Clause 1 - Child trust funds

Child Trust Funds Bill – in a Public Bill Committee at 9:30 am on 6th January 2004.

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Photo of George Osborne George Osborne Shadow Minister (Treasury) 9:30 am, 6th January 2004

I beg to move amendment No. 1, in

clause 1, page 1, line 3, leave out 'child trust funds' and insert 'baby bonds'.

Photo of Joe Benton Joe Benton Labour, Bootle

With this it will be convenient to discuss the following:

Amendment No. 2, in

clause 1, page 1, line 4, leave out 'child trust fund' and insert 'baby bond'.

Amendment No. 8, in

clause 3, page 2, line 29, leave out 'child trust fund' and insert 'baby bond'.

Amendment No. 10, in

clause 3, page 2, line 32, leave out 'child trust fund' and insert 'baby bond'.

Amendment No. 11, in

clause 3, page 2, line 39, leave out 'child trust fund' and insert 'baby bond'.

Amendment No. 12, in

clause 3, page 3, line 2, leave out 'child trust fund' and insert 'baby bond'.

Amendment No. 13, in

clause 4, page 3, line 16, leave out 'child trust fund' and insert 'baby bond'.

Amendment No. 14, in

clause 4, page 3, line 18, leave out 'child trust fund' and insert 'baby bond'.

Amendment No. 16, in

clause 5, page 3, line 38, leave out 'child trust fund' and insert 'baby bond'.

Amendment No. 19, in

clause 5, page 3, line 41, leave out 'child trust fund' and insert 'baby bond'.

Amendment No. 22, in

clause 6, page 4, line 4, leave out 'child trust fund' and insert 'baby bond'.

Amendment No. 23, in

clause 6, page 4, line 7, leave out 'child trust fund' and insert 'baby bond'.

Amendment No. 26, in

clause 6, page 4, line 15, leave out 'child trust fund' and insert 'baby bond'.

Amendment No. 28, in

clause 6, page 4, line 20, leave out 'child trust fund' and insert 'baby bond'.

Amendment No. 31, in

clause 7, page 4, line 23, leave out 'child trust fund' and insert 'baby bond'.

Amendment No. 32, in

clause 7, page 4, line 26, leave out 'child trust fund' and insert 'baby bond'.

Amendment No. 33, in

clause 8, page 4, line 32, leave out 'child trust fund' and insert 'baby bond'.

Amendment No. 35, in

clause 8, page 4, line 35, leave out 'child trust fund' and insert 'baby bond'.

Amendment No. 36, in

clause 9, page 4, line 39, leave out 'child trust fund' and insert 'baby bond'.

Amendment No. 38, in

clause 9, page 5, line 4, leave out 'child trust fund' and insert 'baby bond'.

Amendment No. 39, in

clause 9, page 5, line 7, leave out 'child trust fund' and insert 'baby bond'.

Amendment No. 40, in

clause 10, page 6, line 10, leave out 'child trust funds' and insert 'baby bonds'.

Amendment No. 41, in

clause 10, page 6, line 22, leave out 'child trust funds' and insert 'baby bonds'.

Amendment No. 42, in

clause 11, page 6, line 27, leave out 'child trust fund' and insert 'baby bond'.

Amendment No. 44, in

clause 12, page 6, line 34, leave out 'child trust fund' and insert 'baby bond'.

Amendment No. 46, in

clause 12, page 6, line 37, leave out 'child trust fund' and insert 'baby bond'.

Amendment No. 47, in

clause 12, page 6, line 38, leave out 'child trust fund' and insert 'baby bond'.

Amendment No. 49, in

clause 12, page 6, line 40, leave out 'child trust fund' and insert 'baby bond'.

Amendment No. 50, in

clause 12, page 6, line 41, leave out 'child trust fund' and insert 'baby bond'.

Amendment No. 51, in

clause 13, page 7, line 7, leave out 'child trust funds' and insert 'baby bonds'.

Amendment No. 52, in

clause 13, page 7, line 11, leave out 'child trust funds' and insert 'baby bonds'.

Amendment No. 53, in

clause 14, page 7, line 31, leave out 'child trust fund' and insert 'baby bond'.

Amendment No. 54, in

clause 14, page 7, line 33, leave out 'child trust fund' and insert 'baby bond'.

Amendment No. 55, in

clause 14, page 7, line 35, leave out 'child trust funds' and insert 'baby bonds'.

Amendment No. 56, in

clause 15, page 8, line 1, leave out 'child trust fund' and insert 'baby bond'.

Amendment No. 57, in

clause 15, page 8, line 4, leave out 'child trust fund' and insert 'baby bond'.

Amendment No. 58, in

clause 15, page 8, line 6, leave out 'child trust fund' and insert 'baby bond'.

Amendment No. 59, in

clause 15, page 8, line 8, leave out 'child trust fund' and insert 'baby bond'.

Amendment No. 60, in

clause 15, page 8, line 9, leave out 'child trust fund' and insert 'baby bond'.

Amendment No. 61, in

clause 15, page 8, line 12, leave out 'child trust fund' and insert 'baby bond'.

Amendment No. 63, in

clause 16, page 8, line 26, leave out 'child trust funds' and insert 'baby bonds'.

Amendment No. 64, in

clause 17, page 8, line 42, leave out 'child trust funds' and insert 'baby bonds'.

Amendment No. 65, in

clause 17, page 9, line 6, leave out 'child trust funds' and insert 'baby bonds'.

Amendment No. 66, in

clause 17, page 9, leave out line 15 and insert 'baby bonds'.

Amendment No. 67, in

clause 17, page 9, line 21, leave out 'child trust funds' and insert 'baby bonds'.

Amendment No. 68, in

clause 17, page 9, line 29, leave out 'child trust funds' and add 'baby bonds'.

Amendment No. 69, in

clause 18, page 9, line 35, leave out 'child trust funds' and insert 'baby bonds'.

Amendment No. 70, in

clause 18, page 9, line 37, leave out 'child trust fund' and insert 'baby bond'.

Amendment No. 71, in

clause 18, page 9, line 39, leave out 'child trust fund' and insert 'baby bond'.

Amendment No. 72, in

clause 18, page 9, line 40, leave out 'child trust funds' and insert 'baby bonds'.

Amendment No. 73, in

clause 18, page 10, line 2, leave out 'child trust fund' and insert 'baby bond'.

Amendment No. 74, in

clause 18, page 10, line 5, leave out 'child trust fund' and insert 'baby bond'.

Amendment No. 75, in

clause 18, page 10, line 8, leave out 'child trust fund' and insert 'baby bond'.

Amendment No. 76, in

clause 18, page 10, line 10, leave out 'child trust fund' and insert 'baby bond'.

Amendment No. 77, in

clause 18, page 10, line 10, leave out 'Child Trust Funds' and insert 'Baby Bonds'.

Amendment No. 78, in

clause 19, page 10, line 22, leave out 'child trust fund' and insert 'baby bond'.

Amendment No. 79, in

clause 19, page 10, line 27, leave out 'child trust fund' and insert 'baby bond'.

Amendment No. 81, in

clause 19, page 10, line 31, leave out 'child trust fund' and insert 'baby bond'.

Amendment No. 83, in

clause 20, page 10, line 37, leave out 'child trust fund' and insert 'baby bond'.

Amendment No. 84, in

clause 20, page 10, line 38, leave out 'child trust fund' and insert 'baby bond'.

Amendment No. 85, in

clause 20, page 10, line 40, leave out 'child trust fund' and insert 'baby bond'.

Amendment No. 89, in

clause 20, page 11, line 38, leave out 'child trust fund' and insert 'baby bond'.

Amendment No. 90, in

clause 20, page 11, line 42, leave out 'child trust fund' and insert 'baby bond'.

Amendment No. 91, in

clause 22, page 13, line 1, leave out 'child trust fund' and insert 'baby bond'.

Amendment No. 93, in

clause 22, page 13, line 7, leave out 'child trust fund' and insert 'baby bond'.

Amendment No. 95, in

clause 22, page 13, line 9, leave out 'child trust fund' and insert 'baby bond'.

Amendment No. 96, in

clause 25, page 15, line 5, leave out 'Child Trust Funds' and insert 'Baby Bonds'.

Amendment No. 98, in

clause 29, page 16, line 8, at end insert—

'''baby bond'' has the meaning given by section 1(2),'.

Amendment No. 99, in

clause 29, page 16, leave out line 10.

Amendment No. 100, in

clause 31, page 16, line 18, leave out 'Child Trust Funds' and insert 'Baby Bonds'.

Amendment No. 101, in

title, line 1, leave out 'child trust funds' and insert 'baby bonds'.

Photo of George Osborne George Osborne Shadow Minister (Treasury)

Thank you, Mr. Benton. I promise that you will not need to work as hard in Committee as you have just have done by calling out all the amendments. It will be a pleasure to work under your guidance. I welcome you to the Chair and the Minister to the Committee. As I have said to the hon. Lady before, the Conservative association in my constituency is twinned with the Conservative association in her constituency. Her seat is our target seat, although such ideas proved singly unsuccessful in the previous election and in 1997 when the Conservative party lost my constituency in the process of targeting hers. However, it will be a great pleasure to shadow the hon. Lady in Committee.

My big group of amendments seeks to achieve a simple objective: to change the name of the policy that we shall be discussing from ''child trust funds'' to ''baby bonds'' to put the Committee in touch with the real world. No one in the real world calls such measures child trust funds; they are called baby bonds. I searched the internet and found out that, during the past month, 254 references were made in the national press to baby bonds. Each headline in respect of the policy refers to baby bonds.

The public describe the measure as ''baby bonds''. I received a Christmas card from Mrs. Warden in Hampshire, which is hundreds of miles from my constituency, in which she wrote:

''Gordon Brown's 'BABY BOND' another gimmick! I look in on the House daily, does Ruth Kelly know what she is doing''.

On 29 December, a letter from Mr. Andy Clark from Crawley, West Sussex was printed in The Sun. He wrote:

''It would be better for Chancellor Gordon Brown to channel the money from the proposed baby bonds into the NHS''.

Indeed, if anyone was interested in what they were doing today, I suspect that many members of the Committee would say that they were members of the baby bond Committee.

Photo of Ms Linda Perham Ms Linda Perham Labour, Ilford North

I am attracted by the alliterative properties of the term ''baby bonds''. However, does the hon. Gentleman agree that the purpose of such funds is to reach up to the age of 18, the end of a person's childhood? It could be misleading to change the description of such funds, popular though such action may seem.

Photo of George Osborne George Osborne Shadow Minister (Treasury)

I am not sure that a change to ''baby bonds'' would be misleading, if that is what everyone thinks that they are anyway; it might be misleading to proceed with a name that no one is aware of, and people may not be aware of what child trust funds are.

The blame for the name ''baby bonds''—if we are looking for blame—rests entirely with the Government's information sheet and Government spin doctors. After the policy was announced in the run-up to the 2001 general election and Budget, No. 10 Downing street briefed on it extensively, and we were told, ''Brown to announce baby bonds in Budget'', and so on. I am merely saying that ''baby bonds'' is what everyone calls them, and that is how everyone knows

them. We in Westminster are often accused of speaking in a parallel language that no one understands.

Photo of Mr Hilton Dawson Mr Hilton Dawson Labour, Lancaster and Wyre

There is a serious point to the subject. We will be trying to encourage young people to invest in their trust fund throughout their childhood, and particularly, perhaps, their adolescence. What adolescent would own up to their peers that they were putting their hard-earned money from their paper round, or whatever, into their baby bond? That is just not realistic.

Photo of George Osborne George Osborne Shadow Minister (Treasury)

The hon. Gentleman is being too sensitive to the feelings of our nation's teenagers. One of the companies most likely to be an active participant in the child trust fund market is Children's Mutual. It uses the name ''baby bonds'' for one of its products, which is one of the most popular savings products for children. The name is already out there in the marketplace.

I suspect that the Minister will say that the trust funds are not bonds, because many of them will be in equity, but I have anticipated that line of attack. During the consideration of the Finance Bill in Committee and on the Floor of the House, I kept making the point that the stamp duty land tax—the Government's new land tax—neither involved a stamp nor was a duty. When I made that point to the Minister, she said that the Government were sticking to that name because it was the term commonly understood by practitioners, so she has already accepted that principle. Although ''baby bonds'' would not be a strictly accurate term, in the sense that these investments are not necessarily bonds, that is the name by which the policy is universally known, and it would be a good start for the Committee if it were put in touch with the real world.

Photo of Ruth Kelly Ruth Kelly Financial Secretary, HM Treasury

I welcome the hon. Gentleman to the Committee. I am sure that he will make an extremely valuable contribution to proceedings. I am always glad to hear of his continuing connection with my constituency, and to hear about his Christmas card list. I expect to hear more about that later.

I am grateful to the hon. Gentleman for explaining his fondness for the term ''baby bond''. However, as my hon. Friend the Member for Lancaster and Wyre (Mr. Dawson) pointed out, it is important to recognise that the trust fund with which we are proposing to endow all children at birth is designed to build up a financial asset to which young people will have access at the age of 18. It is designed to promote and encourage traditional saving by parents, family, friends and children.

It is not easy to think of a name that will appeal to children of all ages, from babies to young adults. We think that ''child'' comes as close as any name to achieving that. However, we did not take that decision lightly; in fact, we commissioned research, with prospective parents and grandparents, on which name was most attractive, and they said that ''child trust fund'' was understandable, recognisable and meaningful. Indeed, contrary to what the hon.

Member for Tatton (Mr. Osborne) says, there was a high level of awareness about what the expression meant.

Photo of George Osborne George Osborne Shadow Minister (Treasury)

Is the Minister really trying to tell us that more people are familiar with ''child trust funds'' than ''baby bonds''?

Photo of Ruth Kelly Ruth Kelly Financial Secretary, HM Treasury

If the hon. Gentleman will allow me to continue, I was about to say that there is an intrinsic problem with the name ''baby bond'', and a reason why it cannot be used. As he intimated earlier, the name is already used by Children's Mutual for one of its products, and it is a registered trademark. That makes it impossible to use the name as the hon. Gentleman suggests, as registration of a trademark gives the owner the exclusive right to use the mark, and the right to sue third parties who infringe that right.

Because of the popularity of the term ''child trust fund'', the fact that the financial asset is to be drawn down at the age of 18, and the fact that the name ''baby bond'' is off limits, I recommend that the Committee reject the amendment.

Photo of George Osborne George Osborne Shadow Minister (Treasury)

It is so disappointing that my first ever amendment has been rejected—I suppose that I had better get used to that. I was simply attempting to put the Committee in touch with the real world. The Minister's point that Children's Mutual has the copyright on baby bonds did not prevent Government spin doctors from calling the measure a baby bond, and continuing to call it that in behind-the-scenes briefings. Perhaps the Minister and I can come to an arrangement. The Minister could assure me that Government spin doctors will not call the funds baby bonds, and I will promise to call them child trust funds from now on.

Photo of Andrew Robathan Andrew Robathan Conservative, Blaby

Is there not another angle to this? As was pointed out on Second Reading, £250 is not a vast amount of money. I have two small children, and the Minister has four children, so she knows, as I do, that £250 does not go very far towards bringing up a baby. One could call that amount a baby bond because it is enough only for a very small baby for a very short time.

Photo of George Osborne George Osborne Shadow Minister (Treasury)

I thank my hon. Friend for that intervention. We are straying into the detail of the sums that will be involved—

Photo of George Osborne George Osborne Shadow Minister (Treasury)

I am sure that my hon. Friend has a long speech prepared for clause 8. We need an arrangement whereby the people in the Government who speak on the Minister's behalf cease to call these funds baby bonds. From now on, I shall call them child trust funds. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Photo of George Osborne George Osborne Shadow Minister (Treasury)

I beg to move amendment No. 4, in

clause 1, page 1, line 9, leave out from 'the' to end of line 10 and add

'general supervision and direction of the Secretary of State.

(4) In performing its functions under this Act, the Inland Revenue shall have due regard to any directions from the Secretary of State.'.

Photo of Joe Benton Joe Benton Labour, Bootle

With this it will be convenient to discuss the following:

Amendment No. 139, in

clause 1, page 1, line 10, at end add

'and the Department for Work and Pensions'.

Amendment No. 97, in

clause 28, page 15, leave out line 20 and insert 'Secretary of State'.

Photo of George Osborne George Osborne Shadow Minister (Treasury)

The amendments are designed to prevent yet another chunk of the welfare system being gobbled up by the Chancellor of the Exchequer's empire at the Treasury, and to keep the administration of child trust funds at the Department for Work and Pensions.

As members of the Committee will be aware, I recently conducted some research. I found that, in the past four years, the Government have abolished family credit, introduced the working families tax credit, the disabled person's tax credit and the child care tax credit, introduced the employment credit, abolished the married couples allowance, introduced the children's tax credit and the baby tax credit, abolished the working families tax credit, the disabled person's tax credit and the children's tax credit, abolished the baby tax credit, introduced the child tax credit, abolished the employment credit and introduced a working tax credit. They have also transferred the administration of child benefit from the renamed Department for Work and Pensions to the Treasury.

In the process of introducing five tax credits, abolishing four of them and introducing a further two, the Government have, as every constituency MP knows, caused huge administrative chaos and confusion, and genuine hardship for people caught up in the mess. It all amounts to a wholesale taking over of much of the working age benefit system by the Treasury. Child trust funds are the latest example of that. No doubt the Minister will tell me that they are linked to the eligibility for child benefit and should properly be administered by the Inland Revenue, but it prompts questions about why the Inland Revenue now administers child benefit. We could have a long, theoretical discussion about whether the Department that collects revenue is the best Department to be paying out benefits—I have serious concerns about that—but I suspect that I would be stretching the Committee's patience if I began that discussion.

We are entitled to ask whether the Inland Revenue is up to administering child trust funds, which, by the Government's own admission, it is a significant task. The explanatory notes say:

''There will be significant new one-off setting up costs of implementing the CTF, mainly because of the need for new IT support, including both a new CTF IT system and the modernisation of the child benefit IT system''.

Can the Inland Revenue cope? To put it politely, it has had a patchy record of administering tax credits during the past 12 months. The Comptroller and Auditor General has qualified its accounts; we have a problem when the taxman's own accounts are qualified. The Inland Revenue has also sacked its IT provider, EDS.

The Inland Revenue and the Treasury are proposing to set up a new form of benefit system during the next 12 months and to get the Inland Revenue to administer that. Surely the DWP is more likely to carry out that task effectively? If an increasing number of benefits are administered by the Treasury, then what is the point of the DWP? Will we reach a point at which almost all functions of that Department are carried out by the Chancellor? The amendments are merely an attempt to put the DWP back in charge of the benefits system.

Photo of David Laws David Laws Shadow Chief Secretary to the Treasury 9:45 am, 6th January 2004

I, too, welcome you to the Chair, Mr. Benton. I managed to resist the temptation to intervene on the first major set of amendments, but I would like to speak to amendment No. 139 and, to some extent, to those tabled by the hon. Member for Tatton.

I also welcome the Financial Secretary to her position. During the proceedings of the Treasury Committee, one of the Labour Members said that she would make a charming and persuasive member of a sales force. I hope that during these proceedings she will be not only in selling mode, but in listening mode, and that she is willing to listen to some of the amendments and representations.

Amendment No. 139 seeks to amend subsection (3), which says:

''The matters dealt with by and under this Act are to be under the care and management of the Inland Revenue.''

Why should the child trust fund be under the care and management only of the Inland Revenue, rather than under the management either of the Department for Work and Pensions or of a partnership agreement between the two Departments?

Photo of Desmond Turner Desmond Turner Labour, Brighton, Kemptown

There has been glancing reference to administrative problems involving one Department. Will involving two Departments lessen the prospect of such problems?

Photo of David Laws David Laws Shadow Chief Secretary to the Treasury

I assumed that the hon. Gentleman would have more confidence in Ministers of his own Government. I thought that ''partnership'' was a new Labour buzzword. I am suggesting that there should be more partnership between these two important Departments. If the hon. Gentleman prefers, I will concede that the DWP rather than the Treasury could take the initiative.

The hon. Member for Tatton has described how since 1997 it has increasingly become the habit of the Chancellor and the Treasury to annex large parts of the economic and social agenda, particularly in relation to many of the former responsibilities of the DWP. That must be a concern; it raises questions as to why some issues are managed from the Treasury rather than from the DWP. As the hon. Gentleman hinted, some of the management of tax credits recently has shown that the Inland Revenue and the Treasury are not always best placed to perform that task.

I am concerned not just with the management of child trust funds, however, but with the coherence of the Government's thinking on savings. The child trust fund is about saving during the early years of somebody's life; it has to be linked with a series of other Government initiatives. Government initiatives are well meaning, but they do not always interlink well. I refer not only to initiatives that affect people early in life, such as the savings gateway and the individual savings account, but to the Government's proposals on pensions. There has been criticism of the confusion surrounding many of those proposals and of the fact that existing pension arrangements are poorly understood. One might therefore have hoped that, with child trust funds, the Government would be thinking not only of people saving over the first 18 years of their life and of relatives paying into the fund but about what people will do with the fund when they reach 18. I am talking not only about the proceeds but about the concept of the fund itself.

Has the Minister had any discussions with the DWP, or even within the Treasury, about how the child trust fund could emerge as an ordinary tax advantage savings account or how it could, potentially, be a forerunner of a second-tier pension account owned by every person in society? It would be a great pity to put in all this work, investment and financial education from birth to age 18 and then fail to exploit the benefits, which the Government believe exist, of persuading people to save more not only for their working lives but for retirement. The DWP has an interest in child trust funds that stems not only from pensions and savings for retirement but from the interaction between the funds and people's ability to go into employment.

During her evidence to the Treasury Committee the Minister said that she hoped that many people would use their child trust fund to finance their entry into employment; for example, to purchase any capital equipment that they might need. That relates not only to the aspirations of the Treasury but, in particular, to those of the DWP, which has responsibility not just for saving for retirement but for assisting people to enter employment.

I hope that the Minister will view the amendments tabled by the hon. Member for Tatton and myself as constructive, and that she will say how she intends to ensure that the important links between the child trust funds and the responsibilities of the DWP are not overlooked.

Photo of Ruth Kelly Ruth Kelly Financial Secretary, HM Treasury

I am glad that the hon. Members for Tatton and for Yeovil (Mr. Laws) have pointed out the enormous steps that the Government have made in integrating the tax and benefits system and in abolishing child poverty. [Interruption.] We are moving towards abolishing child poverty. That is at the core of what it is to be a progressive Labour Government.

I am also grateful to the hon. Member for Yeovil for explaining why he thinks that the DWP should oversee the funds. However, there are extremely good reasons why the Inland Revenue should be responsible for preparing and managing the accounts. We have closely

modelled the child trust fund account on the current savings vehicles, individual savings accounts, which are under the care and management of the Inland Revenue—a fact that has proved very useful.

Regulations cannot cover every conceivable situation so it is generally accepted that the Inland Revenue should have wide managerial discretion that can be exercised in the interests of good management; for example, in difficult or unexpected situations. It is inevitable that occasionally the providers or the responsible person who opens the account, usually the parent, will make errors. The Inland Revenue's care and management power will allow it to set matters right without the child's account being disadvantaged because of those errors.

There will be other instances in which the Inland Revenue's powers will allow a pragmatic and flexible approach to be taken to a situation, as has been the case in many instances with ISAs. If the Inland Revenue could not apply care and management there would be no administrative flexibility and the system would become unworkable.

However, I take the hon. Gentleman to be referring more specifically to whether the Inland Revenue has the resources and capacity to undertake and oversee the child trust funds project. I wish to put on the record the fact that the Inland Revenue delivers reports to Ministers every month: I receive a monthly report on its programme on child trust funds and its ability to deliver that.

Photo of George Osborne George Osborne Shadow Minister (Treasury)

I am pleased to hear what the Minister said about her regular meetings. As she will be aware, it transpired that her colleague, the Paymaster General, did not discuss the administration of tax credits for a period of six months before they were introduced early last year, which caused problems. So it is good to hear that she has learned from her colleague's mistakes.

Photo of Ruth Kelly Ruth Kelly Financial Secretary, HM Treasury

The Inland Revenue has had a huge amount to deal with in the last year or so. However, it has now taken a full review of the risks to its delivery schedule between now and April 2005, and it has taken action to reduce those risks. Measures have been put in place to reduce the risks within individual programmes. For example, the child trust fund IT delivery has already been planned, with functionality coming in eight instalments. It will be phased in to make sure that the system is not over-burdened, significantly reducing the risk by spreading the delivery time scale and the amount that has to be delivered in each instalment. We are confident that the Inland Revenue has the capacity to deliver.

Photo of George Osborne George Osborne Shadow Minister (Treasury)

The Minister has not spelled out the risks, even if she is confident that they will not be encountered. Perhaps she could tell us some of those risks.

Photo of Ruth Kelly Ruth Kelly Financial Secretary, HM Treasury

There is always an element of risk in introducing a new system, as I am sure the hon. Gentleman is aware. This will be minimised for child trust funds by, for example, linking their administration directly to the administration of child

benefit. That linkage is as simple and straightforward as possible. The Inland Revenue is clearly capable of delivering child trust funds, and I am taking an active interest in its operational ability to make sure that the project continues on time.

Photo of David Laws David Laws Shadow Chief Secretary to the Treasury

Before she finishes her comments, will the Minister respond to the specific point that I raised earlier? Has she had a discussion with the DWP about what will happen to the accounts on maturity and whether the Government will seek to use their existence to encourage further tax advantage savings, or perhaps to encourage people to think about saving for retirement?

Photo of Ruth Kelly Ruth Kelly Financial Secretary, HM Treasury

I am sure that the hon. Gentleman is aware that I am the Minister responsible for long-term savings policy, so I talk to myself regularly about the future of the child trust fund. Representations have indeed been made about what should happen to the assets when children reach 18. During the consultation it was suggested that there should be an incentive for the savings to be rolled over into another savings vehicle. We will keep that suggestion under review as the policy progresses; it will be some time before that situation arises.

Photo of David Laws David Laws Shadow Chief Secretary to the Treasury

I am pleased to hear that the Minister frequently talks to herself about these issues. I encourage her, though, to speak a little with some of her colleagues in the DWP, particularly those who are responsible for pensions. Since there is such a problem in getting many people to save for their retirement, I should like to plant the thought in the Minister's mind that, once child trust funds mature, they could be used as a forerunner for an account to be used for retirement savings. It would be a great pity if the Government lost the ability to use those accounts, which they established, rightly or wrongly, because they did not think about out what would happen when people reached the age of 18 and the account matured.

Photo of Ruth Kelly Ruth Kelly Financial Secretary, HM Treasury 10:00 am, 6th January 2004

I certainly understand the point that the hon. Gentleman makes in good faith. We intend to keep these issues under review as the account progresses. We are in constant discussion with the DWP on this matter, as on other long-term savings and retirement issues. It would be difficult for us to specify how the account might develop over the next 15 or 18 years. I point the hon. Gentleman towards research by the Children's Mutual on children who have savings accounts in the baby bonds scheme, about which the hon. Member for Tatton is so informed.

When many of those children reach 18 they choose to roll it over and use the money to make further provision. It is clear that a child may choose to put that money towards saving for the future. We must bear that in mind as the policy develops.

Photo of George Osborne George Osborne Shadow Minister (Treasury)

It is not only pensions in which the Department for Work and Pensions will have an interest. Some of the benefits that the Department administers, such as jobseeker's allowance and income

support, will interact with a child trust fund at 18, when people have this pot of money. The Minister is aware that there is a debate about whether the child trust fund should be counted against a means-tested benefit. Has she discussed that with the Department? Would not it be better to institutionalise the involvement of the Department in the Bill?

Photo of Ruth Kelly Ruth Kelly Financial Secretary, HM Treasury

I do not think that that is appropriate, for the reasons I have set out. The Treasury has responsibility for long-term savings provisions. Nevertheless, we have a regular dialogue with the Department on retirement provisions and other issues, including the child trust fund and how it counts against benefit entitlements.

I am sure that once this policy is up and running there will be many contributions to the debate on how it could develop in future. We are only beginning to hear arguments being put forward. This is a huge step forward with huge possibilities for the future. I urge the Committee to reject the amendment on the basis that the Inland Revenue is the appropriate institution to deal with the care and management of the accounts.

Photo of George Osborne George Osborne Shadow Minister (Treasury)

I still do not think that that the Minister is fully owning up to what is really behind all this, which is the Chancellor's ever-expanding empire ruling over our benefits system. One of the ironies is that a traditional Chancellor of the Exchequer—that is, any Chancellor before the present one—would have spent a great deal of time on things that the current Chancellor does not spend much time on, such as interest rates, the decision on which has been given to the Bank of England, financial regulation, which is now dealt with by the Financial Services Authority, and gilt issues, which are also handled by another agency.

The Chancellor spends a lot of time on social policy and benefits. This measure is an extension of that concern and is yet another example of the Chancellor administering something that any past Government, whether Conservative or Labour, would have put with the old Department for Social Security. The Minister makes technical arguments, saying, ''Now that we administer child benefit and the systems are up and running we should get on and administer this. We have done all the work.'' However, saying that does not tackle the fundamental issue, which is why the Treasury, or the Inland Revenue, is growing as an organisation that hands out money, rather than one that takes it in. Is there a conflict of interests? Is the way that tax is collected and income is assessed for tax different from how income is assessed for benefits? Of course, there is a difference, and that has given rise to many problems.

The Minister did not tackle the fundamental issue, which is why she feels that the Inland Revenue and the Treasury are increasingly the right bodies to administer benefits in our system of government. I have never heard a proper explanation from her or the Chancellor of the Exchequer.

The Minister was pretty careful to say that she had regular meetings and checked that things were on track. I want her assurance, to which I can hold her in 12 or 15 months' time, that the system will work. There is a big IT challenge. If the Minister is so confident that the Inland Revenue is able to meet that, she can assure us that there will be no administrative cock up with the child trust funds and the issuing of 1.8 million vouchers next spring. She talked about the various IT systems and the eight stages, and so on. Perhaps she could tell us whether it is true—as I read in the paper—that the Inland Revenue has sacked its IT provider and is looking for a new one. What company will be doing the IT on this project?

Photo of Ruth Kelly Ruth Kelly Financial Secretary, HM Treasury

I can certainly give the hon. Gentleman the assurance that all risks are being minimised. I receive a regular monthly update on progress on the administration of the child trust fund. I have been down to the Inland Revenue offices and been walked through the process, looking in detail at all the inter-linkages in the system. He points to specific risks. There are always risks in introducing a new IT system, for example. I cannot say that those risks somehow evaporate because of prudence and sensible courses being taken in the delivery of the project. I am sure that if he were in a similar position he would not wish to give such an assurance. We are taking every step to minimise the risks.

The hon. Gentleman correctly said that the Inland Revenue announced on 11 December that Cap Gemini Ernst & Young had been selected as its preferred supplier for the Aspire contract that is relevant to the delivery of the child trust fund. That contract will commence on 1 July 2004. Transition planning with both bidders and incumbent suppliers will commence in October to ensure that, regardless of the outcome of that competition, all parties will be ready to start the transition. The key areas of joint planning include the current service and projects that are in the process of being delivered, including the child trust fund. I am confident that there will be a smooth transition.

Photo of George Osborne George Osborne Shadow Minister (Treasury)

The Minister appears to be saying that just a couple of months after this brand new system is introduced, the Inland Revenue will swap to a wholly new IT provider. Would it not be better perhaps to delay the introduction of child trust funds until the autumn? It does not make any difference, as it will be 18 years before people can collect the money. It does not matter whether they are handed out in April next year or September or October next year. It might interfere with the election timetable—God forbid—but apart from that it would at least allow the new company to have ownership of the system from the beginning rather than having to pick it up a month or two after it is up and running.

Photo of Ruth Kelly Ruth Kelly Financial Secretary, HM Treasury

That is not the case. Every precaution has been taken to ensure the smooth delivery of the child trust funds. There will be a comprehensive back-up procedure. We do not envisage any problem in the delivery of the vouchers.

Photo of George Osborne George Osborne Shadow Minister (Treasury)

I am grateful to the Minister. I can hold her to that assurance that she does not envisage any problems in the issuing of vouchers. I beg to ask leave to withdraw my amendment.

Amendment, by leave, withdrawn.

Clause 1 ordered to stand part of the Bill.