 are essentially enabling mechanisms for new clause 5. New clause 5 invites the Treasury to lay before each House of Parliament a report setting out the Treasury's estimate of the net increase in saving that will result from the provisions of the Act. There was a significant exchange between the Minister, her officials and the Treasury Sub-Committee on this matter. I have given the Treasury Sub-Committee enough publicity during the course of the Committee hearings, so I will not go over the questioning once again, including that by the hon. Member for Bury St. Edmunds (Mr. Ruffley).

We detected an unwillingness—although no more than that—on the part of the Financial Secretary and her officials to indicate whether they thought that the Child Trust Funds Bill would work in practice. I recall that the Financial Secretary talked about evidence-based policy making. However, policy making in respect of the Child Trust Funds Bill does not appear to be evidence-based at all, but rather based largely on speculation. Surely, if the child trust fund account is to be of any success at all, we must have not necessarily a target for additional saving—the Minister said that she does not want to get tied to that, which I understand, given the relative failure of many other Government targets—but an impression of how much the Government believe the measure will affect the total stock of savings in the United Kingdom. We have no estimate of that at all. If this is evidence-based policy making, the Government will have done work on how much additional saving will result from the Bill. Otherwise, why would we need it at all? If we simply wanted to give a stock of financial assets to a young person at the age of 18, then, as the Institute for Fiscal Studies has pointed out, this convoluted mechanism would not be needed—we could send them a cheque at that age. We could improve financial education through the education system, which might be more effective than allowing parents to manage the accounts, presumably, as we have heard, with little involvement on the part of the child.

Before the Bill is enacted, the Government owe us an explanation of how much effect the fund will have on savings, and of the basis for such an estimate. I hope that the Minister will touch on the implications not only for child trust fund holders' savings, but for the national balance between savings and investment.

It will occur to many Committee members that the Government do not have any of their—or our—money to place in the child trust fund accounts and boost individual savings. Due to the huge public borrowing racked up by the Treasury, the Government will have to go to the international financial markets to fund the scheme and, presumably, issue gilt-edged stock. The Minister will borrow money, presumably for five or 10 years, to place in the trust fund accounts on behalf of the trust fund holders. I have not checked the yield on gilts today; perhaps it is 5 per cent., or something of that order. Then she will invite child trust fund holders to invest the money. Some may invest in deposit accounts, but unfortunately they will be borrowing at 5 per cent. and depositing at perhaps 3 or 4 per cent. Others may be persuaded by the Financial Secretary's enthusiasm for equity investments, from which they will hope for yields of 6, 7 or 8 per cent.

The Government are inviting society to take a huge punt—to borrow money from the international financial markets at 5 per cent. and invest it in equities, in the hope that they will go up. If that works, it will be fantastic, although the money borrowed would have to be repaid in future years. The savings would not be net savings, but short-term savings on long-term debt. We would be borrowing money in the long term and investing in equities in the short term, hoping to make money. However, if the equity market were to fall, as it has in many countries including Japan in recent years, we would increase our debt as a society, borrowing at about 5 per cent. and investing in equities that go down. The Minister may be inviting us to take a massive punt on which we may lose money.

We have invited the Minister to say how much additional individual saving will be initiated by the Child Trust Funds Bill; we also ask her to consider the implications for savings in the United Kingdom as a whole, and to remind us that to put the money into the child trust fund accounts as savings, we will have to go out and increase our borrowing. There will be no increase in the net savings of society as a whole merely as a consequence of putting money into child trust fund accounts. It would have an effect only if there was a second-order benefit, and other people decided to redistribute their income between consumption and savings. That means that, for many years to come, we will pay back the interest income on money that is supposedly used to boost savings. If the Minister gets her punt wrong, and the equity market performs unimpressively over the next 10 or 20 years, society will be poorer as a result of the Government's decision to borrow money in a financial market and encourage us to invest it in the equity market.

Those are two fundamental issues about the purpose of the policy, and I hope that the Financial Secretary will accept new clause 5 and agree that we need evidence-based policy making before the Bill is enacted.

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

The hon. Gentleman persists in defining the success of the child trust fund largely in terms of developing the savings habits of parents and encouraging the shift between consumption and

savings. Occasionally, he admits that it may impact on the assets available to a child at the age of 18, but he persistently ignores the objectives of helping people understand the benefits of saving and investing, and building on financial education to make people better aware of the financial choices that they face through their lives. If the policy is successful, 18-year-olds will have a different range of opportunities open to them. That aspiration lies behind the policy, but it is not easy to set targets for or to measure.

I shall tackle the specific point about targets for saving, and whether we should measure the success of the policy by how much money parents add to the account. I contend that the policy would be a far more significant success if children occasionally put a sum from their pocket money into the child trust fund account. That would result in a lower savings rate than the hon. Gentleman's implication that parents will pay a regular contribution, but it might have a more profound effect on the behaviour of an 18-year-old, and the choices that they subsequently make. Those reasons reflect the philosophy behind the child trust fund, which the hon. Gentleman clearly does not share, and his suggestions are therefore inappropriate.

The Bill represents an opportunity for families, parents and children. That does not mean that we will not monitor and regularly evaluate the plan as it progresses. We will of course set success criteria. They might include the extent to which parents understand the child trust fund, the extent that the fund increases savings by children as well as for children, and the assets built up in the long term. We would also examine the degree of financial awareness among children as well as parents.

Many objectives behind the Bill do not lend themselves to easy measurements and targets. The hon. Gentleman misunderstands the fundamental purpose of the Bill, and that is clearly expressed in his opposition to it. For that reason, I ask the Committee to reject the new clause and the amendments.

Mr Joe Benton (Bootle, Labour)

I apologise to the hon. Member for Tatton for neglecting to notice that new clause 13 is in his name. I call on him to speak before the reply from the hon. Member for Yeovil.

Mr George Osborne (Tatton, Conservative)

Yes, I have my own clause in this group. New clause 13 asks the Treasury to

''lay before each House of Parliament every year a report setting out the Treasury's assessment of the effects of''

child trust funds on ''wealth distribution in society.'' I have sympathy with my Liberal Democrat colleague's remarks about his amendments and new clause. His attempts to extract hard information from the Government about what they think the likely effect of child trust funds will be in terms of the net increase in savings have been remarkably unsuccessful to date. That is despite repeated attempts by the Treasury Sub-Committee and this Committee, and on Second Reading. I am sure that we have all read the accounts of the evidence sessions in that Sub-Committee when the Minister repeatedly refused to set targets for what

she wanted to achieve. The Treasury is very keen to set targets for everyone else in Whitehall, but strangely reluctant to set targets for itself.

We can imagine what would happen if any other Department went to the Treasury and said, ''Look, we have a great idea, Chancellor. It hasn't been tried anywhere else in the world and we don't have much evidence to suggest that it'll work. We have a couple of encouraging surveys, but we haven't done any research and we do not propose to set any targets. The whole thing will cost £235 million a year. Will you sign on the dotted line?'' Of course, the Chancellor or the Chief Secretary would send that Department packing, but it helps if one is an insider in this Government and works within the Treasury when one comes up with expensive schemes that are not research-based or evidence-based. Indeed, it could be said that that is what happens when the Department that controls expenditure is itself turned into a spending Department. I predict that we shall see more of that as the Treasury takes on this sort of function.

New clause 13 would require the Treasury to publish an annual report on the effect of child trust funds on wealth distribution in society. The Financial Secretary has said repeatedly, including in the policy document originally, that child trust funds have four objectives: to help people to understand the benefits of savings; to encourage them to develop the savings habit; to ensure that all children have a secure financial asset; and to build on financial education. However, we know that she has a fifth objective. It is not spelt out in the policy document—she must have forgotten to include it—but she revealed it to the assembled luminaries at No. 10 Downing street when she addressed the Institute for Public Policy Research summit on child trust funds in 2002. Thankfully for the Committee's enlightenment, I have been able to obtain a copy of the minutes of that meeting. The relevant section is entitled

''Response—Ruth Kelly MP (Financial Secretary to the Treasury)''

and states:

''Ruth pointed out that overall distribution of wealth is far more skewed than that of income. The wealthiest 1 per cent. of the population possess approximately a quarter of all personal wealth in the UK. About a third of the adult population in the UK have no financial savings at all. What is more there are signs that wealth inequality is increasing.''

By the way, I intend to use that quote elsewhere. The Minister continues:

''Part of the response to this situation has been the announcement of . . . the Child Trust Fund''.

In other words, the Minister admits that wealth inequality is increasing under a Labour Government—it is good to have that on the record. She also says that child trust funds are part of the response to that situation. In other words, an objective of child trust funds is to reduce wealth inequality, if that is what being part of the response to the situation is. However, it is difficult to see how the Government will achieve that, even with the means-tested supplementary contribution, which we have discussed.

I suggest, as I did on Second Reading, that child trust funds may exacerbate wealth inequality in our society, because children from far better-off households will, at the age of 18, have assets worth £15,000, £25,000 or £35,000, whereas children from the poorest families, who will make no contributions, will have assets of £1,000. That is a clear inequality. Of course, children from better-off families have more assets in theory anyway, but even wealthier families tend not to save for their children. One survey has shown that remarkably few people save for their children, so in fact children from wealthy families do not have assets at the age of 18, whereas if the Bill is a success, they may have thousands of pounds worth of assets.

It is perfectly possible that child trust funds will increase, rather than reduce, wealth inequality. Like the Prime Minister, I do not think that that is a problem, because I do not think that wealth inequality is such an important measure. I remember him being pressed on that on the ''Newsnight'' programme during the general election. He repeatedly refused to answer Jeremy Paxman's question about whether it mattered if the gap between the rich and the poor was getting wider. The Prime Minister was right in saying that it does not matter, provided that the least well off in society are getting richer. I am happy to support the child trust fund on the grounds that it helps poorer families to build up assets, regardless of the effect that it has on better-off families.

I am not concerned about wealth inequality, because I share the Prime Minister's view, but I know that the Financial Secretary sets her course by a different star in the Government. In the IPPR summit, she identified the growing wealth inequality under Labour as a problem and said that child trust funds are part of the response. If the Financial Secretary is so confident that child trust funds will work and reduce, rather than increase, wealth equality, I should have thought that she would welcome new clause 13. It would give her a chance to demonstrate the success that her policy is having each year.

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

The hon. Gentleman makes an interesting point about wealth inequality. I thought for a moment that he was going to announce that he had converted to a different course, and I was going to regret the fact that the Conservatives had not converted earlier. Now, it is revealed that he is not a convert, as wealth inequality does not matter to him.

Wealth inequality matters to me not only because wealthy people have more than poorer people, but because it is possible to have a situation, as we did in the 1980s, in which poorer members of society have no stake in the system. They can have no assets behind them and no access to the opportunities that other people in society take for granted. Up to a point, wealth distribution is a proxy for the distribution of

opportunity in society. I am concerned that people from all income and wealth backgrounds have opportunities. In particular, that means enhancing the life chances of those on the bottom rungs in terms of both income and wealth.

Mr George Osborne (Tatton, Conservative)

Will the Financial Secretary repeat what she has said in private, which is that wealth inequality is increasing? It would be useful if we accepted that as a starting point. I fully accept her argument that we want to increase the assets, savings and wealth of the poorest, but she identified inequality—usually understood as the gap between the richest and poorest—as the problem. If she repeated her statement that wealth inequality is increasing, that would help us start from an agreed basis.

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

The hon. Gentleman knows that wealth inequality figures, like income inequality and child poverty figures, always appear many years after the situation to which they refer. Speaking in 2001, I was clearly referring to the rapid rise in inequality that occurred under the Conservatives, so I cannot share his premise. As to whether wealth inequality matters, I would say that it really matters that children from across the social, income and wealth spectrum have as equal life chances as the Government can facilitate. That is what the child trust fund is intended to contribute to. It will not do all the work itself, but it will make a minor contribution.

The hon. Gentleman described the policy as not being evidence based, but many studies have been carried out, not least the independent research by Deloitte, to which I referred extensively in the Treasury Committee.

Mr George Osborne (Tatton, Conservative)

Will the Government publish it?

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

We are committed to publishing that research. The interim evidence from the savings gateway also shows that people on very low incomes have a willingness to set money aside. Survey evidence, which the hon. Gentleman seems to dismiss, suggests a great willingness on the behalf of parents, even in the D and E socio-economic groups, to put money aside for their children for the long term. I would imagine that that is partly because they recognise the significance that such an asset could have for their children at the age of 18.

Those parents may recognise that more than wealthy families, whose children already have significant opportunities at the age of 18. Having a stock of financial assets behind them may not make such a big difference to the children of wealthy families, but a stock of assets will have a profound impact on children in poorer families.

It being twenty-five minutes past Eleven o'clock, The Chairman adjourned the Committee without Question put, pursuant to the Standing Order.

Adjourned till this day at half-past Two o'clock.