May I welcome our two guests, Mark Lyonette from the Association of British Credit Unions and Graeme McAusland from The Children’s Mutual, to give evidence? Thank you very much for giving up the time to give evidence. We will now hear evidence from The Children’s Mutual and the Association of British Credit Unions. I know that I have already introduced you to some extent, but perhaps you could introduce yourselves to the Committee, and then we will get into the questioning.
For the benefit of the record, I remind members of the Committee that the questions they ask should be within the scope of the Bill. I am sure that you would not want me to interrupt you mid-sentence to point out that you were straying from the scope of the Bill.
I am pleased to serve in front of you, Mr Howarth. My question is for both of you, although it is more directly for The Children’s Mutual. David White, the former chief executive of The Children’s Mutual, said at the time of the announcement to abolish the child trust fund that it was
“the single most successful savings policy to date”.
In one regard, it is not surprising that that would be the case, if you tell parents, “Here’s some free money for you child.” On what basis was that assessment made? In particular, did the fund result in additional saving or just a transfer from other sources?
Graeme McAusland : The analysis that David made at the time and that we have done looks at the child trust fund compared with, say, ISAs and pensions. It looks at the contribution from the Government to ISAs and pensions, compared with the child trust fund. If you look at the take-up rates on ISAs and pensions, they are well behind the 72 or 74% on child trust funds. One thing that is interesting when you think about the child trust fund is that people assume that because £250 is passed over as a voucher, real money is being passed into the account. We give tax relief on pensions, and that is real money that is being passed into pensions—it is just done in a different way. We give tax-free growth on ISAs, and that is money that—
There is quite a difference. If you actually told people, “Here’s a cheque for £250 to put in your ISA,” a lot of people would accept it. The question is whether the child trust fund encouraged additional saving or just transferred saving from other sources. There has been disagreement between witnesses about this, and we have not as yet had any clear evidence that there has been additional saving. Have you got any clear evidence to that effect?
As a fellow Merseysider, it is a pleasure to serve under you, Mr Howarth. Graeme McAusland, we have already heard from representatives of friendly societies and mutuals about the impact of the child trust fund on their business and financial models. Could you say a bit more for the benefit of the Committee about how the particular model of the child trust fund worked in your business environment?
Graeme McAusland: We are a children’s savings specialist. Our view when the child trust fund was launched was that we should be part of it. It seemed strange to be a children’s savings specialist and not to be part of it. Our view was that to make it profitable for our business, we needed to do it on a large scale. These are relatively small accounts in terms of value. We came to the conclusion that the operation needed to be large scale to achieve economies of scale. We also recognised that for the economics to work for our business, it was crucial to get more money into the accounts beyond the Government money. We built a model that involved working with a range of distribution partners, getting as many of the accounts on board as possible and working creatively to encourage further contributions into the accounts. We were pretty successful in that.
Last year, we had 200,000 new accounts, a large proportion of which had money paid in on top of the Government money. That was not just from people at the higher end of the income spectrum, but from across the spectrum. The model facilitated people from across the spectrum to get our accounts. For example, we had distribution partnerships with Asda, Boots and a range of building societies and banks. That allowed people to access the accounts in a way that is not possible with some other products.
May I pick up on a specific point? This morning, the Institute for Fiscal Studies told us that the child trust fund did not offer an incentive to save. It sounds from your evidence that your customers—that is, parents and grandparents—liked the child trust fund. What was it that your customers liked about it?
Graeme McAusland: There is a range of issues. First, they got a nudge from the voucher, which encouraged them to do something. It was relatively simple for them to find out what to do. To give a comparison, it was a lot easier to set up a child trust fund than a deposit account. That simplicity helped a lot of people. The other thing that worked was the concept of the stakeholder account. In a world where you regulate either the distribution channel or the product, the regulation around the product gave people a sense of comfort that it was an okay thing.
May I ask some questions about the Children’s Mutual? Is it a mutual company in that anyone who opens an account with you becomes a part-owner of the company?
Graeme McAusland: As I have said, we were writing about 200,000 of these accounts a year. The ending of the child trust fund for new accounts is pretty significant for us. It is requiring us to have a major look at our business model, and we will have to change and adapt to that. We still have existing customers to look after. One of the big messages we need to be very careful about, for those people who have got child trust funds, is that we should still be encouraging them to do the right things with the child trust fund. But yes, it has had a significant impact on our business. Our business was heavily focused around child trust funds.
Can you tell us a little bit more about the behaviour of your savers: the patterns of saving, the typical amounts that they were saving into the child trust fund accounts and any projections that you have of the likely asset that they will have, in value terms, at the end of the period?
Graeme McAusland: Yes. That is on the assumption that they have been paying £25 a month. Clearly, with different income groups, you have different amounts being paid. For the lower-end income group, the average amount is nearer £18 or £19 a month, but that will still leave you with a substantial pot at age 18.
One thing that is quite interesting, if you look at where we are to date, is that if you take one of our higher-income groups, roughly half of them were paying £26 a month. Compare that £26 a month with £19 from the lower income group. If you take it, roughly, to today and allow for the additional Government contributions that would have been paid to that lower-income amount, the pots are almost exactly the same. It would be about £2,500 today. I guess that one of the things that we saw with child trust funds is that those sorts of sum will provide children with opportunity at age 18 that they would not have had without the pot.
One of the stated aims of the child trust fund is to develop the savings habit and engage with financial institutions. I am interested to know what practical steps you are taking to engage with the young people for whom the funds are invested, not with their families. In what practical ways are they different at 18 from how they would have been if you had not engaged with them?
Graeme McAusland: There are various things that we have done. For the children, we have sent out various games that encourage them to think about what money is and how they might use it. We have done some work with skills, in terms of providing booklets for schools. In terms of what difference it will make when they are 18, I am not sure at the moment—it is still a long way away—but I think that we have seen, through the period that the child trust fund has been around, a growth in quite a number of those things. The charity PFEG, which some of you might have come across, has moved forward quite significantly over that period of time.
We have also seen bodies such as the Association of Financial Mutuals, which I believe you saw earlier, coming up with games that kids can engage with. Like anything, it is probably easier to teach a kid than an adult. That is, to some extent, what needed to happen with child trust funds and finance in general.
About 72 or 74% of young people are getting some benefit from this if the parents or grandparents have engaged with the child trust fund arrangements, but about 26 or 28% of young people would not gain any benefit at all from the financial education that is connected to the investments.
Graeme McAusland: I am not sure that that is true. We would have still sent the same material. For example, for all the children who were getting the age 7 payment, we had material going out to support it which, again, was about games, and the accounts that were allocated by the Revenue also got the material. We do not differentiate on the basis of whether the accounts have come from the Revenue or directly to us.
The other thing that is interesting about the group who let their accounts be allocated is that some of them deliberately chose to do that. Our research supports that. They made the choice that they didn’t want to choose an account but to let someone else do it for them.
I know that you cannot be definitive, but do you think that perhaps the hardest to reach are the ones who most need the help but are not in fact receiving it at all? Perhaps there are other ways through broader financial education in schools that we could target some of this investment to reach more of those harder to reach young people.
Mark Lyonette: It may be worth my saying a few words generally about credit unions and their role with child trust funds. I have kept quiet up until now, largely because we don’t have anything like the scale of child trust funds that Children’s Mutual has. We have 900,000 savers. There are no concrete figures in the sector, but the number of child trust funds is between 15,000 and 20,000, so it is comparatively small.
Our experience with schools is slightly different, in that we find that what is most effective is encouraging children to save rather than teaching them about it. Some of you will have heard me say many times that all our experience tells us that you cannot tell people to save. People only value savings when they have them. The trick becomes how we can get people not just to have savings but to be saving, rather than just encouraging them to do it. Our experience with schools is that the more immediate, tangible thing that gets children saving is bringing in a few pennies and starting to put something aside, starting to save for something in particular. It is building a habit of saving per se. I would not take from that a general statement that therefore child trust funds don’t do that.
Out of our 900,000 members, we have 100,000 junior savers. We have an awful lot more people who are saving for small things in schools than we have whose parents are contributing to a child trust fund. I don’t think you can generalise, but our experience is that the more tangible the savings are, the better, in terms of the children’s approach and their building lifelong saving habits.
May I remind Members that an electronic device near a microphone causes interference? I would be grateful if those who have electronic devices near a microphone would put them to one side. Thank you.
Is it your assessment that if the junior ISA scheme were to replace the child trust fund, parents from all strata of society and all incomes would contribute to it, or would it be solely the preserve of those who are better off?
Graeme McAusland: I have some difficulty answering that because it is not yet very clear what the junior ISA scheme is. I said earlier that one of the things that made child trust funds work was the range of distribution—that is key. The danger is that it is weighted much more heavily towards the higher end of the income scale.
In the event of the Bill going through—clause 1 being carried and the scheme being abolished—how prepared are you for the introduction of the junior ISA scheme? Could you meet the deadline of 3 January 2011? Do you understand the scheme that is being proposed by the Government? Have the complexities been explained to your potential constituents and investors? How prepared are you to gear up training and information about such schemes before 3 January 2011?
Without putting words into your mouth, would it be fair to say—although the Minister is not here to listen to these concerns, which is a concern for us generally—that the scheme that the Government are developing is not very fleshed out, that you have no idea how it will operate on 3 January 2011 and that your team are not prepared in any general sense to understand what the replacement would be for the child trust fund?
Graeme McAusland: I think that our position is that a consultation was launched three or four weeks ago. Various parties, including us, responded to that consultation and the first consultation meeting focus group happened this morning. If I contrast that with the time in work and consultation that went into launching the child trust fund, we are in a place where it looks like we are comparing a number of years with a number of weeks.
Do you have a view as to whether—this was part of the coalition’s manifesto commitments—it would be workable for the Children’s Mutual, if children receiving disability living allowance or children who live in the poorest third of households were to receive continuing support via the child trust fund as a financial contribution from the Government?
With regard to looked-after children, who are of concern to a number of members of the Committee, in the event of the child trust fund contributions being abolished, what alternative methods should we consider to ensure that children who are in care, who have no parents, who potentially have no grandparents and who are the responsibility of the local authority, have some form of financial support at 18 years old? Are there alternative models that you would suggest that the Minister and the Committee examine?
Graeme McAusland: The one that I have seen which we are reasonably supportive of is the ResPublica idea. That is based on effectively maintaining the CTF infrastructure, but you create funds that can then be used to support looked-after children, maybe disabled children and maybe those at the lower end of the scale. That fund is effectively provided by various interested parties in the market. There is something in that. In the absence of any Government money, that idea is worth looking at.
In the event of clause 1 being enacted, how do you think that will impact upon your ability to deliver any form of help and support for individuals who are currently within the scheme, and how do you feel your scheme will respond to that particular abolition in due course?
Would it be fair to consider the possibility of a further delay, where the Government could effectively meet their obligations, should they so wish to, but that you have further time to plan a potential exit from the scheme and also to plan for alternatives for looked-after children, for the poorest third, for those on disability living allowance and for the changes that any enactment of clause 1 would mean?
Graeme McAusland: Yes. One of the things that is not very clear to us is why there is a rush to dismantle it. I understand the argument in terms of saving the Government contribution, but it is not clear why you would want to take something away and have this period of nothing. If you have a child who is born on 4 January 2011, what do you actually do for that kid? There might be an account coming down the line, and it might be backdated. It is just not clear why you do not leave the child trust fund mechanism there.
I am interested in that. I want the scheme to remain, and I will be opposing clause 1. From your perspective, in the event of clause 1 being enacted, what would be a better timetable for your organisation to manage that enactment in a way that militated against the speed and the necessity that the Government think is needed by enacting it on 3 January 2011? What would be a reasonable period for you to consider?
We are considering the Bill in Committee next week, and probably by Tuesday evening, and at the latest Thursday morning, we will have gone through clause 1 and will have received representations and debated it, and it will have been enacted as far as the Commons is concerned, pending Report and consideration in the House of Lords. Given where we are now, if you had an opportunity to say to the Minister what the timetable would be—given the Minister’s wish to abolish the scheme—to give you sufficient time to ensure that that was managed in an effective way and that a replacement was considered and in place, what would that be? Would that be 3 January 2011, or would you seek 2012, 2013 or 2014? What would that be?
Order. Before Mr McAusland answers that question, could I gently point out to Mr Hanson that I think he is repeatedly asking the same question in different words? I am going to allow the answer, but I do not think that I would like to see another formulation of the same question.
Graeme McAusland: I will go back to what I said before. It depends on what happens next. If we have a proper consultation around the junior ISA, and we get to a place where there is a product that, in terms of our business, we believe works for customers and for us, I would like to see the child trust fund mechanism running up until the launch date of that account. That allows those children and parents to do something in the period from 3 January through to whenever the launch date is. At the moment, they are in a place where they will just be confused, and, as a provider, I am not sure that I can actually provide anything to them, because I have this new account coming down the line, which I am going to have to think about.
There is an interesting issue in all this that if the average contributions are £200 to £300 a year on a basic of £250 or £500, so far we do not have evidence suggesting that that produces additional saving, although you said that you have got evidence yourself.
What has been said is that the process of opening the account was quite easy, and I had a big struggle opening accounts for my children, so I know all the money laundering regulations and the difficulties. I wonder if what you are saying in all of this is that having a simple way of opening a savings account for a child would be a good thing to have.
This morning, we were discussing the ISA model and the child trust fund model. There is a question, of course, for the Government as to what the costs are of maintaining both of those, which are probably not so great considering that they are already in existence, and you would continue the child trust funds that go. Do you think that that would be a reasonable way forward?
If you are going to a have children’s saving thing, you could do it by both facilitating ISAs for children—for people who are not adults—and also maintaining the child trust fund infrastructure, and the marginal cost for the Government would probably be relatively low. Obviously, there are different providers providing different services, and I am asking for your comments as to whether you think that is a good idea or a bad idea.
Graeme McAusland: I guess I would start by saying that I am not convinced that it is a good idea, because I am not convinced that ISAs necessarily work for children’s savings. In an ISA as it stands today, for example, the grandparent cannot put money into the account. For the junior ISA, which has been talked about, it has been suggested that that will happen. That is going to require changes to ISA providers’ systems, so there are complexities.
Yes—to age 18, so it is not an efficient way of laundering money.
Another thing confuses me a little on the numbers game. If you have 900,000 accounts and assets under management of about £700 million, that gives an average value of just under £800 per child trust fund, and we are talking about £200 to £300 going in each year. That slightly conflicts with the figures you gave for estimates for the future, although we know that people can be very positive on estimates for the future. Am I right that on average the accounts are worth about £800?
Could I start by asking you both what your experience has been of the saving gateway pilots? Do you think they have been successful and something that, in an ideal world, would be rolled out further?
Mark Lyonette: We were very supportive of the saving gateway for a comparatively small sector—just 900,000 people. I should have pointed out that there are an additional 400,000 people using credit unions in the north of Ireland, which is a significantly higher percentage of the population there.
We were very supportive of the saving gateway all along, and one of the challenges for our sector, with both any future junior ISA or future saving gateway, will be persuading our members. Even the largest members, which are bigger than the smallest building societies, are still small businesses. It will be a challenge persuading them to put energy into designing and bringing forward new products and services when such accounts have been pulled away at the last minute. There will be a credibility gap for our members after what, for them, was a significant amount of preparation.
I should say that we absolutely understand the fiscal deficit and all the challenges there, but that was very frustrating for people who had put in a lot of work, comparatively. We thought that the saving gateway would have a massive impact on the sector, and that we would produce a disproportionate amount of that, considering the present scale of the sector. So, it was just very disappointing. Moving forward, whether we are talking about junior ISAs or any other ways in which the Government might encourage people to save, there will be a problem in getting people to put the time in again.
Mark Lyonette: Yes, we supported and followed most of the thinking on it. We did consistently tell the Treasury that we thought some things about it were slightly counter-intuitive. One was the two-year cycle—in our experience, there is not much that happens in anyone’s life on a two-year cycle. We always said that that just does not seem right.
One of the biggest single things to get people to start a savings habit is to do something better for Christmas. People on low incomes spend a significantly higher proportion of their income on Christmas than people on higher incomes. An easier way to get people to start saving is by their saving for something—for a tangible thing—and to not get to January being hugely in debt with Christmas. We consistently said to the Treasury, “We know that in our sector people will save for a year, withdraw the money in November, have Christmas and do the same the following year.” That would have fitted within the saving gateway, but the two-year feature seemed counter-intuitive.
The same relates to the other annual event, which is that people aspire to, although they are not always able to afford, a few days’ holiday or break—two years did not seem right for that. The other point that we make, even though we entirely supported the matched savings, was that matching money is not the only way, in our experience, to incentivise savings. The ease of channels—if you want to use the technical term for the industry—is equally important. If you can make saving like falling off a log, people are much more likely to do it than simply with match funding.
We were also slightly sceptical that 50p was possibly—as we said in the evidence, the research showed that you could have incentivised saving on slightly less, but having said that, it was a minor point in the scheme. We were broadly supportive of the whole scheme. Our members were very confident about it, because it seemed to have all-party support in the process.
Going back a few years to when Farepak collapsed, I know that the credit union movement stepped into the breach, in terms of encouraging people to save in the equivalent of a Christmas club. Do you think that that was something that the customers of the credit unions would have been keen to take up?
Mark Lyonette: It was. We often said to treasuries, “Look, the £25 maximum would probably be quite a large amount of money per month for people on the lowest incomes.” We have a lot of people in our sector who are saving £1 or £2 a week. That only produces £50 or £100 a year, but it can have quite a massive impact for people. Some of you will have heard me say many times that it is not just the economic value of £100 or £150; it is, for want of a better word, the psychological value of it. It is what it does to people’s confidence that they have, probably for the first time, a few hundred pounds built up over a year or two. It gives them some sense that they are more in control. They will have credit commitments at the same time, but it is really important to feel that there is something of a buffer. Whether through the savings gateway or some other initiative, we think that the Government can encourage—and needs to encourage—more people to get that better balance between what savings they have, however small, and their credit.
Is there a concern that if there is no opportunity to save through reputable organisations such as credit unions, people will then resort to doorstep lenders, loan sharks and companies—I cannot remember what they are called—that lend you money until your pay cheque comes in?
Mark Lyonette: It is one of the strange things in our society that “savings” is not a defined word. “Bank” is a defined word—you cannot call yourself a bank if you are not a bank, with all that that means regulatory-wise—but “savings” is not well defined. We saw that with the Farepak collapse. A lot of people thought that the money that they were giving to the company was safe and protected. For an individual, it is a fine line. How many people understand what a protected deposit is? Well, I think many more of us do now that five banks have failed, but before that, not many people understood it. A pre-payment for a good feels like your money should be safe, but it is not. I think that one of the areas that we should look at collectively at some point is being much clearer about what savings is, as opposed to pre-payment for a good that might be at risk if the firm goes bust.
One of my particular concerns is keeping people out: particularly the loan sharks and those with high interest rates, but even the more established institutions that charge fee after fee. That is depressingly bad. Obviously, we want people to be bound to have accounts of some form or other, but is it not better to focus on trying to ensure that people do not incur debts rather than saving, although obviously there is a correlation between the two?
Mark Lyonette: Yes. The conventional economic wisdom, for want of a better word, would be that you should clear your debts before you start saving. You cannot really have a Committee meeting like this without mentioning “Nudge” and all those things, but it is one of those things that does not quite fit with how we behave. We have always encouraged our members—they have really understood the benefit later—that while you are paying off your credit is not necessarily a bad time to save.
One of the successes of the last Government, in terms of affordable credit, is that credit unions have now made 300,000 loans to people who would otherwise be paying £200 more on a £400 loan. That is a significant amount of credit cost. All that extra money provides a good opportunity to say to somebody, “Why don’t you save now?” You have just saved them a weekly amount. It is like getting a new job that is slightly higher paid. That is the right time to say to people, “Why don’t you put some of that aside?”
Mark Lyonette: I should make it clear, as some Members may not be aware of the fact, that the sector does not generally require you to save before you can borrow from it. The sector did that long time ago but, by and large now, we don’t. That doesn’t mean that we don’t say to people who are taking out or repaying a loan, “Actually, putting something aside is still really sensible, too.”
Do you agree with me that people actually incur debt because they have no savings and something happens? If their washing machine or their cooker breaks, they have to have another one. That is why they incur a debt. Therefore, to have a couple of hundred pounds in savings is absolutely vital. Encouraging people to save with a reputable organisation also means that they can go to that organisation for a loan.
To go back to the credit unions, the saving gateway pilot wasn’t as successful through the Halifax. It was agreed that it should be extended to the credit unions, partly to encourage their growth. Would you say that the effect on the credit unions of the last minute withdrawal was that, for some, their business plans became no longer viable, and it had unintended consequences?
Mark Lyonette: I think we would have done very well with it. None of the credit unions built their business plan around it, so I don’t think its withdrawal is a threat to the health of credit unions. They thought that they were in a very good position. Members might not know that we have some fairly unique ways of encouraging people to save. We don’t just have cash—obviously, we do have cash— but actually you can deduct from either your payroll or your benefit to pay directly into a credit union. When I said earlier that convenience is key, that is a fantastic incentive to save. It is like falling off a log. It’s that old maxim: what you haven’t had, you don’t miss. If it’s come out of your payroll or even your benefit—it could be just a pound or two—before you see it, it is actually easier. It is much easier than creating a standing order or a direct debit.
Payroll deduction is the reason why something approaching 15% of all bus employees, bus drivers and train drivers now have savings well in excess of the average for people on that income. It is not that they were born better savers than you or I. They just have access to a channel of saving that is really like falling off a log. Whatever our thinking in future, whether about matching a pound with 50p, it does not necessarily have to be about the money. We should work with what works. What is it that makes it easy for people to save?
Do you have any evidence of how many credit unions have financial capability schemes? Of people going in as savers under the saving gateway or any other scheme, how many people actually use the financial capability advice that is given by the credit union?
Mark Lyonette: We recently did some work and found that credit unions are active in more than 500 schools. That is quite impressive for organisations as small as us. It is not our main business to provide financial education. Again, our approach was very much to work with the practical. We found that it encourages children to put a few pence aside to buy something in particular—not the economics idea that you need to put away three months of your outgoings and all those things. It has to be practical and make sense for that child. We have found that that also has an impact on the parents. The parents are much more likely to use the credit union if they’ve seen their children being involved in something. When I say, “involved”, it also means running it in school. It’s a very practical thing. You learn other skills as well, not just the habit of saving. You are learning how to run a business of collecting money and all the maths and business skills that go with that.
I want to commend the credit union industry for dealing with these incredibly difficult decisions and helping to recapitalise some of the most disadvantaged people. It sounds to me as though you read “Nudge” before the Prime Minister did, in terms of making it incredibly easy for people to save. A couple of things occur to me: one is the point you made about channels. Is it your view that, even with the saving gateway, there were still insufficient channels available for some of Britain’s poorest families to make a savings decision?
Secondly, it concerns me that in many of the savings examples that you have described, people were not saving for the long-term future, such as retirement or pensions, but for Christmases and holidays, which are worthy, but not the long-term aim of the saving gateway. Can anything be done to encourage people—particularly women—to save for an uncertain financial future?
Mark Lyonette: There are two elements to that, so pick me up if I do not cover them both. The issue of channels was not so much about creating more channels within what we already had. The challenge for our sector, which is something we have engaged with the coalition on, is how we can make a step change in the scale of the sector. Just doing more of what the Government have supported us to do over the past four years, which is incredibly valuable and is seen as a good value for money Government project, will not in itself make for a sustainable sector to serve this marketplace.
One thing that we have been pushing is not so much the channels per se, but the partnership between our sector and the Post Office, which I think is really exciting—you might expect me to say that. Can you imagine if you could walk into any one of the 11,500 post offices and transact with your credit union? That is good for the Post Office because it brings it revenue and it is good for the credit unions because it is much cheaper than building their own bricks and mortar. It gives us universal coverage across the country, which is another reason why the Minister said he was concerned about the saving gateway the other day. It also helps the coalition because of the bill payment side that we were proposing to introduce. That would fulfil their commitment to getting cheaper utility bills for people using Post Office card accounts. It is a huge benefit to people if they can save a couple of hundred pounds a year on cheaper utilities and gain access to cheaper goods by buying online. Those are both significant things that the Secretary of State for Work and Pensions is keen to encourage.
For us, the channels issue is about how we make that step change. Compared with the scale of Government support in the past four years, it is a much easier and better value thing to do than to keep doing the same or to salami slice what is already happening.
Your second point was about the relationship between short-term and long-term savings. I accept that the credit union product range does not encourage people to put money aside for a pension. I often ask at pensions events how on earth we can encourage the population to take responsibility for their retirement and build such a habit in the short term when people do not take savings seriously. To me, it is patently obvious that the people who are most likely to look after themselves for their retirement have already started to look after themselves with a savings habit in the shorter term. With all the other concerns about the value of pensions in the future, it seems to me that you will not get a significant number of people to take that seriously unless we are also getting them to do the short and medium-term things. We have to start somewhere—savings habits are savings habits and products follow.
We must challenge some of the myths about how people on low incomes cannot save. That is not true. It is about giving people the right incentives to do so. As your colleague said, people will see how they feel as a result of saving £100 or £200. The benefit that comes from that is so much more than the economic benefit.
May I follow up on that point? You have mentioned this innovative way of allowing people to save from their payroll and their benefit payments. Is there a potential option to split that into short-term and long-term savings, perhaps by going down the superannuation route? Again, that would nudge people into saving for the long term when it is not something that they would think about on a daily basis.
Mark Lyonette: For colleagues who are not so familiar with it, ABCUL is the Association of British Credit Unions so we represent members in England, Scotland and Wales. The vast majority of credit unions in Northern Ireland, and certainly those that serve the majority of the 450,000 people in the north, are represented by the Irish League of Credit Unions in Dublin.
For a long time, Northern Ireland has been a part of the credit union world in the UK that is not often mentioned in this building. But because there are now proposals from the Treasury for credit unions in the north of Ireland to be regulated through the Financial Services Authority or its successor, I think that we will hear a lot more about how successful credit unions in the north have already been.
For those of you who are not aware, nearly 50% of the population use credit unions in the north of Ireland. That is quite a figure. If you look around the world, credit unions in most major developed countries represent between 20% and 25% of the population—in the States, Canada, Australia, New Zealand and now many parts of south America and Asia. Credit unions are much bigger generally there than they are here in England, Scotland and Wales. The north of Ireland is more in keeping with that trend than the market share we have here in England, Scotland and Wales.
Many credit unions—certainly the local one in my constituency—have problems of financial viability, because people who might want to borrow from credit unions are not necessarily high savers, so it has always been an issue.
It seems to me that the saving gateway idea would be a considerable boost to credit unions. The same person would not necessarily always be the saver or the borrower at the same time, but that is the whole basis on which banks and building societies have depended. There is a bit of community coming together there, and we are all aware and perhaps agree that the importance of credit unions is that they are able to offer a form of credit to people—in the kind of situation that Yvonne mentioned, for example—rather that actually deepening their poverty instead of helping it. So, this would have induced a lot of business for credit unions.
Mark Lyonette: I think you are right, in the sense that credit unions are what you might call the very old-fashioned, traditional form of deposit takers, taking in savings from some people and lending that out to someone else. We do not have wholesale funding at all. Now that of course begs the question. The real challenge for credit unions is actually to attract those savings, not to make the loans.
I suggest that the people who are saving in a saving gateway would probably not be saving enough money to provide the cash pot that the credit union can make the loans from. Those people will contribute to the pot, but the credit unions that are most successful span a range of incomes and of ages—people typically tend to be a little more likely to be net savers as they get older. Really the challenge for credit unions—hence the partnership with the Post Office, and being able to have universal web access—is those people on slightly higher incomes, so that people can use credit unions because they are good value for a whole range of incomes and not simply because we are asking people to save out of a charitable act. That will happen for a few people, but not by enough to make it work. Our challenge is, you are right, to get those savings in. I think that the sort of savings that our successful credit unions bring in are at a higher level than those that would come from saving gateway, although they would clearly contribute to the pot.
For example, some of our strongest community credit unions now have a very nice mix of people whose main source of income is benefit—they are very small savers and, in their terms, significant borrowers, but that is of loans for a few hundred pounds here and there. However, to fund that, the credit unions have people saving into cash ISAs. They are getting really attractive market rates for those cash ISAs, and that brings in enough savings from middle-income people so that you can then make those loans to the people who need them, at much better rates than they would get in the commercial sector. There is a real balance. I would not rely just on the saving gateway as the source of the savings.
Just to pick up on something that you said in response to Claire, I noted that you said that there was a perception that people on lower incomes could not or should not be saving. This morning we heard evidence from the IFS. Its representative said very clearly that one of the criticisms of the saving gateway and child trust fund was that it was not really in the interests of the customers to save by using Government money, because if people were on a low income they would be better off spending the money at the time. He questioned whether it was advisable to encourage people to save. Am I interpreting you correctly in saying that that is disputed?
Mark Lyonette: Yes, I think so. It comes back to this whole idea of whether we behave as rational economic beings all the time. As I said, conventional wisdom says I should pay off all my debt before I save. Actually, we have 900,000 people who will tell you that that is not the most powerful way to readjust your balance of savings and credit. You need to be putting something aside while you are still repaying your debt, especially in our case where our members are now repaying much of their debt from the growth fund loans we have made in the last four years, and they are making savings by paying an awful lot less in their debt—perhaps £200 or £220 credit costs on a loan of a few hundred pounds. If you are making that kind of saving from paying less on your credit, it is much easier to put some of that aside in savings.
We would not support the idea that you should clear your debt before you make any attempt to save at all. It just does not make sense. As one of your colleagues said earlier: when the washing machine breaks down, if you have to finance that through debt rather than savings, that has a massive impact on your financial health.
I want to return to a point mentioned earlier, Mr Lyonette. You said that you were planning the saving gateway on the basis of cross-party support. Do you have evidence for that assertion?
Mark Lyonette: Only in so far as I remember speaking to a Committee at the time, and it appeared to us that there was cross-party support for the saving gateway and its development. We did not have any reason to think otherwise. We certainly were not thinking during the election that something that had developed so far would be pulled. We understand the financial situation, but pulling it for financial reasons would be the only reason. We did not foresee there being another reason to pull the product.
Mark Lyonette: No, they have not been recompensed, but I do not think our members are necessarily looking for that, either. We are a smaller entity, so we do not have the IT systems development costs of the building societies or banks. However, our focus was on getting ready to bring this forward. In a small business where you have a couple of staff, that meant taking your eye off all the other things that you could have been doing to help yourself grow and serve more people. The challenge for us is not so much a question of compensation or anything like that. The challenge is that we will have a job persuading some of our members—whoever is in government, whatever the new scheme is—to put the effort in to get to what felt like the 11th hour and have it pulled. The Minister spoke at our all-party group reception in the summer and he did explain and said that that must have been very frustrating for people. The issue is simply about moving forward. How does the sector convince itself to do the things for whatever new initiatives may come?
Before you leave us, it occurred to me that you may have expected to answer certain questions or to comment on provisions in the Bill that we have not asked you about. We are grateful for the illumination you have provided so far, but is there anything that either of you feel you ought to say before we conclude this session?
I would like to start with Anne Longfield, if I may. In your evidence submission to the Committee you described the abolition of the child trust fund as a “disappointing and retrograde decision”, which will impact upon low-income families who will miss out most. Could you perhaps give an indication to the Committee why you believe that?
Anne Longfield: Thank you for inviting us. It is a pleasure to have an opportunity to talk more about the submission. The starting point to my comments, is that at a time of clear economic uncertainty, one of the things we feel, and families tell us, is that what would help them with their finances is support to enable them to get their finances in order, not only now but to enable them to plan for their children’s future. We have just undertaken a major survey of around 10,000 families’ views around the country, and a large proportion of them—24%—said that one of the things that kept them awake at night was their children’s future. Another 38% said that finances kept them awake. So we know that finances press hard on families’ worries about their future.
We believe that the child trust fund was a really important step to help families plan for their future and build an asset that their children could rely on in future, but it would also get them in the habit of saving. We know from all the evidence that the families who are least likely to save are inevitably those with least money. The evidence that we have seen coming through the child trust fund is that the largest amount of money is actually getting to those families on lowest income, with 50% of the funds going to those on less than £16,000, and also that the take-up has been good, with a real increase in families taking up savings, with up to 50% of families where there is an active provider doing so. Clearly, that can build for those families who are least likely to save in the first instance, but also for those children who will most benefit and be least likely to have that financial saving in the future.
Do you have any specific statistics that show that people who prior to the child trust fund were not saving for their children’s future—who are in the lower quartile of income—are now doing so?
Anne Longfield: I do. I think saving is about habit. If that is wrapped up in wider support that is there on a constant basis for families, that helps support and encourage them to save for the future, that can be a real catalyst—the nudge—that makes them do that. You also have the potential for a really good partnership. I know you have had people throughout the day from the financial institutions, which can use the marketing powers and experience they have and reach out to families and help them to start to put quite modest investments into their trust funds. When those add up—and we are talking now about £24 being the average investment—over time, you are talking about nearly £10,000 of savings. Clearly, we all know that the future is uncertain for our young people. Given decisions that have been made on higher education, that could be a real boost that would enable children to make real choices. At the moment, if you are from a middle class family, you are likely to do it anyway. If you are not, it is something that is less likely to be there. Therefore, that could really be the bridge that enables futures to open up.
In this imperfect world, if we moved away from universality and provided a scheme after the Bill is passed that supported provision for either the poorest third of families, looked-after children or children in receipt of disability living allowance— Mr Bush might like to comment on that—do you think that such a scheme would still be a benefit?
Anne Longfield: Clearly, there are choices to be made. Personally, I think that the universality of the scheme is important. It reflects a wider concern that we all benefit from children being brought up and that if we support all parents to get into the savings habit we will see those children have assets for the future, so it is money well spent. If you look at the proportion of money that goes to those on lower incomes, you will see that a vast amount of money is going into the trust funds of those with the least income. It is a simple system, and one that people understand. It is a system that everyone can feel part of. Because all children receive it, it has now become part of life, and we have some examples of teachers using it as part of their own financial literacy and capability. They know that it is something that is part of all their children’s lives. That is an important lesson, and a factor that we should take into account. Clearly, however, there are choices that can be made.
Marc Bush: I will just add that universality is really important because it does not stigmatise families with disabled children, which is why there tends to be a good uptake in benefits from families with disabled children when there is a universal element. However, given the current financial climate, I think that there is merit in looking at some of the alternative proposals, such as ResPublica’s ABC account, which sets out asset building for children. Effectively, you would use means-testing to create some kind of fund that could be reinvested back into the most disadvantaged families.
Anne Longfield: A lot of the principles are covered within the introduction, and that proposal is welcome in many ways, but one of the things that has been very reassuring about many of the decisions that have been made over the past few months is the commitment not to change structures where they do not need to be changed for the sake of it. I think that we do have a structure here. There has been a massive investment in getting the information out to parents, and it is becoming very well known. For very little money, that could be maintained and built upon. If we change the system, we would have to not only reinvest in a completely new mechanism, but start to get that information out to others, which is bound to cause confusion. There would also be a time delay. On the grounds of keeping things simple, there is much to be said for building upon what is already there and already works.
Marc Bush: I definitely agree; it is about building on the solid base that we have. However, we have to keep it in mind that child trust funds, particularly for disabled children, work so well because there are no alternative savings products that work for families with disabled children, mainly because of the penalties that are inbuilt within the benefits system. That said, we have talked to many parents who have had officials question whether the child trust fund is an asset. They then see a reduction in their benefits, which is a bit worrying. I think that it is really essential that we have some form of asset-building mechanism that recognises the extra cost incurred by having a family with a disabled child. That is why the payments that came through the child trust fund were so important. The Government have said that they will redirect some of those payments to short break provision. Short break provision for families with disabled children is essential, but it is not mutually exclusive to building towards their future.
One key anxiety of parents with disabled children is that when their children go through transition—around age 14 to 24, depending on the child—they do not have any assets, and that tends to be when life becomes very expensive: when they move from much better children’s service provision to adult care, particularly social care, and have to subsidise their own care. That is when that lump sum could be extremely useful, in tie-over. I am not saying that it should subsidise inadequate state provision, but it can bridge that gap. My concern is that if we do not continue to recognise the extra costs that families with disabled people incur and their difficulty finding appropriate asset-building mechanisms, those children will be the most disadvantaged, and when they come to 18, they will not have the extra money that they need to bridge the gap during transition.
I can completely see why, in a world of unlimited resources, it would be nice for every 18-year-old to have a trust fund, but what I do not understand is that apparently, a quarter of families did not even take the voucher that was given to them. Do you have any insights into why that happened?
Anne Longfield: The figure drops down to about 15% when they were asked or prompted, in terms of take-up. About 15% did not take it up, but of course the mechanism allows that to be invested on behalf of the child.
I think that it is fair to say that family life is complicated and complex. One reason why we are so in favour of this as a positive idea is that we know that good intentions often get lost in the day-to-day busyness of life. We also know that a lot of families absolutely have all the best intentions for their children around the birth of the child, and that is a moment to capture, but undoubtedly, some families, for whatever reason, will not take advantage of it. They may lose it; they may not understand it; they may not be prompted. It may mean that they do not think that it is appropriate for them. The vast majority—85% is a high take-up rate—do. That means unreservedly that it is being met positively by families.
Marc Bush: I would add that there is definitely an incentive built within it, and that is why the uptake was fairly high. The concern that we had was that people were not really getting the proper financial information and advice that they needed, so families really were not sure what impact building an asset through the child trust fund would have on their other benefit income. That disincentivised some families with disabled children; they ended up in quite complex arguments with local officials about what that asset meant. That is of real concern to us, because it was effectively one of the only saving mechanisms.
Anne Longfield: Although if you dig you can find out, if you are not used to looking at financial documents or being involved in savings schemes of this kind, there is a general wariness of them anyway. It is new, and all those reasons mean that families may need more time, explanation and support to take it up.
I know the IPPR said that it was about 25%, so I wondered whether you could go through the evidence base on which families tended to have the higher take-up and so on.
Anne Longfield: The evidence that I have says that 31% were taking it up, but where you had an actively engaged provider, that could rise as high as 50%. What that means is exactly what we are talking about. That is about providers who market themselves well. That is another great asset that we have been able to release from the private sector. They will market to parents, make contact with parents and promote this in an active way. From that, it seems that parents are willing to go that extra mile. They are willing to add to that.
Again, if it is left to parents—if they have something, they make a decision at one point and they do not get any more information after that—it is likely to stay wherever it is. Clearly, this is the financial organisations’ day job. Where we can release and harness that for the good, we see positive results.
May I ask just one more question, please? The estimated savings from not having the child trust fund are about £500,000,000 a year. If you had £500,000,000 a year, what do you think would be the best use for it in terms of tackling child poverty and so on?
Anne Longfield: We could talk for many hours about that and have a great debate about it. I think the starting point would be that both are important. You can spend money on actively engaging with families to help reduce poverty, and you can look at giving financial support—that is important, too—but we do not necessarily have to choose between them. There are choices to be made that do not look at putting children and families first. We can look beyond that. Information has been widely disseminated that shows that families with children have been adversely affected by some of the decisions around cuts so far. From our point of view, that is the wrong place to start. Actually, they have already been hit—a lot of the cuts are cumulative. Both of the approaches are very important: we need to help parents get out of poverty now but we also need to help them plan for the future.
Anne Longfield: I think there are merits in keeping the child trust fund within a broad package of support for families, especially those who are on lower incomes. Actually, the evidence is that the child trust fund is very good value for money—invest now, to help families help themselves in the future. That is an important factor. This is not about giving families money as an investment in itself; it is about helping families help themselves in the future.
Marc Bush: I really support that. There is a misconception a lot of the time around what makes up poverty. Underlying poverty are both income inequality and asset inequality. The previous Government did some commendable things in trying to tackle asset inequality, and to see that drop off the table would be really worrying, particularly for groups such as low income families and disabled children, who are very asset poor.
Anne Longfield: If I may give one further answer to one further question, one of the things that makes the child trust fund work is that it is wrapped up in wider support around things such as Sure Start, so that there is added value and benefit from running these kinds of things alongside each other. The fact that you have Sure Start people who are actively engaged with families to help build their own strengths and assets for the future means that they can also advise and support those families not only on how they can make the most of savings like this but on how they can build their own financial capability. Many Sure Start centres have advice sessions, drop-in sessions and the like which actively help families build their own financial security for the future. This is a powerfully important tool to help them do that.
I have two brief questions. We heard testimony from the Institute for Fiscal Studies this morning that it is not necessarily in the interest of lower-income families to save. It suggested to us that in fact money ought to support income or pay down debt or whatever before families start saving. I would be interested to hear your comments on that, and on whether you think people at the lower income level have reason to save.
The second question is a follow-up to the previous one. The choice is paying down debt or the child trust fund savings account and so on. There is obviously an argument going on about deficit reduction, which is important and all the rest of it, but how would you say the child trust fund’s impact on families has a wider impact in the community? I was interested in your comment about how it plays out in the Sure Start in terms of general financial responsibility. If we are looking at deficit reduction versus these kinds of measures, what are the on-costs to the economy of removing this?
I know where that question came from, but it is relevant to ask the question in terms of the importance of the particular provision. We could go too far with the whole opportunity-cost argument. By all means answer the question, but I am anxious that we do not get into a more general debate about the macro-economic policy of the Government.
Anne Longfield: There is no danger of that. I heard the report of what was said this morning and I think that is a little bit simplistic. I guess that lots of people sitting around the table here would have had payments that their parents made—often £1 or £2 a week—over many years. Certainly I remember having three or four of those. They added up to something as heady as about £250 by the time I was 16. It was part of what we did; a small amount was put away as part of the habit of saving for the future. Some £250 did not release an immense amount, but it was important enough to be treated as an asset about which a decision could be made that could actually do something really valuable.
I question whether you had to spend every penny you had no matter how small your income was. There are positive habits around saving, on which we would probably all agree. Parents want to save for their children. They are clearly very worried about their children’s financial future and they know that many of the things they thought they could take for granted in the past might not be there in there future. We are talking about 17 or 18 years into the future. It is something that I think parents want to do and see as being a responsible thing for them to do. In that way, they can be helped and encouraged to get there.
In terms of opportunity costs, clearly if we can encourage children to understand finances, budget for themselves and plan for their future, there are immense benefits we can talk about in terms of how they can run their own lives in the future and the kind of skills they can gain from that. But in terms of distinct opportunity costs, that would probably take a bit of a longer session with a few others here as well.
You will be relieved to hear that I have quite a short question. Anne, you mentioned—I could have got this wrong, so please do correct me if I have—that 18% of families on the lowest incomes were making extra payments into some additional savings. Have you got any sort of information about how often they might save or how much they save?
Anne Longfield: You are absolutely right. You have picked up on a problem figure there. It was actually 18% of families who were saving, and that increased to 31% with a child trust fund. That figure can be increased to 50% when there is an engaged provider. I do not have a figure for those on a lower income who are saving, but on the amount that is being saved, the average deposit has increased from £15 to £24.
One of the things that, as yet, we have relatively little information on is the junior ISA, although we understand that the Government intend to replace child trust funds with it. That will obviously offer a tax-free savings vehicle for children, which will benefit tax-paying households, but not non-tax-paying households. What do you think the likely impact of that kind of product will be on savings patterns in low-income households?
Anne Longfield: The first thing is clearly about confusing people. It is really important to avoid that, and keeping it simple needs to be the absolute starting point, in terms of where we look in the future. There clearly will be a gap in terms of take-up of the system as well. When we get into language such as “junior ISA”, that feels far removed from what many families have experience of, and that will add to the difficulties in encouraging families and explaining to them what that means.
There are some clear principles that are set down. The money needs to be saved in the child’s account, and it must be protected—that is important. It must be directly linked to personal financial education, so that future adults are taught that responsibility. I think, however, that the language of ISAs is far removed from the vast majority of low-income families, and that in itself will mean that a lot of families self-select from there.
On the question of the add-on value of this method of helping families, do you think that it has merit over and above the amount of money that is going into it? If we compare it, for example, with simply making a cash payment to a child on reaching a certain age, do you think there is an additional merit to it?
Anne Longfield: The number of families who are having real concerns and problems with their finances at the moment—we know from our own children’s centres that the demand for debt counselling sessions, advice, support about finances and debt financing is high—means that this is an issue which is not a luxury for most families. It is absolute reality for an awful lot of families. The value of this method is that it tackles that at the birth of a child. You have a window there, where all families would say that they want to do the best for their children. They are prepared to make sacrifices at that point, and we can harness that. The habits that they can get into really will build a valuable asset for the future, so the answer to your question is yes. Also, that is what families want to do; they want to get into those habits.
We all know that those families who are just coping have, in the main, the best possible intentions, but life events knock them off course. A loss of housing here, a relationship difficulty here, problems with work or loss of a job there, mean that those good intentions often get knocked sideways and can constantly set people back. The beauty of this is that it sets people up in a way that they can build on at their own pace and in their own way, and they can really invest for their children’s future. On the anecdote about the school being able to use this, the fact that the fund is part of life for all children means that it becomes part of the grain of the way that people live. Schools can use that within their own lessons, confident that it affects all children.
Marc Bush: There are two benefits, one linked to the child and one linked to the parent and the wider family. In terms of the child, disabled children have told us and many other organisations that they feel financial hardship on their family, mainly because the costs incurred through disability affect not only the immediate family, but the wider family as well. Many disabled children grow up thinking that they should not save and that they should invest within state benefits, because if they save they will just have to spend it on a wheelchair, a piece of equipment or a housing adaption that they could not get funded. Seeing an asset grow with you is a great way of giving disabled children a positive attitude and confidence that they can build assets and can contribute towards their finances. That is something that disabled people have found very difficult, because historically they have been one of the most financially excluded and dependent groups, through state regulation and state policy.
In terms of the family, families with disabled children feel great anxiety about what the future holds for their children, and a lot of that is bound up with finance. We hear a lot about families with children with learning difficulties, who ask, “What happens when I die? What happens to that child when they transition?” This method guarantees that during that transition bracket there will be some stability. We cannot say that there will be definite stability in adulthood because of the inadequate funding of social care. There is, however, some kind of stability, not only for the parents, but for the wider family as well, who are concerned for the child’s financial future.
Anne Longfield: Can I possibly do an add-on to that? I have a 17-year-old teenager, and in a period when children are faced with 24/7 communication, instant gratification, celebrity culture and things that seem to be grabbable, instant, achievable or not achievable, a lot of young people will tell you of the disillusionment that they go through at 13 or 14 years old, when they realise that things are not going to happen. To be able to ingrain some of these habits around building for the future, personal responsibility and the fact that small savings can actually build into something worth while, is a worthy and worth while thing to do. In terms of families, not only are you putting in place the habits of finance for children, but these children will also be the parents of the future, so actually you are putting in place a system that will have an impact for generations to come, where people will have a much sounder grip of finances, planning and building for the future.
Some of the provisions that the Minister has talked about, and that the coalition Government are putting in place in light of the rearrangement that they are having to make regarding finances and the reduction of provision under the child trust funds, include: the pupil premium; 15 hours of free nursery care for all two-year-olds; an annual financial health check for every family; and, as you have said, Marc, respite care for the disabled. In an ideal world, I would have loved to have seen the kind of provision for every family that you have talked about, Anne, and a continuation of child trust funds, but we do not live in that ideal world. We have had to make choices. Would you not agree that it is better that we target those choices at the most vulnerable, and that that is what the coalition Government have done in making the kind of provision that I have just outlined?
Anne Longfield: First, those are all very welcome. There has been a clear commitment to and investment in children in their early years, and that has been very welcome. I think that families are reassured by many of the things that they have heard, certainly in terms of some of the announcements around Sure Start and two, three and four-year-olds; they are very good. But evidence is out there—clearly, it is not my evidence—that shows that children and families are taking quite a hit here, and often they are the ones on a low income or on the margins.
As for the figures on those who have said that they stay awake at night and worry, 24% of those are families who actually earn between £40,000 and £50,000, so there are many families who are doing their best. They are working hard, but they have got reductions in the child care element of the tax credit, they are losing their child benefit and there are rises in VAT. A whole raft of things have been thrown their way. If you are a family living in London with two or three children, you will not feel financially secure if you are earning £40,000.
There is a recognition that we, as a country, need to give to the importance of families bringing up children. The measures that you talked about are very important and, as I said, very welcome, but we have to recognise that it is actually families on low incomes with children who have been shown to be disproportionately worse off following the cuts, rather than those without children. It has raised an important debate about universality and what we, as a country, value in terms of the jobs we do. If that leads to more debate about the importance of bringing up children and families, that is welcome, but at the moment those with children are not coming off best. Those families without children, and, indeed, old people, are showing as having taken a much smaller hit, following the decisions that have been made.
We have talked a lot about families, and the ability of the child trust fund to encourage saving among families. What about those children and young people who are in care? At the age of 18, under the current scheme, they would have a financial asset, but if the scheme and their eligibility end, as is proposed in clause 1, they will not have that asset. What do you feel should be the general approach to try to provide some form of support for those looked-after children?
Anne Longfield: Anyone who has gone near the care system knows that children who come out of it are some of the most vulnerable, in terms of the experience that they have had, and also in terms of the lack of assets with which to take themselves forward into the future. Additional payments for children in care were particularly welcome. That was a really important recognition, and one that we need to hold on to. There are children coming out of care who are still relatively in their infancy, if you like, and they are having to cope with budgeting, buying food, dealing with further education, and getting to work or training, too. Experience of dealing with those children shows that that is so much to take on. The fund would be an important asset for those families. It was important that it was there, and it is important that it is not lost.
Anne Longfield: This is an area that must be scrutinised in immense depth. There is recognition of the vulnerability of children in care across the parties, and a recognition that those families and children need additional support. That has to be built into a system, however, which must be absolutely scrutinised.
Anne Longfield: Well, 60,000 children are in care—I do not have the exact figure of how many leave it every year, but clearly it is a proportion of that number. I reinforce the point that children who come out of care do not have the support of a family behind them to help them to bridge that transition. They do not have that support financially or in terms of advice, and it is a time of utmost vulnerability, so it is important that we recognise that.
So in the event of the Committee agreeing to clause 1, to ending child trust fund eligibility on 3 January 2011, and to the establishment of a tax-free ISA—to which there is no parental contribution available because there are no parents—what other suggestions do you think the Committee or the Minister should examine in relation to meeting that need?
Anne Longfield: We have to look at children in care as a special case. We must look at the corporate responsibility of parenting and take that role seriously in its entirety. Those children cannot be left to fall off. It is really important that the provision has been built in, and it cannot be allowed to fall away.
Marc Bush: I was waiting patiently. I want to make a wider point that links to what you were saying about scrutiny. There is real concern that, as with other measures, there has not been assessment of the impact that the measure will have on specific groups. Groups that will be disproportionately affected by the reform are families with disabled children, and disabled people themselves. My concern is that if we put a new saving mechanism in place and it does not have that level of scrutiny or, especially, that impact assessment, we will not know what the impact will be of transitioning from a child trust fund to a junior ISA. For us, that is a real concern, given that when the independent think-tank, Demos, looked at the financial impact of the emergency Budget, it showed a substantial financial impact on families with disabled children.
Without putting words in your mouth, does that lead you to suggest that the date of 3 January 2011 is too speedy even if, ultimately, the coalition wishes to end the child trust fund at a suitable date in future?
Marc Bush: I think that a phased approach would be sensible, given that you do not want to create a cliff edge for families who already face a cumulative number of them because of the recent range of reforms. So yes, that date probably is too soon. More important, particularly from our perspective, is to see what mechanism is going to replace that. It would be extremely disappointing to think that we were not investing in a generation of children and allowing them to build assets.
How much work do you think is being done, from your assessment of the situation, to provide a scheme that would ensure that there was help and support for looked-after children at the age of 18?
Marc Bush: We have generally asked both the Department for Work and Pensions and the Treasury for their impact assessments on those measures. They have said that at this stage they cannot give us impact assessments, because they have not done enough of the work to underpin them, but that the Departments will subsequently publish them. For us that seems a bit worrying, given that, as you said, the reform, if passed, will come into effect in January.
Anne Longfield: We would also be very worried about the time scale. We think that there are huge risks of children falling off. There are some good basic principles in place, but there is a huge risk of throwing out the baby with the bathwater. There needs to be a responsibility to look at the aspects in great depth and really to scrutinise what they will mean and what the impact assessment will be. We owe it to those children whose expectations we have already raised on this to look at the issue and make those decisions properly.
I just have one final question, particularly for Mr Bush. You have talked about some of the additional stresses, strains and costs associated with disability for young people reaching the age of 18. Could you, in a short paragraph, indicate to the Committee what you believe the extra financial support might assist them in dealing with at that age, so that we can have some real clarity about what the benefits would be of the additional payments, and also of the general payments? If we agree amendments to the Bill, we could maintain the scheme for disabled children, as per the Conservative manifesto, following the abolition of the trust fund in a wider sense, although obviously I believe in universality.
I am just interested in what the additional costs are that the additional payments would have gone towards meeting for those children who would have matriculated at the age of 18, and in why you think it was important that those additional payments were made in the first place.
Marc Bush: I think it would have been a range of things. It would help people who perhaps wanted to move on to further education, given the reduction in the number of placements in further education for disabled young people, particularly in specialist further education. The payments would have gone towards new equipment, if these people wanted to move in with their friends, or if they wanted to live in their own house and the adaptations for which they had received grants were no longer suitable. The payments would have given them extra finance for life opportunities, so that they were able to go out with other people in their local community. Fundamentally, the payments would have allowed them to have an asset that they could invest in whatever they saw as their priority. We know that families with disabled children need those assets, not, as the media suggest, to spend on a PlayStation or a trip round the world, but for fundamental care or life costs.
Marc Bush: I would say that, cumulatively with some of the other reforms and wider policies, the Bill will increase inequality, particularly for families with disabled children. The reason for that is that they are the most asset-poor groups. At the age of 18, when they incur a lot of cost, such children will not have that extra resource to call on to deal with those unexpected life events that can occur during the transition process.
Marc Bush: Just to return to that, our concern is with our not having an impact assessment. We would feel much more comfortable if we knew: first, what the impact was going to be; and secondly, what the alternative saving mechanism was going to be. We have seen the junior ISA, but we do not know enough about it—just that the Government probably will not contribute to it. If we knew those two elements, we would have much more confidence in moving forward. But as you said, if no more detail comes out, that would be of concern if the reform goes through by January.
I hate to return to the macro-economic situation, but clearly no one goes into politics to take things away from disadvantaged groups, particularly from disabled children and children in care. However, the point is that of the £3.2 billion that would have been paid out over the course of this Parliament, the Government would have had to borrow £800 million, given the current public finances. If we are trying to recapitalise the country, surely incurring extra debt it is an odd way to go about it. To pick up on the point raised by my hon. Friend the Member for Congleton, there is so much going on. There is a commitment to Sure Start, 5,000 additional health visitors and targeted help for the poorest families, so is this really the highest priority?
Going back to your point about inequality, Anne, the child trust fund is a universal benefit, so there is no change in inequality when the children get to 18, because they are all getting the same amount. There will be no impact on equality, other than for the disabled and looked-after children, who receive a higher payment. There is incontrovertible evidence that, unfortunately, it is the most financially literate and the richest families who, as with ISAs, took advantage of this mechanism, and it is not the poorest and the most financially excluded families who benefited from it.
Marc Bush: I totally agree with you in some respects, given that I have not ruled out not going forward with universality. The key reason for that is that we need to ensure that we are targeting resources at those who will be most disadvantaged by the proposed measures. I am concerned that, if we do not target intervention, people who incur more costs and who are more disadvantaged will not receive the boost that they need. My other concern relates to the fact that universality is important, because you see a higher take-up of schemes when they are universal, but we have to weigh those things up. Without any form of impact assessment it is difficult to know what the impact would be of withdrawing child trust funds from disabled children from higher-income families, or from disabled children who do not receive disability living allowance.
My final point is that the Government opened a child trust fund for those families who did not save, paid in a higher rate for disabled children, and were going to do even more for those in receipt of disability living allowance. There are families with disabled children who want to save, but cannot find the products and do not know what to do, so it was great that the Government were incentivising them or, on their behalf, investing in products that the families did not feel they could invest in at the time.
Anne Longfield: Or, indeed, taking the products to them, rather than just having a market of products that such families would not normally enter into. Clearly, these choices have to be made, so it is very welcome that the measures that we talked about earlier have been committed to.
This is a simple scheme. On the universality argument, the vast majority of money already goes to those on lower incomes. If we are looking at inequalities and changing the pattern of saving behaviour, clearly we have to ensure that those on lower incomes are the most protected. In terms of the rationale of where we are in the economic recovery, it is our responsibility to help people build for their future.
When we have talked to families, the thing that they tell us time and again is that they want to be the architects of their own solutions. This is one way in which they can do that. They want to be financially independent, and they want to be able to plan for their future and their children’s future, and this is one way in which we can go with the grain of that ambition and support them in a cost-effective way. Of course, it is those who will not save and those who are on low incomes that have to have to be given the utmost priority.
Have either of you had much experience of the saving gateway pilot, or have either of you looked into it? We have gone into quite some detail on the importance of creating a savings culture, encouraging people and giving them incentives to save. What is your view of how the pilots worked? Were they a good thing? Do you think that they should be rolled out?
Marc Bush: The pilots were a good thing in that they gave people an opportunity to save without penalty at a reasonable rate of return, which is really important, because those products just do not exist for disabled adults. The national roll-out would have pushed that forward to a whole group of disabled people who are financially excluded from the products that are on the market at the moment.
Marc Bush: Yes. The most comprehensive piece of analysis is again—because of where investment tends to go—from families with disabled children. Family Fund and Social Finance have done a very large-scale piece of work that has proved that the current market of products does not work because it cannot navigate the very complex interactions between benefits and family income, and the flexibility that needs to go with that.
Our own research found that there are three aggravating features that compound disabled people’s financial exclusion, which saving gateway was moving towards resolving. The first was the inadequate financial capabilities and skills that disabled people have. They are one of most financially excluded groups. The previous Government and the current Government have said that they want to roll out personalisation. Personalisation involves, in many cases, people having devolved to them a large sum of money. You are asking adults, who have never had any savings, to look after £50,000 and effectively commission their own services. That is a massive jump from people who have no money to the financial capability and skills that they need. This could have started to build on that. All of the work that was done by the previous Government around generic financial advice did not—although it was very worth while—touch disabled people, because it could not look at the interaction between benefits or the interactions that disabled people have within their own financial circumstances.
The second aggravating feature is inappropriate, or a lack of, financial information advice. That links into that fact about the lack of generic financial advice, or appropriate advice services for disabled people. When they go to banks, banks do not really know how to deal with them. We have quite a lot of data—in fact, I have 90 pages of qualitative data if you really want to sift through it. That led to quite a large survey that we did with 50% of respondents—disabled people—telling us that they preferred to go to family or a friend, rather than someone who actually knew about the financial services industry, because they did not think that they were compassionate and did not really want to find the solution for them. On top of that, we have to remember that because of cuts to local government there are reductions in local information advice and advocacy services, which means that disabled people who rely on those services to be able to get financial inclusion or financial advice will not be receiving it. People, particularly with a limited mental capacity, need advocacy services in order to know the value of money, how to use it, and how they are going to use that budget that is devolved to them. Sorry, I know I am going on a bit.
The third aggravating feature, which is the one I started with, is the absence of appropriate financial products. They are not flexible enough. They tend to penalise disabled people. Let me give you a really clear situation. A disabled person could not manage their direct payment through a normal, basic bank account. They were forced to take out a business account, which meant that they incurred significant costs on the transactions on that account. That is just bizarre given that both the previous Government and the current Government have been pushing towards personalisation and many more disabled adults are going to find themselves in those situations.
Finally, the real risk of not having appropriate financial products is that disabled people rely on riskier and highly expensive forms of credit. We know that that spirals into debt. Particularly since the election we have had lots—hundreds and hundreds—of disabled people calling our helpline and talking about financial distress that they are now finding. We have found that the only time disabled people feel like they get true financial advice is when they are in financial or mental distress, which is very concerning.
Presumably, there is a greater vulnerability, among some people with disabilities, to loan sharks and people lending at extortionate rates—the sort of doorstep lenders you hear about.
Marc Bush: A lot of it is about the flexibility of what is seen as income. If people are receiving a benefit as income, it is not seen in the same way. People do not really like to see that as a saving or an amount of money within their account. There are various other things around the credit rating of disabled people generally and the status in which they find themselves when trying to access financial institutions, which are some of the most inaccessible institutions within Britain.
Thank you for drawing to our attention so clearly the challenges that disabled people have when they seek financial advice. The Government are bringing in a new provision from spring whereby there will be a national financial advice service and everyone will have the opportunity to have a personalised financial health check and talk about their individual financial needs and savings plans. I want to take this opportunity to ask you what particular aspects of that you think would be beneficial to disabled people, because clearly, the Government are serious about supporting people in terms of financial education, and particularly, obviously, the most vulnerable.
Marc Bush: We obviously welcome that. I think that the Government have an opportunity that the last Government missed. There was a large review of generic financial advice, which was implemented from 2008. Financial capability was implemented within school curricula. However, none of that met the needs of disabled children and young people, mainly because they were also thinking about the interaction with benefits and their finances more generally.
It is a great measure. My concern is that it did not work last time; how do we make it work this time? That is why, cumulatively, I am worried about removing more of the existing structures that can create financial capability, such as the saving gateway. I am concerned by the lack of specificity about how tailored and personalised generic advice can be. At least the saving gateway builds a generic savings culture among disabled people. It starts them on the road to having assets and gives them the confidence that they need to get over the hurdle of interacting with benefits and navigating a complex system.
Anne Longfield: We should not underestimate the distance that an awful lot of poor families feel from the financial world. Again, we can sit in this room and feel comfortable talking of financial products, advice and decisions, but for families who have never experienced that, feel vulnerable and have financial pressures that bear down on them or come out of nowhere, the hurdles to get them into a situation where they are confident, comfortable and able to make good financial decisions, even with that welcome advice, are immense. We should hold on to that challenge. One benefit of the saving gateway, again, is that it takes the financial world and translates it in a way that those on the lowest income—the poorest—feel is accessible. Again, that is an important principle that we should hold on to.
I have a question for Marc Bush from earlier. How would you have seen the saving gateway working in practice for disabled people? What would be the provider of choice, and how would that be better than what might be available for people now?
Marc Bush: I am glad that you asked me that, because I do not want to give the impression that the saving gateway was the panacea. It was not. It would have replicated many of the barriers—particularly the three that I listed—that disabled people ordinarily face within financial institutions. The real benefit would have been that it went to people, as Anne said, and created a mechanism by which they could start rationalising savings behaviour. That was the main benefit.
The other thing was that, obviously, it was targeted at people who were on particular benefits. The national roll-out would have targeted many disabled people, particularly through the migration from incapacity benefit to jobseeker’s allowance or employment and support allowance, in which they receive a reduction in their income. Therefore, at the same time, they could be building an asset to compensate for that reduction in income.
I suppose the first general question would be about—I do not know what involvement you might have had and, therefore, what your view is—the benefit of that grant, particularly to families and pregnant women in the lowest income groups.
Anne Longfield: I think that those on low incomes are disproportionately affected by health inequalities—that is the first starting point—which is an important issue for those families, for those individuals, for those children and, indeed, for all of us. If we are looking at the economic cost of that in years to come, I think it immense. So, we know that is an important issue.
We also know that a lot of families on low incomes say that they have real concerns about not having enough money to feed their families properly. We have figures that show that a huge 39% of families on lower incomes say that they worry about not having enough money to get through the week and feed their family. Again, 31% of families say that they do not think that they can afford to provide nutritionally balanced food. Now, there is a lively debate about the cost of nutritionally balanced food—whether it is cheaper or more expensive—but I think that we know that a lot of families rely on food that is accessible, near to their home, but which can often not always be the most nutritional food. We know that that is an issue and also that pregnancy is a key time.
This is about changing habits and is part of a wider range of support, again from midwives and antenatal workers, and through Sure Start, which is all around giving people confidence in being able to make good decisions about their health and welfare and giving them some practical support—a bit of a nudge, if you like, to put that good intention into effect. It is something that should be seen as part of the wider measure of support for families in that kind of pregnancy period. You can say that £190 is not much, and that no one would notice it, but it is an important recognition that pregnancy is a crucial time, and that healthy eating during that time is absolutely essential for both baby and family. It is that nudge that can go as part of a wider set of information and support, actually getting people on to a healthy eating programme.
It is not what you can purchase by going out and buying there on one day, it is much more often part of that reminder—the support and practical help that can make all the difference for families who have not actually got much money during that time.
One of the things that has been said is that, while it is a good idea, it might not have been targeted at the right time. Would you agree that, if there were issues around whether the 25th week was the best time to make this payment, it would have been better to look at the evidence for whether, arguably, there might have been a better time, rather than simply saying, “Don’t do it”?
Anne Longfield: Again, I think this has been an important recognition that has been new. It has been something which has I think been wholly welcomed by parents. Again, the experience of Sure Start centres shows that, in its interaction with parents. It needs to be based on evidence. We need to look at where that money can be best spent. We need to look at the impact if it has been withdrawn. So, yes, I would agree—we need to look at it much more in the round and, again, at the wider impact on the work. We have a situation in which there is positive investment in Sure Start and in more health visitors, as part of this, but actually this is a really important tool for a lot of those health visitors to use. We need to look at the impact of taking away there and at the added burden for health visitors and the ability for them to be able to do what we all want them to do, which is to help get those poorer families to a best start.
There is absolutely no doubt that maternal health is incredibly important, both to the mum and to the unborn child. I have quite major concerns about this grant, because it is so late in pregnancy and we know that the health benefits are really derived before a baby is conceived and during the early stages. Of course, there is no way of knowing how this money is going to be spent, although I am sure that anyone who has had a baby knows that £190 is very welcome because of the cost of having a child. I am wondering what analysis you have made, because of course we have got the Healthy Start programme, which targets nutrition pre-conception and throughout pregnancy especially for people on low incomes. That is very much welcomed by Sure Start centres. There is the Sure Start maternity grant, along with additions to family tax credits and, as you said, the Government’s absolute determination—with the support of Sure Start centres and increased resources for health visiting—to support families on low incomes. I am wondering what analysis you have done on the Healthy Start programme.
Anne Longfield: I think this needs to be part of a wider assessment of how we support families, and how we support parents during that important phase. It is complicated, it is new and there are different measures in place. We perhaps need to look at some realignment of that. I think that we need consistently to look over the programmes; we need to look at the evidence base; we need to look again at the impact assessment; and we need to enter into dialogue about the right time to look at support and how that can be best be done.
Certainly, it is an important recognition around the health visitors. There is important support there for parents in terms of the Sure Start grant, although of course that is just for the first child now. Again, this is absolutely the most crucial time for families. It is the poorest families that we are looking to support, and we need to get it right, because otherwise there will be a generation of children who do not get off to the best start that we know they need. Parents will know that this is on the way; expectations have been raised, and I think that we need to be very careful if we are going to remove some of those. We need to know why we are doing so, and what the consequences are.
It has already been mentioned that women need to eat a healthy diet much earlier in pregnancy and indeed prior to conception, and if they are not able to do so that has an impact on the birth weight of their baby. Low birth weight leads to a whole range of negative outcomes for child development and child well-being later on. Everyone can accept that the health in pregnancy grant is currently structured so that it does not meet all those needs. In your view, does it have any benefit at all?
Anne Longfield: Absolutely. First, there is an important recognition about maternal health, and its impact on the baby and their future life chances not only in childhood but for years to come. Secondly, in that wider measure to support families—I am talking a lot about Sure Start because I think that has been a really important introduction in terms of support for families—the introduction of more help is important, but we need to recognise that we cannot just spirit these changes. These people need their tools too. The impact on families is to be able really to put into practice what they want to do, which is to create the best start for their children. If you look at middle-class families, such as members of my staff team, I have people who are planning for conception in three or six months’ time. This is not the case, clearly, in a lot of families who are living on a much more day-to-day basis. If we can give them some help early on, couple that with advice and actually stick with them throughout the pregnancy—so it is not just a one off either in payment or in support—and if there are problems make sure that they are referred on to support once the child is born, I think we stand the best chance not only of tackling the welfare of that child but of breaking some of the cycles that we know will be generationally there for many families.
Marc Bush: I do not want to repeat too much, so I will just say that it is an important recognition. Of course we do not want to replicate efforts, and we want to make sure that we are targeting efforts. A really good thing about the new Government is that they are very committed to early intervention. Trying to get that right, and to get that intervention period right, is really important. I would just return, however, to the fact that this feels a bit too fast. It feels as though there is not an alternative, or that in-depth research underpinning where you place that intervention as an alternative.
On that point, these are all nice-to-haves. Before the introduction of the grant, where is the evidence that it would actually be taken up and used effectively, particularly in buying better nutrition? I know the grant has been in place for only a short period of time, but is there any fact base at all that it either acted as a bribe to encourage people to see their health visitors at 25 weeks, which is effectively what it has become, or indeed that it was used to buy fruit and vegetables and improved health? Are these just nice-to-haves or is there any specific evidence base that can help us rank these programmes? Are these all just part of a parcel of things that we would all love to have if we were not up to our elbows in debt?
Anne Longfield: The first point is that it is fair to say that a lot of these programmes have evolved over time and they have been incrementally added, which may not present a perfect situation now, and some of them might bump up against each other. There is an opportunity here—with a clear commitment to early intervention and the best start for children during this period to break the cycle of poverty—to look properly at what the evidence says and what the impact is, and, if there is a better alternative, what that might be. I think that that is taking responsibility seriously. It is capturing the recognition that is already there in terms of the reason that many of the programmes were introduced, but it is taking the new situation and the opportunity within that to look again at whether these can be streamlined, and even improved on where we are so far.
Health visitors and parents will speak positively about the impact of the grant. I know there is always a worry about what it is spent on, but we could take you to a room full of 20 families at a moment’s notice and they will tell you that they will spend it wisely on their families’ needs and their own health. They will invest in their children, because that is what they need. But I do think there is a role there and a possibility to look properly at the impact of a whole range of measures and take a balanced view on whether there is a better, more streamlined way of moving forward. But I do not think that a more slicing approach benefits the important recognition that exists or the important task that we are looking at in terms of improving health.
That’s very kind. If we have short questions—not that the answers have not been short—and fairly condensed answers, we might get through it. I gave a commitment to the two witnesses at the outset that if there is anything that they wanted to say that has not come out in the questioning, I would give them the opportunity to do so. If we are very quick about it, we can get all that in, but we need to be very targeted.
I find all these answers interesting, but there is a very simple point that I would like to raise with Anne. How important is it that parents are able to have a sufficient income to meet the costs that arise when they are expecting and when a new baby arrives?
Anne Longfield: In terms of the families themselves, one of the interesting and distressing things that we are seeing emerging through our Sure Start is a real increase in demand for mental health services, and that has increased over the last six to 12 months to the extent that we have to double our mental health support for those families at this time. We know that the things driving it are uncertainties about their financial futures and difficulties in balancing their finances and their work and home now. It is absolutely crucial. It is the time when there is most risk and most families are vulnerable. It is also the time when there is most opportunity to do something about it.
I am informed by the Whips that a vote is imminent. I suggest that three more people ask questions. If all three can ask their questions quickly, that would give the witnesses the opportunity to respond.
Very quickly. We received written evidence for the Committee from the Zacchaeus 2000 Trust, which focuses on the case of someone living on unemployment benefit: a woman aged 18 to 25, and how the Joseph Rowntree Foundation minimum income food standard would be £44 compared with the £51.85 they were getting for the benefit. When we spoke earlier about child trust funds, you were very positive about the universal nature of the child trust fund. All your evidence on the health in pregnancy grant has focused on its particular benefit for people on low incomes. I just wondered if you could give us a view of whether this is something that ought to be more targeted or whether it ought to be universal.