I am grateful for the opportunity to speak about clause 1 of this Bill today. In 2005, the child trust funds were launched in an attempt to build financial education and encourage habitual saving. The scheme was progressive in that it gave additional financial help to those who needed it most, with larger sums given to children from low-income families, children with no families-those in care-and disabled children.
The Government's decision to introduce this Bill to phase out and then stop all Government payments to child trust funds is short-sighted and unfair. It is short-sighted because it scraps a popular scheme that encourages young people to save, without putting a replacement mechanism in its place. It is unfair because it is part of a package of measures contained in the comprehensive spending review that asks children and families-and children with no families-to play a bigger role in reducing the deficit than the banks and large corporations.
Ministers have failed to say what they would put in place of child trust funds to encourage families, and low-income families in particular, to save specifically for their children's future. In answer to a written question on
At the moment, it seems inevitable that the winding down of child trust funds will reverse recent efforts to increase the financial literacy of young people in this country. Financial knowledge and education in this country are at a worryingly low level. The savings ratio, which measures what proportion of earnings people in Britain are putting aside as savings, recently fell to the lowest level in seven quarters. That is no doubt linked to the recession, with wage freezes reducing household income while the cost of living continues to rise. With more strain being placed on family budgets and people having to dip into their savings, families need more help, not less, to put money away for their children's future.
Child trust funds have an important role to play in helping young people engage with financial institutions early in their lives and to develop saving as a habit. The funds also provide young people with a level of financial independence and therefore responsibility. It is particularly important for children from low-income families, where such a significant financial asset accessed at age 18 can help with social mobility. Studies show that young adults with a small amount of capital at the beginning of adulthood had a significant advantage 10 years later over those who did not.
Child trust funds are a good way of reaching families who otherwise may not save. Stopping the child trust fund scheme will only increase the chance that social mobility will remain static. Parents with financial knowledge and greater means will likely continue to put money aside for their children's future and instil in their children the value of saving. The children of parents who lack these resources, or children with no parents, will fall behind. The Government say that child trust funds have not been successful, but as no recipient has yet reached the age of 18, I do not understand how that can be judged.
HMRC statistics show that 10,841 vouchers were issued in my constituency and more than 8,000 child trust funds were opened by parents or guardians, with the remaining ones opened by the Revenue on the child's behalf. So the initial take-up rate has been positive. The most important point that needs to be made in this debate is that the Government are not proposing to stop Government payments to child trust funds in order to reallocate the money for children elsewhere. The funding is simply being cut, with the relatively modest cost of child trust funds-£320 million this financial year-going towards reducing the deficit. Thus, a valuable scheme to help young people is to be sacrificed in the name of short-term expediency.
The Financial Secretary to the Treasury says that the eradication of the deficit is the Government's "top priority". However, if this is the Government's main priority, they would do better to look at the state of the UK tax system where the top five retail banks stand to cut around £19 billion from their tax bills in the future because of huge losses during the economic downturn, despite being saved by the UK Government through an £850 billion bail-out.
The tax payments that those banks are expected to contribute to the Government are nowhere near the expectations of most people in the UK. Banks are not being told to bear their fair share of the deficit burden that was run up because of their reckless behaviour. Instead, it is children and families, and children with no families who are being asked to bear the brunt of the cuts through the scrapping of schemes such as the child trust fund. The Chancellor used the word "fair" 24 times during his statement last Wednesday, but in reality his spending review takes more money away from children to help reduce the deficit than from the banks responsible for it.
On a personal note, as I stand here this evening, my youngest daughter is in hospital in Dartford, in labour with her first baby. She was born in 1979 under a Tory Government, and my granddaughter will be born in 2010, also under a Tory Government. The previous Tory Government came for my daughter's school milk, but at least she was five when they took it from her. From my granddaughter, however, they are taking away the child trust fund when she has just been born, and the health in pregnancy provisions before she is even born. It seems that the priorities of the Tory party are always the same.