Amendments made: No. 52, in page 16, leave out line 8.
No. 53, in line 11, at end insert—
'"the General Commissioners" means the Commissioners for the general purposes of the income tax appointed under section 2 of the Taxes Management Act 1970 (c. 9),'.
No. 54, in line 12, leave out 'and'.
No. 55, in line 13, at end insert
"the Special Commissioners" means the Commissioners for the special purposes of the Income Tax Acts appointed under section 4 of the Taxes Management Act 1970 (c. 9).'.—[Jim Fitzpatrick.]
Order for Third Reading read.
I beg to move, That the Bill be now read the Third time.
The child trust fund is a radical and ambitious policy with four key objectives. They are helping people to understand the benefits of saving and investment;
encouraging parents and children to develop the savings habit and engage with financial institutions;
ensuring that in future all children have a financial asset at the start of adult life;
and building on financial education—working with the Department for Education and Skills and the Financial Services Authority in helping people to make better financial choices throughout their lives.
The Third Reading of the Bill is a milestone on the route to achieving that ambitious policy. I am grateful to right hon. and hon. Members in all parts of the House for their support and constructive debate today and in Committee—when our deliberations were steered efficiently by my hon. Friend Mr. Benton and Mr. Amess. The hon. Member for Southend, West commented that it was a model Committee. I have Opposition spokesmen to thank for that praise because their contributions were invariably made in the spirit of improving the Bill.
The value of our debates in Committee is demonstrated today by Government amendments tabled to reflect proposals discussed and agreed. The Government have presented an amendment to lower from 18 to 16 the age at which young people can manage their accounts, Young people will not be able to touch the funds until they are 18, but from 16 they will be able to make their own investment decisions. I am delighted that the House supported that amendment, which is a real improvement to our policy.
Debate in Committee focused also on the need for providers to collect the child trust fund voucher before opening an account. I still feel that collection of the vouchers is the best method to reduce errors and deter fraud, but I have signalled, by tabling an amendment allowing that feature to be changed in regulations, that the issue will be monitored in the future.
Concern was expressed about who might act for children in care in the unusual circumstances where no one had parental responsibility. I was able to inform the Committee that we were holding discussions with the Official Solicitor about whether his office could take on that role. Members will understand that a sensitive issue such as that needs to be considered thoroughly, so it was not possible to introduce an amendment at this point, but it is our intention to do so when the Bill is considered in another place.
Perhaps one of our most important debates in Committee was on the question of whether the child trust fund should have special rules for disabled children. I pay tribute to the efforts of Mr. Cameron for moving important and interesting amendments on that subject. In Committee, I promised that I would give the matter serious consideration. There are some difficult issues, both of concept and practice, and they cannot be rushed. Furthermore, I have made it clear that changes could be made by regulation without the need to amend the Bill.
Members of the Committee expressed particular interest in the level of the charge cap and the minimum contribution that providers would have to accept from parents and others who invest in the child trust funds. I am pleased to tell the House that the charge cap for stakeholder child trust fund accounts, which all providers will be required to include in their range of child trust fund accounts, will be 1.5 per cent. The decision to set the cap at 1.5 per cent. recognises that the child trust fund has certain key features that are not typical of other products in the stakeholder suite, such as stakeholder pensions. The funds in CTF accounts will be lower than funds in pension funds, for instance, and there will also be a lower level of minimum contribution than for other stakeholder products.
Providers will have to accept contributions of £10 and above for the stakeholder child trust fund account. The minimum contribution level has been chosen to ensure that the child trust fund is accessible to as wide a range of savers as possible, including those who might find it difficult to make regular contributions.
I thank my hon. Friend for informing the House about the charge cap, which I think everyone accepts, and about the minimum deposit required. After the child trust funds have been introduced, will she consider a review of the minimum amount of £10, to determine whether low-income groups, in particular, have been able to meet that hurdle, so that we ensure that they can save properly with the child trust fund?
I certainly give my hon. Friend that commitment. Accessibility for low income groups is a vital component of the success of the policy. I anticipate that some providers will accept lower levels of contribution, especially if they are regular. I have also made it a requirement that they tell customers up front what the minimum contribution is likely to be, so that families and individuals, especially those on low incomes, can make appropriate choices in the best interests of their child.
Members will be interested to hear that there are no charges for transferring between different types of CTF account—whether between a stakeholder account and other types of account, or between providers. For example, if a family on a low income suddenly find that they are unable to make a contribution of, say, £5 with their current provider, they are at liberty to switch, with no charge, to another provider who accepts lower amounts. A key objective of the child trust fund is to improve financial literacy, so I judged it appropriate that there should be no charge for families who choose to switch provider.
The child trust fund is a foundation on which we can build. I believe it is the key to creating a real change in people's ability and desire to save for the future, so that children can make the most of their opportunities. I ask hon. Members to support the Bill, and I commend it to the House.
This is the first Bill that I have shadowed as an Opposition spokesman. It has been a steep learning curve, but I have enjoyed it, especially as the Committee process was particularly constructive. That was largely due to the Financial Secretary, in the sense that it is in a Minister's hands to determine the mood of the Committee—it depends on whether he or she accepts amendments and is prepared to listen to arguments. I served on several Committees as a Back Bencher and on one Committee as a Whip, and it is fair to say that we made more progress on this Bill and that there was a more constructive dialogue than in all those other Committees put together, so I thank the Financial Secretary, as without her input that would not have happened.
I thank the other members of the Committee, including Mr. Laws, who speaks for the Liberal Democrats. We occasionally co-operated with each other and worked out where we would cause Divisions and so on, so I thank him for his support. I particularly thank Colin Lee, the Clerk to the Committee, who gave me an enormous amount of help, not least because, as I say, this was the first Bill that I have shadowed for the Conservative party. Perhaps it will be the last Bill that I shadow—it depends on when the general election takes place.
On Second Reading, I said that we Conservatives support the principle behind the Bill because we believe in the value of savings. We believe that savings nurture independence, that they encourage self-reliance and that they bolster the individual against the state. I also said that we did not stumble across those beliefs through a focus group, an Institute for Public Policy Research summit or some belief in asset-based welfare—they are rooted in the Tory tradition—but that we had concerns about the detail.
I am pleased to say that many of those concerns have been addressed by the very constructive approach that the Government have taken in considering the Bill. For example, I shall repeat some of what the Financial Secretary has just said. She accepted that 16 and 17-year-olds should be able to manage their accounts. The Government agreed to consider the situation of children with terminal illnesses. They looked very constructively—the Financial Secretary is still doing so—at the proposal made by my hon. Friend Mr. Cameron.
The Government have agreed to work with providers on the opening up of child trust funds to elder children and to consider regulatory changes if they are required. They have agreed to consider options to help children in care, and the Financial Secretary said some interesting things about that today. She has opened the door—no more than that—to a telephone and internet-based system, rather than a voucher system, by amending the Bill. She accepted the argument that sticking with a 1 per cent. charge cap would have been a mistake. I am glad that she recognised that and agreed with the 1.5 per cent. figure.
All that represents a constructive approach, but it would be a mistake to say that we do not still have some concerns, not least about the extension of means-testing to a cradle-to-grave society. We are instinctively against the extension of means-testing; it is our greatest concern, but we discussed that in Committee and I knew that it was unlikely that we would change the Government's mind on that.
Only time will tell whether child trust funds succeed in encouraging savings, educating people about the value of saving and spreading financial education. I suspect that we will not really know for 18 years whether they have been a success. We will then start to see how people spend or invest the money that they have at the age of 18, and there may be some horror stories at the time, but we shall see. Conservative Members are committed to trying to make child trust funds work, so we will support the Government if there is a Division tonight.
I have never before served on a Standing Committee that has considered a Treasury Bill and, frankly, it is an experience that I would have avoided before now. We have talked a lot about financial education. I am one of those people who tends to avoid banks, building societies, financial institutions, regulations and all those worrying things, but I have thoroughly enjoyed serving on the Committee, partly because of the Front-Bench spokesmen and my hon. Friend the Financial Secretary, who have occasionally characterised themselves, and been characterised, as the young, thrusting generation of the House. We have been talking about a Bill whose effects we will only see over a generation and the generations beyond that. By the time that the first trust funds come to fruition, I can confidently predict that my hon. Friend will have attained great eminence in government, and I am sure that the other extremely able. Members will have enjoyed themselves making small achievements amid the general wastes of Opposition for many years to come.
It is important to recognise that the consideration of the Bill has been helpful and constructive, because underlying the whole debate has been the recognition that its proposals have enormously exciting potential. We heard about the grand old Tory values of savings, self-reliance and all the rest of it, but the Bill is new Labour. It is a universal provision that addresses the most serious issues in our society: child poverty, the urgent and desperate need for regeneration and the absolute need to ensure that every child in our society has real opportunities to succeed and make the best of what they have. It takes an entrepreneurial attitude towards the future and gives young people the chance to own a substantial asset. It will create an imaginative process and implement a grand proposal that will tackle poverty and help people to address their own circumstances and future in a way that neither this country nor any other country in the world has ever seen before.
I am sad, in a way, that we have not reached the conclusion that I wanted on a matter about which I feel strongly—children in care. However, I am encouraged by the idea that over the next 16 years—the next generation—people who work with children, and children themselves, will have the opportunity to determine the way in which the development of child trust funds may be adapted, adopted and improved to support children's lives in ways that we have perhaps not been able to foresee readily during the Bill's parliamentary stages.
Some grand ideas were expressed in Committee by not only the Government, but the Opposition. Ideas on working with and supporting children with disabilities and the way in which trust funds could be adapted to meet their needs in a new future of social care are important and point the way forward. A good Committee considered a good Bill that implements a truly inspirational idea and gives us something for the future of which we can all be proud.
Mr. Dawson started his speech by saying that he was not always invited to serve on Committees to consider financial Bills, and that he had not expected to enjoy his experience in Committee. I share his view that our scrutiny of the Bill has been especially interesting. I warn him not to read too much into his experience on that Bill Committee, however, in case any of his Whips come running to ask whether he wants to serve on the Finance Bill Committee. I assure him that that is an altogether different prospect—I give him that advice freely and constructively.
We have been engaged in a good constructive process over the past few weeks. Our consideration of the Bill has undoubtedly been interesting because whether one agrees or disagrees with the Government's proposals—we have disagreed—their effects will clearly be felt by many families throughout the country, so it was important for us to get the Bill right and amended as best we could. I pay tribute to the Financial Secretary for her constructive approach throughout our proceedings and her patience and tolerance when I pressed her on Japanese equity markets and other such matters on many occasions, without necessarily getting very far.
It has also been a pleasure to work with Mr. Osborne, who on occasion has been more critical of his own amendments than of the Government's, and has brought great honesty and candour to the Conservative Front Bench. Now we accept that the hon. Gentleman speaks for the Conservative party on this issue, and after its previous leader went out of his way some time ago to criticise the proposal, the hon. Gentleman has clarified its position on this matter.
I also pay tribute to the Clerk of the Committee, who was extremely helpful to Opposition Members in particular, especially as those on the Front Bench for both parties were relatively inexperienced. His assistance in the drafting of amendments was particularly useful. In addition, I thank those who chaired our proceedings, and the Minister's staff, who no doubt had to do a great deal of work in responding to the amendments.
I also thank the Minister for amending certain parts of the Bill to take on board some of the considerations expressed from the Opposition Benches. She mentioned the important issue of account management at the age of 16, on which the Government have made genuine progress. It is also clear that they will introduce regulations to deal with the issue of terminally ill children, which is extremely important, and I welcome the fact that the Minister has made it clear that no charges will be imposed on transfers.
There are a number of issues that we hope the Minister will return to at some stage, either because of undertakings that she has given or because the passage of time proves that our concerns were justified. In particular, I drew attention to the minimum subscription level, which we remain uncomfortable about leaving at £10. We would like to see the accounts more open to low-income savers. I also drew the hon. Lady's attention to the issue of children in care. She has agreed to look into the matter and review the progress of our support for children in care in its totality.
I have often expressed my concern about the emphasis on equity-based investment for the accounts to be opened by the Inland Revenue, including the accounts of children in care. I am pleased that the Minister said tonight that she was thinking about how that can be dealt with, including through the involvement of the Official Solicitor. If I were the Official Solicitor I would be pretty nervous about taking the responsibility of monitoring the accounts and investment returns, unless I had a guarantee that my time in that job would not last the full 18-year life of a child trust fund account.
We pressed the Minister on access to the accounts for 16-year-olds, particularly those in full-time work. I acknowledge that it seems unlikely that she will change her mind on that subject.
In Committee we had debates, which we did not air again tonight, about the interaction between child trust fund accounts and the benefits system, including issues such as the deprivation of capital. There was not much movement from the Minister on those issues in Committee, but I hope that she will keep them under scrutiny, so that if it turns out that some of the concerns were justified, the Government will be able to respond to those concerns as evidence bears them out.
I am afraid that in the final stages of Third Reading, I shall add a somewhat discordant note. As the Minister knows, we do not share her enthusiasm, and the enthusiasm of her hon. Friends and most Conservative Members, for the Bill. Our reservation is not based on the details—important, but details none the less—that I have just outlined. Our concern is about the bigger issues involved in the Bill—whether it will succeed in doing what the Government have said it will, and to some extent whether the Government are spending the large amount of money involved in the most effective way, particularly if they are concerned about child poverty.
I should like to ask the hon. Gentleman the question that he has been asked throughout the passage of the Bill. He was constructive in Committee, and has been the same so far on Third Reading, and that constructive approach included tabling amendments that would have enhanced the Bill. Does he see any contradiction between that and his opposition to the Bill overall?
The hon. Gentleman may not be surprised to hear that I see no contradiction at all. We said at the beginning of the debates on the Bill that we were fundamentally opposed to it, because we did not believe that it would achieve its objectives, and because we thought the money could be better spent elsewhere. We made it clear that we would seek to amend the Bill, in Committee and elsewhere, as effectively as we could, to improve it. That seemed the sensible and constructive thing to do.
Nobody has mentioned in detail, although the Financial Secretary may have touched on them, the four fundamental reasons that the Government set out to justify the introduction of the child trust fund account. I shall run through them briefly, so that we can see whether the Government have satisfied the House that those objectives will be met. The first two seem to be more or less the same—first, to build on financial education to help people make better financial choices, and secondly, to help people understand the benefits of saving and investing.
We have questioned, as have the Institute for Fiscal Studies and others, whether the child trust fund accounts will succeed in those objectives, and whether money invested in financial education in schools could achieve that out-turn more effectively. After all, it was not until the past couple of days that the Financial Secretary accepted the proposal that 16 and 17-year-olds should be able to manage their own accounts, and that children should have any involvement in the running of those accounts. They were to have been run entirely by their parents, which seems an odd way to give people financial experience and education. We do not believe the Government have demonstrated that the large amount of money to be spent on the Bill satisfies those two criteria. The Minister referred in Committee to evidence-based policy. On these two objectives, we see a lack of clear economic evidence that the Bill will have the effects that the Government intend.
The third stated objective was that the Bill would ensure that in future all children had a financial asset at the start of adult life. That seems to be at odds with the Government's recent decision to encourage students to take on greater debt to fund themselves through university. The question is whether people need financial assets at particular periods of their life, or whether there is a rhythm in the way in which people earn money and save money, which means that the Government should leave those matters to people themselves, rather than interfering. There seems a particular contradiction between the Government's determination to give young people, through the Bill, assets at the age of 18, and their willingness to encourage people to take on debt at a similar age to fund themselves through university.
Will the hon. Gentleman take into consideration the fact that the poorest 30 per cent. of students going into higher education will have substantial grant assistance? Might that not complement the asset that they will have in the child trust fund?
I accept the veracity of the hon. Gentleman's point, but it does not address my concern that Government policy appears to be heading in two contradictory directions. On one hand, there is the desire and willingness for people to have large financial liabilities at the age of 18, and the Government say, "Don't worry, you can pay it off through your income. You'll earn a lot of money over your life in employment. You shouldn't be worried about having the debt." On the other hand, the Government say that it is vital to give children a financial asset at the beginning of their working life. Those two things are clearly contradictory.
The final objective of the Bill was to encourage parents and children to develop the savings habit. That implies that the Government expect additional saving as a consequence of the Bill; otherwise the Bill would simply shift the savings habit from one savings vehicle to another. I have not seen a shred of evidence that suggests that the Financial Secretary knows whether the Bill will increase saving. Not only has she been unwilling to put a target on the additional savings, but she has been unwilling even to estimate the extent to which the Bill will increase saving. That suggests a certain scepticism on the part of the Government, or at the very least uncertainty about whether their policy will deliver one of the stated objectives.
The Financial Secretary will say that the Government have received many representations from individuals and corporate entities welcoming the Bill. As I pointed out earlier, that is not surprising, given that the financial market providers ought to gain business from the activity envisaged in it.
Lest it seem that these are only Liberal Democrat objections, I want to bring the House back to some of the comments that have been made by independent bodies that have scrutinised the Bill—[Interruption.] They include not only the Institute for Fiscal Studies, as the hon. Member for Tatton suggests, but the Treasury Sub-Committee, whose Chairman commented that the proposals in the Bill were likely to be of most benefit to better-off families. That must surely worry the Financial Secretary.
In connection with the Government's four objectives, I draw the Financial Secretary's attention to comments made by the Institute for Fiscal Studies. In its report of October 2001, it evaluated the savings gateway and the child trust fund and concluded that
"it is not possible to state with certainty whether the Child Trust Fund or the Saving Gateway will lead to an increase, a reduction or no change in the rates of saving among the target groups."
The Minister should take the IFS's representations seriously, because I can think of no more independent and credible body that has made representations to the Government on the Bill. Its criticisms have covered a wide variety of areas. For example, it also questions whether the educational aspects of the Bill are best delivered through the child trust fund or could be better delivered through improved financial education.
In its paper to the Treasury Sub-Committee in November 2003, the IFS summed up its position by saying that the policy has not been satisfactorily justified, and went on to say:
"it is quite possible that the immediate beneficiaries of the Child Trust Fund will be richer families who can substitute the endowment payment for saving that they would have done for their children, and so increase their current consumption. Families who would not have saved for their children, many of whom will be poorer families, will have to wait eighteen years to benefit from their Child Trust Fund."
That takes me to my final point. Several hon. Members remarked on how valuable the policy will be in dealing with child poverty, which was one of the reasons that the Prime Minister cited in launching it a couple of years ago. However, they have all entirely missed the fact that it will not deal with child poverty at all, because the assets will not be available until the age of 18. That is presumably why the IFS, in its "green Budget" of 2002, concluded its assessment of asset-based welfare by saying:
"Equally, it is not clear that children from low-income families will be better supported by being provided with an asset that grows through their childhood, rather than by targeted increases in financial support to their families or by targeted education spending. Prior to considering design issues, it would have been useful to have had a stage of the consultation process that invited comments on whether the new policy direction that is asset-based welfare is a good one to take."
Perhaps the most important reason why Liberal Democrat Members will vote against the Bill is that we question not only whether it will deliver on its objectives, but whether this is the best use of a very large amount of Government money, starting at £250 million per year and probably going up to £350 million or £400 million per year. If the Government are really concerned about child poverty, as the Prime Minister suggested when he launched the policy, the money should be focused on the early years, where the roots of inequality in our society are based.
Is not the hon. Gentleman overlooking the generational nature of poverty, whereby one poor generation begets another; and is not this policy entirely complementary to the work that the Government are doing on Sure Start, and in many other respects, to help people out of poverty at a crucial stage of their lives?
It is of far less importance than the other good work that the Government are doing in trying to tackle inequalities of opportunity and child poverty, particularly in the early years. At a time when so many of the population, including many children living in poverty, do not have access to services such as Sure Start, the Government's first priority should be to extend the provision of those services, not to launch a Bill whose policy is supposed to be evidence based, but where evidence that the policy will work is in such short supply.
The Scottish National party supports the Bill. Perhaps some of the claims for it have been overplayed, but it is none the less an interesting idea and an interesting way forward, and we have supported it throughout its various stages.
However, there are still some concerns about the Bill, and I share some of the concerns of Mr. Laws, although not his opposition to it. I raised on Second Reading, in Committee and again today the whole question of access for lower-income families. We have seen movement on many areas from the Financial Secretary—or potential movement, as we have yet to see the outcome, which will be interesting over the next year or so. We even saw perhaps a slight indication of movement on the question of deposit-based accounts, but the absence of those will be a serious drawback for low-income families.
We live in a society in which hundreds of thousands of low-income families do not even have a bank account. Those people are to be encouraged to make their first financial investment an equity-based one, which many will not understand. As the Financial Secretary said in Committee, if my understanding is correct, most of the selling will be direct, and little will be done through face-to-face interviews. I fear that many people will end up with an investment that they do not understand, and in which they will be unable to invest in future years.
As to whether the scheme is a success, the real question, as the Treasury Sub-Committee said, and as was generally accepted on Second Reading, is whether parents will invest in these funds in the future. The absence of a building society account option will mean that many low-income families will not be able to invest, and it will fail on that level.
Secondly, the scheme may fail in relation to the minimum investment being set at £10. We discussed in Committee setting the minimum at anything between £5 and £20. For someone with two or three children, living on a low income, £10 will be an impossible target to meet on a regular monthly basis. As a result, in many cases the £250 initial investment will be all that is invested. That, too, will be judged a failure of the policy.
As I said, the policy merits support, and we will support it tonight, but I ask the Minister to review it as it goes forward. We must look at how lower-income families deal with it. If we find that there is no addition to the initial investment, and that many low-income families are not able to top it up as we would desire them to do, we will need to look again at the policy. We will need to consider again whether alternative investments, which they understand, with which they are happy, and which provide them with access to saving and to the whole banking and insurance business, would be better for those families. Although we have reservations, we support the Bill, and we look forward to seeing how the scheme works out in the future.