Amendment 16

Part of Financial Services Bill - Report (2nd Day) – in the House of Lords at 4:15 pm on 14th April 2021.

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Photo of Lord Young of Cookham Lord Young of Cookham Conservative 4:15 pm, 14th April 2021

My Lords, my noble friend Lord Leigh of Hurley made a powerful case for his amendment, as did the right reverend Prelate the Bishop of St Albans for the two amendments to which he spoke.

I will speak to amendment 37C, in my name and that of the noble Lord, Lord Blunkett. It seeks to release child trust funds worth less than £5,000 held by children with learning disabilities, without the need to go through the daunting, lengthy and at times cumbersome Court of Protection process, while at the same time offering strict safeguards to prevent abuse.

Child trust funds were launched in January 2005, and 6.3 million children in the UK born between September 2002 and January 2011 were eligible to receive vouchers from the Government to invest in the scheme. Families with children who had a disability were offered additional payments to make it more attractive for them to join the scheme and to compensate them for the additional costs that they would face.

Unfortunately, no consideration was given to what would happen to any of those children if they lacked the mental capacity to manage their finances when they turned 18. I understand from Ministers at the time that this was an oversight in the original design of the savings scheme. The noble Lord, Lord Blunkett, said, on 3 December:

“I had the privilege 20 years ago of initiating the research on, and then working with the Chancellor of the Exchequer to set up, the child trust fund. We never envisaged at that time that this situation would arise.”—[Official Report, 3/12/20; col. 827.]

When I raised this issue in your Lordships’ House on 11 February, my noble friend Lord Wolfson said:

“My Lords, the present situation is absolutely unfortunate.”—[Official Report, 11/2/21; col. 479.]

One of the problems is that this does not seem to have been anticipated by the Government who put child trust funds into existence.

I should say at this point that I am grateful to my noble friend Lord Wolfson for his sympathetic approach to this issue and for his informal advice and guidance, and to my noble friend Lord True, who has had to deal with my representations today.

In a nutshell, my amendment seeks to deal with the oversight that I have just referred to. Sixteen years later, as these funds mature, there is still no specific process to deal with the holders of child trust funds who lack mental capacity. Even in the 115 pages of the latest version of HMRC guidance notes for the child trust fund, last updated in January last year, there is no mention of learning-disabled children.

In April 2005, less than four months after the launch of the child trust fund, the Mental Capacity Act received Royal Assent and introduced the current version of the Court of Protection legislation and processes. This means that tens of thousands of children with a learning disability and a child trust fund now face the full force of a property and affairs application to the Court of Protection. For most disabled children, the child trust fund is likely to be their only financial asset and it will have a modest value. The finance industry reports that the average fund value is just over £2,000. Applying the full court process in such circumstances is unnecessarily burdensome and wholly disproportionate for families already facing many challenges to support a severely disabled child.

What do they have to go through? The current property and affairs application process means that parents will first have to familiarise themselves with the court processes and read 10 pages of guidance contained within multiple documents. They must then make an important decision about whether to apply for a full deputyship or a one-off decision from the court. In any scenario, they will need to complete a minimum of four forms—five if they wish to apply for a fee remission, a concession introduced by the Government in December, which I welcome.

That paperwork involves printing out 47 pages of information, completing 106 sections and submitting a minimum of 46 pages of hard-copy information to the court. From start to finish it will take up days of their time, rather than hours. A registered specialist such as a medical practitioner, psychologist or mental health professional must provide six pages of detailed information. Since Covid-19, some GPs are now refusing to complete the court forms, and most charge for the service, with prices ranging from £100 to £350 if an independent assessor is required.

They then have to apply to the Court of Protection. Back in September, the Court of Protection stated that applications could take up to 24 weeks for approval to be granted. Online legal discussion forums are now suggesting that the process could take eight months or more. After getting approval, they are then beholden to the Court of Protection in respect of an annual supervision fee, possibly an annual deputy bond fee and completion of an annual report, and then, when funds run out, must apply to the court to bring the deputy appointment to an end.

It is difficult to estimate the precise number of young people impacted by this situation. Estimates range from 78,000 to 161,000 teenagers. The same applies to the junior ISA scheme that replaced the child trust fund in 2011. That could potentially increase the numbers to over 200,000 in the next 10 years.

On 1 September last year, the first children with child trust funds started to turn 18—the point at which they should all be able to access and take control of their savings. Learning-disabled teenagers who need support with finance are instead being locked out of their accounts. Parents are unable to authorise any transactions on the account after a child turns 18. If a child cannot issue instructions to a finance company, then it is not even possible to change the address on the account. Many families remain unprepared for that eventuality, and understandably most parents are very frustrated about being asked to go through a lengthy court process just to access their own children’s savings account. The numbers will only grow without a solution to this problem.

The Court of Protection is also likely to see a significant rise in the number of property and affairs applications. Even using the lower estimate of the number of disabled children impacted by the situation, the workload increase on the court could be as high as 40%, with annual applications rising from 21,000 to around 30,000. For parents with a child who has a life-limiting condition the current court process means that, tragically, it is easier and cheaper to wait until their child dies and to then access the money using the small estates process. That is the harsh reality that many parents face. It is a situation clearly not supporting the best interests of the disabled child.

Several legal firms are trying to win business off the back of this issue, promoting themselves as businesses that can help families unlock their child trust fund for a fee proportionate to their savings. This advertising is not sinister or unusual, but many families will find the court process daunting and will be tempted by these offers. Using a solicitor will exponentially increase legal costs, remove an opportunity for a refund of court fees and further diminish the benefit of the child’s savings. This is where we are heading without a solution. There has to be a change.

As I mentioned when I last raised this issue in March, in nearly all these cases the child will be eligible for disability payments from the DWP and the parent will be the appointee. As such, the parent will be handling much higher sums than those likely to be in the child trust fund without having to go through the Court of Protection process.

In March, I mentioned Hollie Squire, who requires 24-hour care. Her mother Tammie is managing the £605 a month that Holly gets from the DWP. And so I asked the question: if Tammie can be trusted with this money from the taxpayer, why can she not be trusted with Hollie’s money from her own trust fund without complex and time-consuming court procedures? The answer given by my noble friend was this:

“I can assure Tammie and Hollie Squire that it is not a question of trust. It is, I am afraid, a question of law.”—[Official Report, 25/3/21; col. 956.]

He went on to say that the legal position is governed by the Mental Capacity Act. In a further reply on the same date, my noble friend said that amending primary legislation is not likely to be quick or easy. But at the time, neither he nor I realised that this Financial Services Bill was a potential vehicle for remedying the problem, and I am grateful to the Public Bill Office for its guidance on this.

It is frustrating that, despite the matter being raised three times in this House and many times in another place, little progress has been made. The Ministry of Justice announced in December the creation of a working group to further explore the possible solutions for families, but so far nothing positive appears to have come out of its deliberations. A number of financial institutions have made life easier for these children by devising their own processes for releasing these funds without involving the Court of Protection. However, there is some doubt about the legality of this, Ministers have refused to recommend it and it is unsatisfactory as it leads to a lottery.

That is the background to my amendment, which builds on a recommendation by the Law Commission in 1995 that there should be a small-sums exemption from the Court of Protection. The case for this amendment was made in its report:

“It was agreed by the great majority of our consultees that there was a pressing need for a simple and inexpensive scheme allowing small sums of money to be realised without the disproportionate expense and formality of a judicial process. Support came from representatives of both sides of the question; from the banking, insurance and building societies’ associations and from individuals and organisations who work with informal carers. We were told of many instances where access to a small sum of money which could be put to very good use cannot be gained without undue delay and legal costs. Some of the larger building societies already release funds to carers on a contractual basis, and they confirmed that such arrangements can work well for all concerned. We have refined our provisional proposals in the light of helpful comments on points of detail.”

The Law Commission suggested £2,000 a year for a maximum of two years. Revaluing that figure would lead to a higher sum than that in my amendment of £5,000.

I have made two changes to the Law Commission’s recommendations which should make it easier for the Government to accept them. First, it applies only to child trust funds and ISAs, on which the Minister has already said the position is “absolutely unfortunate”. Although the problem at the moment exists for child trust funds, the amendment also applies to junior ISAs. Following the reforms in 2015, CTFs can be switched into ISAs pre maturity. As my noble friend the Minister said:

“My Lords, at the moment I do not see any conceptual distinction between child trust funds and junior ISAs. What we put in place to solve this problem ought, in principle, to be applicable to junior ISAs as well.”—[Official Report, 11/2/21; col. 479.]

The Law Commission recommended a wider application, but I have narrowed it. Secondly, there is a sunset clause of two years, which gives adequate time for parents to apply to the Court of Protection before the child is 18 and for the court to come up with a more streamlined procedure.

The amendment includes the Law Commission’s safeguards to prevent abuse. If the Government have issues with my amendment, there is time to put it right, as the Bill will have to return to another place because of amendments already carried.

So what should we do? The Government have said that the current position is “absolutely unfortunate”. Without action, it will get worse as more child trust funds mature. The Government have said that without legislation, they cannot interfere with the rules procedure of the Court of Protection, and in the eight months since “Channel 4 News” brought this problem to our attention, the Court of Protection has not responded. The working group announced by the MoJ has produced no results and the frustration and pressure for reform have understandably grown. Here we have a Bill, to reach the statute book in days, with an amendment that implements a Law Commission recommendation to deal with the problem. What are we waiting for?

I look forward to my noble friend’s reply. I do not want to press the matter to a Division, but a lot will depend on my noble friend’s response.