Savings Accounts and Health in Pregnancy Grant Bill

– in a Public Bill Committee on 4th November 2010.

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[Mr George Howarth in the Chair]

The Committee deliberated in private.

On resuming—

Photo of George Howarth George Howarth Labour, Knowsley

I welcome the witnesses who have kindly agreed to give evidence today. It would be helpful if you could introduce yourselves individually before we commence the proceedings.

Sian Williams: I am Sian Williams from Toynbee Hall.

Tony Dolphin: I am Tony Dolphin. I am the senior economist at the Institute for Public Policy Research.

Dr Samantha Callan: I am Samantha Callan. I am the chairman in residence at the Centre for Social Justice.

Photo of George Howarth George Howarth Labour, Knowsley

Thank you very much. David Hanson, do you wish to start?

Q 251251

Photo of David Hanson David Hanson Shadow Minister (Treasury)

Welcome to another of our witness sessions. We are nearing the end now, but I hope that you can contribute to our discussion in a fruitful way. I would like to start by asking about the objectives of the child trust fund and whether you think that they have been met. The first objective was to encourage a general saving culture, particularly for those on lower incomes. The second objective was to put in place an asset for all children at the age of 18. May we start with Sian from Toynbee Hall? Is the child trust fund meeting those objectives?

Sian Williams: On putting in place assets for young people, absolutely. It is a given programme—you cannot opt out of it. So, even though there has been some research to show that take-up rates by parents, in terms of active involvement, are not as high as we might have hoped for—although the figures are quite high compared to other savings programmes—because it is a given programme, you are automatically enrolled. So, from the very beginning we know that every child benefits in some way. In terms of contributions from parents and family members, obviously there is a broad range. Early activity in the programme showed that 18% of low-income families were contributing in some way to the child trust fund. While that fluctuated over the programme itself, we do know that having match funding and a process where people could see something—a physical asset—rather than just having some tax relief or something that they could not quite get their heads around, was a really important step in changing people’s understanding of saving. It moved people away from thinking that savings  were out of their domain and that contributing to savings was an impossible dream. It actually helped people move on to a place where they could see that something tangible was being formed and they could put that aside for their children. In terms of behavioural economics, it was a very important programme. While I would say that not every family contributed and not every child’s trust fund was being built up on an equal basis, every child was benefiting.

My real concern around the removal of the child trust fund is not across the whole population; it is for the lowest income groups. We really believe that, for that particular income group, from 16 to 18 years was a really important time to have no assets to fall back on. That really puts people in a difficult position. It reduces their opportunities, and we think the child trust fund was really effective in tackling that.

Q 252

Photo of David Hanson David Hanson Shadow Minister (Treasury)

Mr Dolphin or Dr Callan, do you dissent from that view in any way, shape or form?

Tony Dolphin: Certainly not. I would agree, but I have a couple of points. First, we have to remember that the child trust fund is still in its infancy. The oldest accounts have been open for only eight years and one eighth of all accounts have been open for less than a year. Looking at the aggregate numbers of people who have saved into them could be misleading at this stage, because many of these accounts have not been open for very long. If the programme had been allowed to build up to its full course, we probably would have found a greater proportion of parents saving into those accounts.

Secondly, although we can never know for sure, there is certainly evidence from some of the providers that some of the savings that are going into these accounts—around one in four does get extra savings—are new and additional savings that have been generated by the existence of child trust funds. If we compare child trust funds with something like the individual savings accounts, certainly the evidence is that most ISA savings are, in fact, just savings that would have been made anyway and are put into ISAs for the tax relief. With the child trust fund, it seems that we are, in some cases, generating additional savings.

Q 253

Dr Samantha Callan: I would have to differ to a certain extent. I agree with Tony that these things have had quite a short lifespan, so we cannot say that things would not have improved, but child trust funds disproportionately favour the middle classes or, in other words, people who are usually more financially literate—not always, obviously.

Parents opened 75% of vouchers issued and, of those, 99% have not received the maximum funding available. Therefore, it is not those on the lowest income that are actually taking the initiative to open the accounts. Yes, a quarter of accounts have received additional deposits, but that means that three quarters have failed to receive additional deposits. I think a lot of people say, “Thank you very much.” but I do not agree that it is necessarily changing behaviour where it matters most, which is where people have fewer assets to look forward to when the child is 18.

I am just not convinced by this idea that, by 18, children will have had two or three years of financial education. Where we are talking about the poorest  20%, which is the concern of the Centre for Social Justice, I am not convinced, because to engage in financial education you need to engage in school, and one thing that we were very concerned about, in all our work, is the rate of educational failure among the poorest. I would challenge the view that this is a very effective policy.

Q 254

Photo of David Hanson David Hanson Shadow Minister (Treasury)

Is it less effective than, for example, the proposed Government alternative, which is a tax-free ISA that will not necessarily encourage poorer people to contribute?

Dr Samantha Callan: I would prefer to concentrate on the fact that, at the end of the day, it is a transfer of money, which is not necessarily the best way to tackle poverty. The approach of tackling poverty by transferring money seemed to be the characteristic of the previous Government. Frankly, we need to tackle the root causes of poverty and make sure that the people know how to use money that is redistributed—I do not to want say “wisely,” because that is terribly patronising. We are talking about young people at age 18 living on rough estates where there is addiction, educational failure and serious personal debt. I would be much more inclined to go with programmes that are really well targeted financial initiatives, often for kids who are completely disaffected by mainstream education.

Q 255

Photo of David Hanson David Hanson Shadow Minister (Treasury)

The two are not necessarily mutually exclusive, but we can range across that another day, Mr Howarth.

I am particularly interested in your assessments—just short, pithy comments on this, if possible, so that colleagues can come in—of the impact of ending the child trust fund, particularly on what I would call more vulnerable groups such as looked-after children, children and young people with disabilities, and those in the poorest one third of incomes. Every manifesto, with the exception of that of the Liberal Democrats, proposed at least to maintain the child trust fund in its current form for all those groups.

Sian Williams: At this stage, given the economic climate, I would not advocate keeping the child trust fund for the entire population. However, for the really disadvantaged—I would include among them the groups that you described and families with extremely low incomes such as those with parents in long-term unemployment and very little hope of employment—I have a real concern that we are pushing towards policies that will increase inequalities.

We work a lot with young people aged 14 to 25 across London. We help them look at their financial future in terms of training, education and employment opportunities, and we know that, for many of them, not having any assets to fall back on reduces their options. Young people are concerned that if they would like to be able to study or go into some kind of training, they will not have any money to support themselves, or their family will need them to get a low-paid job—that is all they can get with their qualifications—or they will need to be bringing in some kind of jobseeker’s allowance. We see not having any assets to fall back on as a real problem.

It is not that I am particularly advocating that we keep the child trust fund, but I want to see some kind of policy that supports those particular groups. Options are the child trust fund, another form of asset base to  fall back on, or financial support, particularly now that we are losing education allowances. It is very important to tackle that.

Tony Dolphin: Perhaps I could just add that, for those groups, it is not really about lifting them out of poverty so much as giving them an asset with which they can do something when they reach 18. It may be some extra education or training, or something as simple as being able to afford driving lessons, which will give them a better chance in the job market. Even the double amount of the child trust fund—£500 at birth, £500 at age seven—is not enough to lift them out of poverty, but it may be enough to give them an extra chance. Not every child will be inclined to take that extra chance, but some may, and that is the beauty of the policy.

Dr Samantha Callan: The fact that we could be looking at very small percentages of disadvantaged groups who will take up the opportunity seems to make it inappropriate in the current climate to make a universal benefit, but I am not even convinced that trying to target straightforward cash transfers at the very poorest population is the best way to help them.

Q 256

Photo of David Hanson David Hanson Shadow Minister (Treasury)

So would you advocate ending the child trust fund for looked-after children and children with disabilities as well?

Dr Samantha Callan: When you start to say, “No way, we cannot just get rid of the whole thing completely. We will have this, that and the next category,” I would want to see evidence. I suppose we do not yet have evidence because the children have not reached the age of majority. There will always be exceptions: some children with disabilities have quite wealthy parents. Children with disabilities tend to be concentrated in the poorest 20%, but I am not convinced that we should necessarily ring-fence those groups.

Q 257

Photo of John Hemming John Hemming Liberal Democrat, Birmingham, Yardley

There are two key questions to do with the child trust fund. The first was raised by the Institute for Fiscal Studies. Is there any evidence that doing it this way has encouraged saving such that there is a real benefit to having the money locked in for 18 years? It is obviously a positive thing for grandparents to be able to lock the money away until the child is older. Is there any evidence that it has encouraged additional saving?

Tony Dolphin: No; in the sense that no one has gone out and interrogated every parent who has put money into these accounts, and asked them whether they have made extra savings. I see that you have had evidence from the Children’s Mutual Society—I suspect that it has already told you this—and its evidence from its customer base is that some of the money that is going into the accounts is additional savings. You can never have a perfect counterfactual in this case, however.

Q 258

Photo of John Hemming John Hemming Liberal Democrat, Birmingham, Yardley

That is one aspect. The second aspect is that, in a sense, money is often tighter for the low-paid than it is for people on benefits. The IFS and Louise Silverton of the Royal College of Midwives have argued that given that maternal health is very dependent on having cash now, they would advise people who really had tight finances not to save money until their child is 18 but to spend it now on improving their health and lifestyle. What is your view on that?

Dr Samantha Callan: When we talk about groups such as children in care and disabled children, families are really struggling now. Relationships between the parents are very much under pressure. Respite care is one of the things that could easily be severely cut despite the aiming high for disabled children policy, which was extremely well bought into by lots of stakeholders. We would recommend things such as mental health champions for children in care, but there is only a certain amount of money to go around and we need to make sure that what we are spending money on has the biggest leverage for these children’s life chances.

Q 259

Photo of John Hemming John Hemming Liberal Democrat, Birmingham, Yardley

I am talking about the families themselves saving the money, not about the state spending money. The question is, if families have spare money, should they spend it now or lock it away for 18 years?

Tony Dolphin: Just as there is no evidence that the child trust fund has generated extra savings, because no one has asked the question, there is absolutely no evidence that encouraging people to save and making vehicles available to do so is causing any family in this country to sacrifice putting food on the table.

Q 260

Photo of John Hemming John Hemming Liberal Democrat, Birmingham, Yardley

I am asking whether you would advise a family in that situation to lock the money away for 18 years.

Tony Dolphin: It is not for me to advise them, because I am not a financial adviser. It is for them to make their own decision. For most families, it is not as simple as asking, “Shall we have food or shall we have savings?” For a small proportion of families who are in very dire straits that will be true, but they are not sitting down and thinking, “Oh, there is a child trust fund so I will put some money into it.” We know that they are not. I just do not think that that is happening.

Sian Williams: It is not an either/or situation. Trying to tackle poverty by creating an asset base is not necessarily the only solution, and it is not the whole solution. When we are looking at family health, that means giving a family access to adequate income; ensuring that people have a living wage; and ensuring that we are not asking people to borrow in order to survive on adequate nutrition, to provide clothing for their children, to get their children into school, to make sure that they have books and so on. We are talking about making sure that people have a living wage. Alongside that, there is the idea of creating opportunities for young people in the future by building up an asset base.

When we assess a family situation and say that they need to decide between feeding their children properly, creating a safe environment for them to live in that is damp-free, mould-free and free from fear of gas poisoning, and creating a savings base, we are looking at a serious problem. It is about much more than whether we need a child trust fund. I really agree with your comments, Dr Callan, that there we are looking at adequate income levels and poverty. I do not think that most families are making a choice between feeding their children and creating a savings base. The child trust fund is not taking money from feeding children; it is creating an opportunity for parents and other family members to lock some assets away.

Q 261

Photo of John Hemming John Hemming Liberal Democrat, Birmingham, Yardley

So you are saying that people who are on benefits—as I have said, they often have a bit more disposable income than those on a low  wage—have perfectly enough money to feed themselves adequately, and therefore they have spare money to save.

Sian Williams: I am not saying that benefits necessarily provide a living wage. For some families they will; for others they will not. Each family is in an individual situation—I apologise for my croaky voice—and it is about providing families not only with the skills and the knowledge but the tools to make those choices. We work with lots of low-income families who are incredibly careful and incredibly capable with their money, and some of them are able to save—not necessarily for the long term, but they make very good short-term saving options. However, we also need to make sure that people have access to other services, such as affordable credit, so that they can smooth consumption and continue to save on the side. For example, giving people access to credit union facilities would be excellent. I am not saying that we should lose the child trust fund, but if we do, I would like to see some real thought given to alternatives and making them available.

Tony Dolphin: One other point is that we have to remember that the child trust fund is designed to run for 18 years. We should not assume that families will be able to save into the child trust fund every year, but we would hope that every family would, at some point during those 18 years, be in a position to save, because they were in work, had a windfall or had a reason to save some money. They are not forced to save, and they are certainly not forced to save every year. As their circumstances change, perhaps the fact that it is there will encourage them to put away some money in a good year.

Q 262

Photo of Kate Green Kate Green Labour, Stretford and Urmston

Dr Callan, I absolutely agree with you about the importance of financial education and the range of policies that we are deploying to support people in low-income households in particular. It was suggested to us in an earlier evidence session that one way of engaging young people with financial education was to do it when they had a lump of money that was theirs. That would enable them to think about their savings and spending habits in a way that had some reality for them. To what extent do all the witnesses think that giving a young person aged 18 a lump of money will support their engagement in financial education, particularly in their teen years?

Sian Williams: We work with young people in further education, and we work a lot with young people who are opening their very first bank account and getting their educational allowance, and who have some real money to work with. If you put the child trust fund to one side and look at a young person who has their hands on some money that has come their way, you will see that they are so focused on asking: “How do I make that money go as far as possible? What can it do for me?”

Interestingly, our programme, which we run across London, started out just teaching financial education in the classic sense of saving, borrowing and so on. We are redesigning the programme, though, because so many people come back to us and say, “Brilliant, you taught me how to make this money go as far as possible, but now I want you to teach me how I can use this money to leverage, to create more income opportunities. I want to do better, and having this money gives me an opportunity  to do that.” I absolutely agree with you that the moment when you really engage people is when they come to you and say, “I have this financial concern”, or this asset, debt or problem.

Personally, I also believe that we should have financial education in schools as part of the national curriculum. The Consumer Financial Education Body, which aims to educate every adult, is one way of doing it, but a much better, cheaper and more effective alternative is to educate every child about the issues. That would not rule out the need to work with young people, because I think you learn at different stages and in different ways. Our experience with young people with the educational allowance shows us that it would be extremely effective if you worked on money with young people as they take it out of the child trust fund, because then it is real and means something.

Dr Samantha Callan: I am concerned that the lump sum they are getting is basically a handout. If we are trying to tackle dependency culture through welfare reform, I would prefer it if we helped parents to help their children by saying, “You’ve got a job,” rather than just giving them a handout. For so many children, their babysitting money or whatever is just discretionary income. If parents are giving pocket money, they could reduce it as their children earn a bit of money. Teaching those kinds of things creates a real sense of achievement for having earned their own income. It is being much more realistic about what the rest of life is going to look like.

Q 263

Photo of Kate Green Kate Green Labour, Stretford and Urmston

Aren’t you concerned, Dr Callan, to address the inequality in asset holding, which feeds through to inequality in opportunity for young people at age 18? With all its imperfections, delivering a lump sum to young people at age 18—and a larger lump sum, in terms of the Government’s contribution for the poorest young people—partly addresses that. If you leave it to the will and wish of parents and financial education alone, you will continue to see a significantly uneven playing field when young people reach age 18.

Dr Samantha Callan: Yes, I am concerned, but so much policy has been about, “We can’t really trust the parents; we can’t trust that children will acquire skills, so we have to do it for them; we’ll just put something in place and assume that they will not do it themselves.” Or, as I said, it is assumed that the family will not train them in these skills. We need children to learn good financial skills. We often need to help parents from every part of the income spectrum, who can often struggle with good financial management. You cannot make people do it. As for debt counselling, we have the My Home Finance scheme set up by the Department for Work and Pensions with the National Housing Federation and the Royal Bank of Scotland. We have gone for the child again and again in social policy, and we have got to bring parents in, because we are talking about a lifetime of good financial planning.

Q 264

Photo of Kate Green Kate Green Labour, Stretford and Urmston

How would that work for looked-after children? Whom would you be educating to provide for the child in that case? If the state does not deliver a lump sum to the looked-after child, who will?

Dr Samantha Callan: Again, it is tempting to think that what is necessary is hard cash, but I would much rather we were looking throughout the lifetime of the  looked-after child at how we are going to help that child acquire the skills and knowledge that it would have got from loving, nurturing parents. Just giving them money will not necessarily provide training for the rest of their life.

Q 265

Photo of Harriett Baldwin Harriett Baldwin Conservative, West Worcestershire

The background to the Bill is the country’s huge financial deficit, and not having the child trust fund saves the Government £500 million a year. Obviously, there are difficult choices to be made with these types of schemes. Everyone here would agree that this is a nice-to-have scheme. It is obviously appealing, and we have heard a lot of evidence about its appeal. I am going to read out a list of seven Government policies that help to try to ensure that children have a good start in life. I want to ask the witnesses whether they would put the child trust fund ahead of these other choices: protecting the NHS budget; increasing the number of health visitors; free prescriptions for pregnant women; the Healthy Start programme, which gives vouchers for milk and fruit to certain categories of people; the £500 Sure Start maternity grant for the first child; extending nursery education for disadvantaged two-year-olds to 15 hours; and the pupil premium. Would the witnesses want to make the case that the child trust fund is more valuable than any of those?

Photo of George Howarth George Howarth Labour, Knowsley

Before the witnesses answer that question, it is slightly outside the scope of the Bill to be making comparisons. I understand the point that you are making, but it is beyond our scope to debate the merits of a series of other policies. While I am happy to allow the witnesses to answer the question, we do not want to start a debate on the relative merits of a whole series of other policies. I am sure they will find an adroit way of answering the question that satisfies you and me.

Photo of Harriett Baldwin Harriett Baldwin Conservative, West Worcestershire

I would just like to highlight the fact that those policies were mentioned by the Minister on Second Reading.

Photo of George Howarth George Howarth Labour, Knowsley

Sure, but that does not necessarily bring it within the scope of the Bill. There is a lot more licence on Second Reading than in Committee. I am not overruling the question; I am merely saying that we need to be a bit careful in how we develop the theme.

Sian Williams: I think that these points are relevant to the health in pregnancy grant. They are irrelevant to the child trust fund or the saving gateway, because they are about completely different concepts. All the things that you listed are around creating a safe and healthy space for children, from pre-natal all the way through to being at school. The child trust fund is about creating an asset base for young people, as they really start an independent life, and I do not think that they are connected at all. I am not an expert who can comment on the health in pregnancy grant, so that is my response.

Dr Samantha Callan: I would say that, thankfully, people are much more concerned now with early intervention. I completely agree on one level that we are talking about apples and pears, but that kind of addresses the point I was trying to make, which is about what happens if we do not get children off to a good start in  life, and if parents have not got the skills to raise their children. We are all beginning to be very familiar with the research about the first 18 months and first three years, and the way disadvantage sets in so early, so we must think about having an asset at 18 when you have so many other disadvantages.

We could be in danger of just fixating on giving children a lump sum when they have got so many things that are going to stop them spending it in a very constructive way, so I welcome the pecking order question. On health visitors, practically every report that I have ever written has said that we need more of them. As for nursery education for disadvantaged two-year-olds, again, if all we are doing is taking away the care of children, instead of helping their parents to care for them, that could be a failed policy for the all the reasons I have said.

Tony Dolphin: I am very reluctant to answer, too. It is a false choice. I am not an expert in many of these areas; I am an economist, and my experience is in savings and asset building, not in the best way to help pregnant mothers or children under two who are disadvantaged. There are obviously lots of other things—£500 million-worth—that could be cut. When the Chief Secretary to the Treasury announced this policy, said that his reason for getting rid of child trust funds was because it was wrong to borrow to give an asset to a child. He was not actually comparing this with any other item of spending at all. He was taking the opposite view and saying, “This is money we are borrowing to give to children.” I disagree with that as well, because he is hypothecating borrowing to a certain line of spending, and that is something that we have never done in this country either. I just think it is wrong. There is £500 million-worth of other stuff to cut; I am sure that I could find you £500 million-worth of things, outside of your list of seven, that I would happily trade for child trust funds.

Q 266

Photo of Sheila Gilmore Sheila Gilmore Labour, Edinburgh East

One of the issues that successive Governments have been criticised for is not taking a long-term view of how you resolve these problems. Those people who have advocated early intervention also said how important it is that we have consistent long-term policies, not short-term policies. I am thinking, in particular, of the recent cross-party work by Graham Allen and Iain Duncan Smith on early intervention and the importance of taking a long-term view. To what extent is the child trust fund able to contribute to that long-term perspective?

Sian Williams: I think that’s exactly at the heart of the matter. It is recognising that, over the lifetime of a child trust fund account for an individual family, they can make contributions as and when they can, and that builds up opportunity in the form of a cash account for a child to make some serious choices about their future when they reach 16 to 18. It is about empowerment and recognising that while we can try to tackle long-term unemployment, and long-term issues around inequalities in income, health and education opportunity, we could create an opportunity for a child to have a wider range of choices, and the family could contribute to that; it does not all have to come from the state, but the state can support that choice. That is a long-term strategy. Are we now saying that we cannot afford to invest in the future?

For me, the nub of this matter is lower-income families, children at risk and those who do not have strong family support mechanisms. I am not going to argue in this economic climate that we need to protect the child trust fund in its entirety, but I am concerned that in five or 10 years’ time, we will have done nothing to tackle the inequalities that already exist and are worsening. We know that they will get worse. If you look back at every recession, we see that inequalities widen. If you look at the reports from King’s college, London, you will see that that matters to everybody, not just the poorest people but also the most well-off in society. This is part of a long-term solution.

Tony Dolphin: Again, I would agree with everything that was said, but I would add that when looking at savings policy—this applies to pensions, the child trust fund and any savings—evidence suggests that stability is to be welcomed. One of the many things that put people off saving is the continual chopping and changing of the rules. We are drifting slightly off the point, but any survey of why people do not save enough for their pensions will tell you that there is no trust that the rules will not change between now and when someone retires, and that the savings might not be worthless. Changing things like the child trust fund, and chopping and changing the rules, affects the behaviour of people who are saving for their children, and it will also affect the behaviour of people saving for their pensions.

Dr Samantha Callan: I was very involved in writing the book that you mentioned entitled “Early intervention: Good Parents, Great Kids, Better Citizens”. The clue is in the title. Graham Allen looked at early intervention in Nottingham, and there was a kind of circle of interventions at different points over someone’s life course. You do not just do stuff in the first one and a half to three years, because there are all the children who have already come through that phase. All the interventions that Graham is working on in Nottingham are about helping young people to prepare for parenthood, if they are at a later stage in their life course.

This will never be the case, but if there were money coming out of our ears, the child trust fund is yet another thing that could be in place to give some money to people who would not have that asset. However, I keep coming back to the point about whether that is sending the message that we want to send. People are getting a lump-sum, gratis payment, but we actually want children to learn about working for a living and about financially responsible behaviour.

Q 267

Photo of Fiona Bruce Fiona Bruce Conservative, Congleton

Dr Callan, the statistics show that one in four young people have families who are not engaging with the process. I would be very interested to know whether you have evidence for something you said. It has been my suspicion that those on the lowest incomes and those who most need to engage in financial education are the ones who are not doing so. What evidence do you have for that?

Dr Samantha Callan: As I said, in the savings accounts actually opened by parents, 99% have not received the maximum funding available, so they were therefore not those on the lowest incomes. It became a fairly passive system of, “The Government will do it for you.” That is my main plank of evidence.

Q 268

Photo of Fiona Bruce Fiona Bruce Conservative, Congleton

Thank you. You also indicated that one of the best investments in a young person’s life, and perhaps one of the best ways of tackling future inequalities, is to give sound financial advice. Do you feel that we do that adequately?

Dr Samantha Callan: It is patchy, and when you take away strictures on schools as to what they should do, it could obviously become even patchier. There is some amazing voluntary sector provision, and there are people such as Shirley Conran. The market is beginning to be populated by people saying, “The schools aren’t doing it well enough.” But even if the schools were doing it stunningly well, what about the kids who have opted out of school? Are we really ensuring that they still get that imparted wisdom? That is why pupil referral units should be doing financial education and giving hard skills to excluded children who go through entry-to-employment. We need to ensure that at any point when young people are receiving education out of the mainstream. That is an important place to put in those skills.

Q 269

Photo of Fiona Bruce Fiona Bruce Conservative, Congleton

One more question, if I may, Mr Howarth? The child trust funds cost us £500 million a year. Some witnesses have given the view that, despite its being a universal benefit, much of the money, potentially millions of pounds, goes to young people who already have a nest egg, but that is a price worth paying, so children from low-income families receive what you called a “handout” at 18, although they may have had no engagement with the process on the way. Do you think that that is a price worth paying, or should we be looking to invest the money differently, or at least invest what money we have, bearing in mind our financial constraints?

Dr Samantha Callan: I think we are seeing a major reconfiguring of the welfare state, in which we are getting away from the idea that we have to have universal benefits so that people do not feel stigmatised—we have paid our taxes, therefore we can take a slice out of the welfare state. That thinking is more and more outdated. Therefore, I do not think that it is worth while. We have to be far more targeted and sensible with public finance.

Q 270

Photo of Yvonne Fovargue Yvonne Fovargue Labour, Makerfield

I have two questions. I understand that the child trust fund provides an asset, but, equally, it is supposed to get engagement with financial institutions. We have heard that a lot of parents do not engage with financial institutions—there is a fear of them. Do you feel that by making the child engage with financial institutions at the age of 18, the child trust fund will put them in a better position than their parents are because they will lose their fear of financial institutions?

Tony Dolphin: It is an aspiration of child trust funds. Ask me again in 12 years’ time and I might be able to give you an answer on whether they have achieved that aspiration. I have always been more sceptical of the financial education and engagement arguments for child trust funds, albeit, as you will have gathered, I am a strong supporter of them for other reasons. On financial education, yes, the child having a fund that you can point to as an example will help with savings and interest rates, but financial education is about a lot more than savings and interest rates. It is about debt,  borrowing and managing a bank account so you do not go overdrawn and pay fees and penalty charges. The child trust fund cannot help with that.

Will it help engagement with a financial institution? Again, I am sure that opening a bank account and paying in your first pay cheque or benefit cheque will do that as adequately as a child trust fund. The honest answer is that we will not know until it has happened.

Dr Samantha Callan: It is very top-down as well. It is a Government-led thing, but why should we not be encouraging financial institutions to do superb marketing to young people? That would take it away from its all being down to the state.

Sian Williams: I think the primary purpose of the child trust fund should not be seen as engagement and education in that process, because it is far too passive to have that impact. I have seen some fantastic programmes, our own and other people’s, which encourage interactive engagement around financial services and issues and money management. For young people in Britain in 2010 and 2011, you would be better off with a computer game or a game at school, or a My Money week or MyBnk going into schools—those things that the voluntary and financial education sectors do extremely well. Engaging with financial services is much more about balancing your books daily and thinking about the future.

The truth is, it is not simply young people who struggle to engage with financial services. I hope that we will move on to talk about the saving gateway as well. From the saving gateway pilots, we know that many letters landing on the doorsteps of saving gateway clients look as though they come from the taxman, and no one willingly opens a letter from the taxman. We did a lot of work around the saving gateway and the child trust fund to try to explain to providers that if they want to engage people in financial services and financial issues, they need to do it in a way that means something, and is not off-putting. With the child trust fund, I do not think that in itself, it is an effective way of tackling the lack of engagement with financial planning and financial services with young people and adults in this country. It is an essential element of building up an asset base for disadvantaged children.

Q 271

Photo of Yvonne Fovargue Yvonne Fovargue Labour, Makerfield

Can we return to the asset base? What evidence is there, if any—including that from other countries—of the difference that holding an asset makes to behaviour at age 18? Does having an asset make a difference? Do people behave differently when they have one?

Sian Williams: In terms of making choices?

Sian Williams: Absolutely. I cannot quote studies off the top of my head, but we work with young people. For example, with education maintenance allowance, which we are looking at being cut, we have conversations on a daily basis with young people, who are asking: how am I going to manage my studies? How am I going to make sure that at the end of my EMA I can move to earning my own income now that I am engaging with money in a proactive way? I agree that we do not want to send out a message that people can rely on handouts, which is a disempowering process. But that is very different from saying that we are trying to address inequalities. That is  why I keep returning to the fact that I am not arguing the case for a universal child trust fund; I am arguing the case for addressing inequalities.

In the States, for example, there is much higher investment, on a personal level, in philanthropy and donations. Some fantastic programmes are run there around individuals making the match funding that we make here in the child trust fund for young people. Because that is done on an individual basis, you see some really interesting stories coming through.

We see that much more there than we do here, because it is a blanket state process here, but in the States it is done on an individual basis. You see some really interesting stories about the choices that people thought they could not make, and then when they have that asset, those choices suddenly become open to them and lives change. Without sounding too visionary: lives change when people have assets. That is the whole ethos that our society is built on—when you have some assets you can make decisions and choices.

Tony Dolphin: The child trust fund is unique internationally, so there is no evidence of what that sort of scheme will do to children at age 18 and whether having assets changes their lifestyles and life chances.

A lot of schemes are run in the US, where the campaign for asset-based policies has been much more grass-roots and has developed over many years with lots of pilot and trial schemes. A popular one is an individual development account, which encourages people to save by providing matching assets. There is a lot of evidence from those studies—I cannot quote off the top of my head, chapter and verse—that shows that people who have built up an asset through savings in such accounts are more likely in later life to own a business, to own their own home, and to have gone through some training or other education that gives them higher potential earnings. There is a lot of evidence from the US that this works, but that evidence is in the case of younger adults rather than children and, as I said, no one else has tried child trust funds before.

Dr Samantha Callan: If you are already on even the bottom rung of the ladder, having an asset can help you claim, albeit soft and slowly. However, we are particularly concerned about people who are not on the ladder at all, and who have low capacities. We talked a lot before the election about broken lives. I am concerned that for people with broken lives—who have addicted parents, have addictions themselves, or have educational failure—maximising the benefit of an asset must feel like climbing Everest. As I say, if you are on that bottom rung, being from a poor background, but without those other disadvantages, perhaps you can maximise the benefit of it, but is it necessarily helping those who are most vulnerable? I am not convinced.

Photo of George Howarth George Howarth Labour, Knowsley

Thank you. I will bring in Paul Maynard to ask the last question on this section and then I will move on to the saving gateway. I think Kerry McCarthy will be asking the first question about that.

Photo of Kerry McCarthy Kerry McCarthy Shadow Minister (Treasury)

I am doing the health in pregnancy grant.

Photo of George Howarth George Howarth Labour, Knowsley

Sorry, it was Sheila Gilmore.

We have very little time left to cover the rest of the Bill, so I request those asking questions on the next section—and, indeed, asking the last question on this section—to make them well-targeted and short. It is not that you have been prolix in your responses, but could the witnesses please bear that in mind?

Q 272

Photo of Paul Maynard Paul Maynard Conservative, Blackpool North and Cleveleys

My question is very much to the point. What role has the child trust fund played in the financial education of children at primary school level?

Sian Williams: To my knowledge, very little, if any.

Tony Dolphin: Yes, but remember that the oldest child with a child trust fund has only just turned eight.

Q 273

Photo of Paul Maynard Paul Maynard Conservative, Blackpool North and Cleveleys

That is why I said primary school level.

Dr Samantha Callan: I do not know the answer.

Photo of George Howarth George Howarth Labour, Knowsley

I didn’t realise that my words would have such a profound effect.

Q 274

Photo of Sheila Gilmore Sheila Gilmore Labour, Edinburgh East

I want to ask about the saving gateway, with which I understand that Sian, in particular, has been involved. Would you start by saying what that involvement was and what your view is of the saving gateway proposal?

Sian Williams: We were involved in looking at why it might be a good programme, in testing ideas around it through a pilot and, finally, in being contracted to be a regional trainer to roll out and publicise it. Sorry, I have forgotten the second part of the question.

Q 275

Photo of Sheila Gilmore Sheila Gilmore Labour, Edinburgh East

What is your view of the saving gateway as a means of assisting low-income families to save for the future?

Sian Williams: The potential is that the saving gateway, as a concept around tempting people away from believing that there is no way to save or to find money to do things, actually has a real impact and a real benefit. It means that making a small sacrifice by finding something from my budget to save brings me something greater back. There is potential in that, but there are also some serious potential flaws in the programme. We severely underestimate resistance in every part of the population to changing our financial behaviour. The education programme that was going to be linked to the saving gateway savings mechanism was extremely important. I hoped that, through the saving gateway, we would be engaging families in discussions of their choices about money for today and for the future.

I saw the saving gateway as having two outcomes. Although I have just said that, in my opinion, the child trust fund played no role in educating young children about money, I believe that the saving gateway would have played a role in creating a specific opportunity for conversations with low-income families around choices on what they spend today and what they save today. The other outcome that I was looking for was that, through this scheme, low-income families would be significantly encouraged to save. For me, the crucial factor is not only building up a savings base, but providing an alternative to high-cost credit.

We run the illegal money lending team for London. I see the damage from people having to access high-cost credit to live so as to compensate for some blip, which might be the loss of a job, the loss of casual earnings, a problem caused by the overpayment of benefits being clawed back, illness in the family, the cooker blowing up or anything. With even a small pot of money, a family could choose to go to that first, or could use that to take to a credit union to access low-cost, or lower-cost, credit rather than being forced to use high-cost credit. That, for me, had a significant potential to change the long-term flow of money within a family. That was really important to me. There is an asset base, there is education, but there is also giving people choices around where they get their money to pay for things today. They would have this little asset built up that they could use, because they could take money out of the saving gateway pot and put it back in. That was the great thing about it—the money was not locked in, the system was flexible.

Q 276

Photo of Sheila Gilmore Sheila Gilmore Labour, Edinburgh East

One of the criticisms that was made on Second Reading was that, in the pilots at least, there was limited involvement from providers, which limited access and the outlets or inlets for people to go to. One of the proposals was that the link could have been made with post offices. I was interested in your comments on ease of access being critical.

Sian Williams: The saving gateway as it stands is not perfect. I would change many things about it. I am in favour of the fundamental concept of working with people to build up a savings pot to change people’s behaviour. One of the things that we see on financial exclusion—this applies not only to the saving gateway but to so many aspects of accessing, using and managing money in this country—is that, despite the common goal, too many people are excluded from good financial services. If you are going to make a scheme such as the saving gateway relevant and accessible, you have to have as many access points as possible. I absolutely agree with that.

Tony Dolphin: Perhaps I could add a postscript to that. We have been doing some work recently with people in low earner families—not those on the lowest incomes. These are people who have the potential to save and we have been working to find out what would make them save. One of the things that we were interested in was where they would like to have their savings. There is a very clear generation gap around the age of 40. If you ask anyone over the age of 40 that question, they will say the Post Office. If you ask anyone under 40 that question, they will say the supermarket. If you could get those two providing a financial product, you have cracked it.

Photo of Sheila Gilmore Sheila Gilmore Labour, Edinburgh East

Some supermarkets have post offices.

Photo of George Howarth George Howarth Labour, Knowsley

Does anyone have anything further to add?

Q 277

Photo of Kate Green Kate Green Labour, Stretford and Urmston

I just wondered whether you could specifically comment on how important having a matching mechanism in the saving gateway was, and whether it was necessary for the matching level to be pitched at the level that it was? If it had been lowered, would it still have attracted some positive behaviour?

Sian Williams: Our experience is that for many people—irrespective of income—you have got to see a significant benefit to change your behaviour. Just knowing something factually is not enough. Behavioural economics comes into this with real power. All our experience is that that matching element really helps drag people out of thinking “I can’t save. I’m not a saver. I’m not the kind of person that any financial institution would have as a client,” to “You know what, that money really makes it worth altering the way I think.” It will not work for everybody, but it will work for a significant number of people. Given that we do not advocate that any one policy will tackle poverty or financial exclusion, it is a useful element of a toolkit. If you start to move below that level of the matched funding—the 50p in the £1—you will see a tailing off of its impacts. You will still reach some people with a level of 25p in the £1, but you will not affect as many people. That is a given on anything like this.

Dr Samantha Callan: Because the matched funding is so high, other savings products were uncompetitive in comparison. There was not much continuity to move on to other products. Some 98% of those opening a saving gateway account already had an existing form of account. There were three things that they were looking for in the pilot. Did it get people to start saving? Did it get people to start formalising their savings, instead of it just being under the mattress? Did it increase financial education? When you look at the saving gateway 2 pilot, it is clear that there were disappointing results on those three areas. It rewarded people who already had savings at an uncompetitive level.

Q 278

Photo of Sheila Gilmore Sheila Gilmore Labour, Edinburgh East

I might be completely wrong, but my understanding was that the range of people who were allowed to take part in the saving gateway 2 pilot was quite wide. It included not only people who were eligible through being in receipt of certain benefits, but people who received quite high incomes. It included individuals who earned up to £25,000 and families who earned up to £50,000. I can see how the potential shift that you described might happen, with people saying, “I won’t put the money in the Post Office or the bank. I’ll put it in the saving gateway because that is giving me a better rate of interest.” However, my understanding was that the saving gateway rollout would apply only to people on benefits, who do not have those sorts of choices.

Sian Williams: That is right.

Q 279

Photo of Kerry McCarthy Kerry McCarthy Shadow Minister (Treasury)

How successful does each of you think the health in pregnancy grant initiative has been?

Dr Samantha Callan: I know the Barker hypothesis very well: that reduced foetal growth is strongly associated with a number of chronic conditions later in life. However, by 25 weeks, so much has already happened. Your iodine levels and folic acid levels need to be up way before then, with the iron obviously continuing throughout the pregnancy.

There was absolutely no guarantee that the grant would be spent on nutritious food. I had a look at that great oracle, the Mumsnet website, where the chat resounded with people talking about the health in pregnancy grant. People said that they were using the money to go to a health spa or to buy an Amazon Kindle. One person  said, “I feel terribly guilty. I was planning to spend my pregnancy grant on a trip to a spa so that I could have a baby bump massage, a manicure and a pedicure and just relax for a bit, but everyone else is saving their money for the baby.” In other words, she felt guilty because she was spending the money on something that was somewhat to do with health in pregnancy, but many other people were holding on to it for when the baby came along. I am just trying to give a flavour of how incredibly badly targeted it was. One woman said, “I bought some really nice shoes—and I’m not talking booties—to treat myself.” Some said, “I pay my taxes so I should jolly well get it,” whereas others said, “I didn’t claim mine because I just couldn’t justify it to myself. For one, it takes so much paperwork.”

Q 280

Photo of Kerry McCarthy Kerry McCarthy Shadow Minister (Treasury)

Is Sian’s experience of people getting the health in pregnancy grant in Tower Hamlets that they spend it on spa treatments?

Sian Williams: I start by saying that I am in no way an expert on the health in pregnancy grant. I cannot comment from a detailed knowledge of the grant. I would say that the majority of low-income earners in Tower Hamlets will not be on Mumsnet. They will be digitally excluded and many of them will not even speak English. Although I am not going to set out any clear and reasoned arguments for the health in pregnancy grant, because it is not my area of expertise, I simply say that many families will be using any additional money that is paid to them to support the health of their family in some way. I will leave it there, if I may.

Tony Dolphin: I am no expert either, but the case for it being means-tested rather than universal has already been eloquently made.

Q 281

Photo of Kerry McCarthy Kerry McCarthy Shadow Minister (Treasury)

The suggestion has been made by Samantha that the payment at 25 or 26 weeks is too late in the day. Presumably you think that if it is still paid, it should be paid earlier?

Dr Samantha Callan: I do not think it should be paid, frankly. If there is a problem with nutrition in pregnancy, it will not be just about money. Often it is about not knowing how to cook nutritiously. I am not saying that all poor people are rubbish housekeepers, but quite the opposite—some of them would put us all to shame. Some of the schemes that help the most disadvantaged families teach them cooking and about all sitting down together to have a meal. It might sound a bit paternalistic but, again, it is about the early intervention. It is about what we do to help parents give their children the best start in life. A lot of them will not have done cooking in school. A lot of them will not have learnt from their mums or dads how to cook. There is so much more we could do to make sure that money is spent on health food.

Q 282

Photo of Kate Green Kate Green Labour, Stretford and Urmston

This morning we heard from other witnesses that in the later stages of pregnancy women might spend the money on other things to get ready for the baby. We had evidence from the National Childbirth Trust, for example, that its second-hand shops were busy with mums-to-be spending that money on prams and things that they would need when the baby first arrived. It has perhaps been an unfortunately named grant. What would be your perception of its efficacy in  supporting mothers at a time when costs might rise? Do you feel that it is the right timing to try to help with some of that extra expenditure or would something earlier or later have been preferable?

Photo of George Howarth George Howarth Labour, Knowsley

Before the witnesses answer, to enable us to get through all of the business in the required time it might be as well to take two questions together and then to ask the witnesses to reply accordingly.

Q 283

Photo of Sarah Newton Sarah Newton Conservative, Truro and Falmouth

Are the witnesses aware of the Healthy Start programme, which is well supported by health care professionals and is very much targeted at maternal health? If so would they like to comment on its effectiveness?

Sian Williams: I feel very passionately that we should speak only on issues that we are expert in. This is not my area of expertise.

Dr Samantha Callan: I completely agree about digital exclusion and so Freecycle and things like that that would give parents access to low-cost or free second-hand baby care products would not necessarily help the poorest. But how about if you could take along your old pram to children’s centres? I would love to donate my old pram somewhere because none of my middle class friends want it, frankly, because they want to buy their own brand new pram. Rather than it being about the Government giving people money so that they can be philanthropic—although I do not think it is particularly philanthropic to do an NCT second-hand stall, but we tend to constantly think that the Government must provide—why not have a big society perspective that says, “Well, how about communities contributing far more to enable people to afford stuff for their babies?”?

Q 284

Photo of Kate Green Kate Green Labour, Stretford and Urmston

The other point I wanted to develop was on the healthy diet. As I say, I feel that the grant is not particularly helpfully named, but what we also heard this morning was that by delivering an extra lump of money to families, it supported particularly low income families to spend their income in other ways, including on the essentials of diet, heating the home and that kind of thing. Given that I think Sian has said that perhaps some of these benefits could have been more targeted, do you see a place for extra financial support in the late stages of pregnancy that enables families to meet the outgoings that are associated with being a mum-to-be?

Sian Williams: One of the problems that we still see despite all the laws is that pregnant mothers are most at risk of losing employment. Anything that boosts a pregnant mother’s income at a time when she has increased expenditure can only be helpful. On the other hand, I also believe that it needs to be targeted on those who need it. One of the difficulties about all of the three programmes that we are discussing today is that they receive bad press because they are not well targeted. That really matters to people in today’s climate, because people feel every pound that is being taken away from them. It does not matter whether it is being taken from them through heavier taxes on a well-paid income—or a low-paid income—or being taken from their benefits. So targeting is very important.

When I look around Tower Hamlets and I see the number of young mothers on very low incomes—20,000 people are on less than £15,000 a year—that really  worries me. I am worried about the health of the child and about the options available to that family. Are they living in good accommodation? Is it well ventilated? Are they living in damp? Can they turn the heating on? I support anything that supports those basic needs, which include good nutrition, but I do not realistically expect that young mother to go and spend all of that money on food. She is not going to do that. The grant means that she will increase the money that she spends on food by a percentage, but she will also be able to turn up the heating, or take the bus to the health centre, rather than having to walk.

I see a lot of people who miss appointments because they cannot find the bus fare, or because they cannot take the time off work. Again, I am not an expert on the health in pregnancy grant, but I know that within Tower Hamlets any money that you take away from a low-income family, particularly a family that is about to have another mouth to feed, will be keenly felt. I cannot comment on the timing of the grant.

Q 285

Photo of George Howarth George Howarth Labour, Knowsley

We have now exhausted the questions, and no doubt we have exhausted the witnesses, too. Before I close this session, is there anything that any of the witnesses want to say—they should by no means feel obliged to say anything—that they feel they have not had the opportunity to say in answering our questions? If there is, they should feel free to do so as briefly as possible.

Dr Samantha Callan: I have read that—this is not just Mumsnet, which, you are right, is quite a middle-class website—some people are spending their health in pregnancy grant on a doula, which is somebody who is just a friend while you are giving birth and during the first few weeks. In other words, they were saying that it is not food, but support that they need. Maybe they are on their own, or their partner or husband is not being very supportive, or whatever, but those women actually wanted to spend the money on getting something much richer, having a friend around. I think that it is very valid to spend money on such community initiatives and other things that can really change the whole trajectory of life.

Sian Williams: I would like to stress that my concerns about losing the child trust funds and losing the saving gateways are really about tackling inequality for very low-income and disadvantaged families. Outside of these three particular programmes, there are three key issues that we need to think about.

First, there should be an asset base, or at least an opportunity to draw on a grant or low-cost loan, for young people who are making life choices at 16 to 18, and longer if possible. We have just seen the loss of the EMA and we are seeing higher tuition fees, so the gap is going to grow. Although we are not a socialist country, we are a country that believes in equal opportunities, and those opportunities are becoming ever more unequal. So I feel passionately that, although we may lose the child trust funds, we should at least give some consideration to how we address that gap.

Secondly, we should recognise that low-income families, on the whole, manage their money quite well. There is still a long way to go with financial education, however, and I would really like people to look at rethinking the national curriculum to include financial education for  every child. We could change this country in a generation with well targeted financial education at the school level.

Lastly, I would like to look at improving access to affordable credit. When low-income families need to dip into credit, there should be a low-cost system that does not lead to either the threat of having their legs broken or being abducted by a loan shark, which we deal with on a daily basis, or the less serious, but still long term, implications of repaying interest over such a long period that they never get out of debt. Looking at, for example, improving credit union access and affordable credit access is key to tackling some of the inequalities that will be worsened by the removal of the programmes.

Photo of George Howarth George Howarth Labour, Knowsley

Thank you very much. We will now move on to the next set of witnesses.

Photo of George Howarth George Howarth Labour, Knowsley

The Minister needs no introduction to the Committee on the grounds that he is a member of it, but perhaps Mr Little would like to introduce himself.

Matthew Little: My name is Matthew Little, and I am the Bill manager for this Bill.

Q 286

Photo of David Hanson David Hanson Shadow Minister (Treasury)

Good afternoon, Mr Little. May I start by asking you, Minister, what you have learnt from the evidence sessions that might help to influence you over the next two days’ consideration of the Bill?

Mr Hoban: Clearly, a variety of points have been raised in the evidence sessions. For example, Carl Emmerson from the IFS raised some issues about the effectiveness of the child trust fund and the savings gateway, and we have just had a very interesting session on the health in pregnancy grant. I have read Committee Hansard,and some interesting points have been raised, but they are points that we have been through in the development of this policy process.

Q 287

Photo of David Hanson David Hanson Shadow Minister (Treasury)

I want to focus on a couple of key issues about the successor product to the child trust fund, because that would be key in our consideration if we were taking away a particular provision. What is your assessment of the concerns of Martin Shaw in the evidence session, regarding the establishment of the junior ISA?

Mr Hoban: In terms of the timing of when it opens, or in terms of how many people are taking it up?

Photo of David Hanson David Hanson Shadow Minister (Treasury)

In relation to both the gap, and the cost of the investment.

Mr Hoban: In terms of the gap, let me be really clear. We hope to introduce the junior ISA next autumn, but eligibility will start from the moment the child trust fund terminates. So, there will be a savings vehicle available for children as soon the CTF is turned off. That is something that we are very keen to ensure, and it was one of the factors that drove me when thinking about the policy design. It was certainly a concern that was raised with me when I met stakeholders earlier this year to discuss the replacement of the child trust fund.

Q 288

Photo of David Hanson David Hanson Shadow Minister (Treasury)

We have been told this week in evidence sessions that as well as the press release you put out on the Second Reading debate, consultations  are going on, even this week, for the first time with providers, about a replacement for a scheme that will end on 3 January. Do you think that it is fair to end the scheme before consideration has been given to nailing down all the nuts and bolts of the replacement scheme for that date?

Mr Hoban: In many areas of policy you end up with actions being taken in parallel. We had an informal consultation with stakeholders prior to the publication of the document last week, and we are in a good place to ensure that there will be a replacement in place by autumn next year that will apply to all children from the date that the child trust fund is turned off.

Q 289

Photo of David Hanson David Hanson Shadow Minister (Treasury)

What is the cost of establishing the junior ISA?

Mr Hoban: The cost is relatively low because it uses technology that is already there within HMRC.

Mr Hoban: I think that the estimate that we have been provided with is less than £500,000, which is a significant saving for the taxpayer compared to the £500 million per year that we are saving through turning off the child trust fund, and it will go some way towards tackling the budget deficit.

Q 290

Photo of David Hanson David Hanson Shadow Minister (Treasury)

Perhaps you can clarify that for the Committee. The contributions to the child trust fund have already been reduced, so the cost of abolishing the contributions and the fund from January is not £500 million a year.

Mr Hoban: No, but we are looking at the entire package of the measures with the child trust fund—

Q 291

Photo of David Hanson David Hanson Shadow Minister (Treasury)

Could you indicate to the Committee the cost of this Bill ending on 3 January 2011?

Mr Hoban: This Bill will reduce the full-year spend on the child trust fund by £50 million.

Q 292

Photo of David Hanson David Hanson Shadow Minister (Treasury)

Exactly. So the £500 million figure that has been bandied about the Committee in relation to this Bill is not accurate. Is that correct?

Mr Hoban: Well, no. The policy package that we announced earlier this year as part of the coalition plans for tackling the deficit was £500 million.

Q 293

Photo of David Hanson David Hanson Shadow Minister (Treasury)

But could you confirm that the cost of this Bill is less than £500 million, and is about £50 million a year?

Mr Hoban: I have already said that.

Q 294

Photo of David Hanson David Hanson Shadow Minister (Treasury)

Exactly. I just want it on the record, because colleagues in the Committee have been quoting the £500 million figure, which is not correct.

Mr Hoban: We must look at this in the round. What we have done is take a two-stage process to achieving our goal of cutting costs by £500 million. That first stage was in the regulation that we dealt with in July this year, and this completes that process.

Q 295

Photo of David Hanson David Hanson Shadow Minister (Treasury)

Can I just ask one final question, Mr Howarth? What weight do you give to manifesto commitments in policy decisions?

Mr Hoban: We are part of a coalition. Given the outcome of the general election, it was right to discuss the coalition platform. I am pleased that my hon. Friends the Members for Bristol West and for Birmingham, Yardley debated scrapping the child trust fund on the manifesto platforms. We helped them deliver that.

Q 296

Photo of David Hanson David Hanson Shadow Minister (Treasury)

For the record, Minister, could you say what your party’s manifesto commitment on the child trust fund was at the general election?

Mr Hoban: I think the hon. Gentleman placed that on the record on Second Reading and has also tried to reflect that in his amendments, which we discuss later on. We wanted to keep the child trust fund for the poorest third of families, but we have been unable to do so. That is a consequence of the costs of reducing the deficit.

Photo of David Hanson David Hanson Shadow Minister (Treasury)

Could you then therefore—

Photo of George Howarth George Howarth Labour, Knowsley

Order. Mr Hanson, you asked to have one final question not a penultimate question.

Q 297

Photo of David Hanson David Hanson Shadow Minister (Treasury)

My final question then is what would be the cost of maintaining the child trust fund as per your manifesto commitment?

Mr Hoban: I have not got an assessment of that cost with me, but looking at the challenge we face in tackling the huge budget deficit we have and the amount of money we are spending on interest on a daily basis, we concluded that the best thing to do to make progress on tackling that deficit was, sadly, to scrap the child trust fund.

Photo of John Hemming John Hemming Liberal Democrat, Birmingham, Yardley

Much as we argued to scrap the child trust fund in the manifesto, what has not arisen in evidence is a question about whether the model of the child trust fund without funding from the Government is useful as an alternative to the ISA model. The child trust fund model is locked in and the ISA model is an extension of ISA. What are the costs of continuing to allow people to open new child trust fund accounts with no money?

Mr Hoban: On the point about the lock in, it is our intention that the junior ISA will have a lock in until the age of 18. It replicates that feature of the child trust fund. If you kept the child trust fund system going as it is as the moment, you would end up issuing a unique reference number for no discernable purpose to every child who is born. You need to maintain those records over 18 years. I think you would find that you ended up keeping a system going that costs about £5 million a year. If I compare that with moving to a voluntary system where no one is required to contribute to the costs we anticipate for our scheme, I do not think that that represents good value for money for taxpayers.

Photo of John Hemming John Hemming Liberal Democrat, Birmingham, Yardley

In essence, because the junior ISA will have lock in as well, there is nothing to be gained by people in having the child trust fund model?

Mr Hoban: No, I do not think so. We have taken the best aspects of child trust funds.

Q 298

Photo of Yvonne Fovargue Yvonne Fovargue Labour, Makerfield

On the junior ISA, we have heard comments in the evidence session that it will benefit higher rate taxpayers, but that it will not be of benefit to low-income non-taxpaying families. Would you like to comment on that?

Mr Hoban: The important thing is that there is a vehicle designed to encourage people to save. Encouraging people to save is not just about tax incentives; the money will be locked in. We want to make sure that it is accessible to low-income families, so it is a very good model. We can deliver some of the objectives around encouraging saving without encouraging significant costs to the taxpayer.

Q 299

Photo of Yvonne Fovargue Yvonne Fovargue Labour, Makerfield

In the evidence sessions yesterday, some of the witnesses—particularly those from, I think, 4Children—were saying that the measures would increase inequality. What are your comments on that?

Mr Hoban: This does raise a question about how effective the child trust fund is in reducing inequality. We know that there is a very poor evidence base for that. It has not been established sufficiently long to determine what the effect is on tackling inequality. But we need to bear in mind that, out of the CTFs opened by low-income families, only 13% received contributions from their parents or from others, whereas for better-off families that figure is 30%. In itself, it is hard to say whether the CTF will actually reduce inequality.

Q 300

Photo of Yvonne Fovargue Yvonne Fovargue Labour, Makerfield

You have mentioned that there has not been enough time to conduct an impact assessment. Have you considered delaying this until you can have an impact assessment on all the proposed measures?

Mr Hoban: It is an easy thing to put off difficult decisions. If we chose not to scrap the child trust fund, we would have to find another £500 million a year, by cutting spending somewhere else, raising taxes or encouraging borrowing. Given the scale of the deficit and of the challenge we face, we must take difficult decisions now to tackle them. We cannot put problems off until tomorrow. If we delay resolving some of those issues, the people who will pay the highest cost will be the poorest. That is something that the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown) commented on before becoming Prime Minister.

Photo of George Howarth George Howarth Labour, Knowsley

We have two more topics to cover in this evidence session, and two other Members—Sarah Newton and Sheila Gilmore—have indicated that they want to ask questions on this topic, but they will have to be very brief.

Q 301

Photo of Sarah Newton Sarah Newton Conservative, Truro and Falmouth

My question is a good bridge to the next one, which is on the saving gateway. With regard to promoting savings, especially among people on low incomes, who traditionally do not save, we have heard a lot of evidence about the importance of access to the places where they save. We have found universally that they need a local and trusted organisation that offers value-for-money products. Given the coalition Government’s commitment to the post office network, which is welcome, what discussions have you had with colleagues about developing low-cost financial services through that network?

Mr Hoban: That is a matter for the Under-Secretary of State for Business, Innovation and Skills, my hon. Friend the hon. Member for Kingston and Surbiton (Mr Davey). You make an absolutely key point about access points. One of the problems with the saving gateway account was the number of access points at which it would be delivered, which was one reason for our decision to scrap it. We found that no building societies would sign up to deliver it and that only the Royal Bank of Scotland and Lloyds would offer it. The Post Office wanted subsidy from the taxpayer for offering it, and only credit unions that did not have national coverage were prepared to go down that route. We did not feel that there were not enough access points available to enable it to reach out to as many people as it should have done. That is one reason why we chose not to proceed with it.

People have come forward with ideas about how to use the Post Office more effectively. The British Association of Credit Unions has put forward proposals for using the Post Office as a way of expanding the number and reach of credit unions. The decision on whether to pursue that is one for others to make. When we design products to meet the needs of those on low incomes, we must ensure that their design encourages take-up.

Photo of George Howarth George Howarth Labour, Knowsley

We will now move on to the saving gateway.

Q 302

Photo of Sheila Gilmore Sheila Gilmore Labour, Edinburgh East

Both the saving gateway and child trust fund are long-term policies designed to encourage people on low incomes to save and facilitate them to do so. Rather than just saying that because many providers were not prepared at the outset to come in on it, did you give any consideration to allowing it to get started so that you could build up a network? You mentioned one or two potential changes, such as the credit unions’ discussions with post offices. Rather than saying, “Let’s not have it”, why not allow it to start and to build up once people see it begin to work?

Mr Hoban: Given the limitations on access, the cost and the fact that it has not yet started, we decided that it would be best not to continue with the policy initiative. That is why we have decided to scrap it in the Bill. There is a good question about how effective it would have been. There were two pilots on it, which were extensive. It is interesting to note that the previous Government made the pledge in their 2001 election manifesto, so clearly they had some time before the Bill was introduced and there were concerns about how effective it would be. Carl Emmerson suggested on Tuesday that it would not necessarily deliver high levels of savings.

There are serious question marks about whether it would be effective in increasing saving. We recognise the need to increase saving among families on low incomes. That is one of the reasons why we support the annual financial health check to give families more advice about managing their money. That is something that the industry will fund by CFEB, so there are other initiatives that we have in place that will encourage people to save. There are other measures coming further down the track, such as auto enrolment, a net that will encourage people on lower incomes to get access to pension savings for the first time.

Q 303

Photo of Sheila Gilmore Sheila Gilmore Labour, Edinburgh East

Given the restrictions on the roll-out of saving gateway, I do not think necessarily that the pension savings is an alternative. One of the  merits of a saving gateway, particularly in relation to credit unions, was the incentive to save. The ability of credit unions to build up their savings and thereby improve access for people in some communities, which do have credit unions—admittedly, not all have yet—to cheap forms of credit is one of the things that can make a huge difference not just to people’s income, but their not getting into debt and not having to borrow at times of crisis. Do you not agree that to enable that to happen is particularly important if we want people to be able not to fall into a cycle of debt?

Mr Hoban: That is a very important point. One thing that struck me when talking to credit unions is the number of people who have their benefit paid into a credit union account and actually leave some behind for a saving to actually provide a cushion against unexpected changes in their income. It does play back to a point that Carl Emmerson made on Tuesday that

“There was not any really strong evidence from the saving gateway that it led to more overall saving from lower-income households.”––[Official Report, Savings Account and Health in Pregnancy Grant Public Bill Committee, 2 November 2010; c. 18.]

It may be in a different pot from their current account, but that does not mean to say that they have actually saved more as a consequence.

Q 304

Photo of Fiona Bruce Fiona Bruce Conservative, Congleton

What has come across to us from several witnesses is that financial education, particularly for young people, is patchy. I wondered whether your work on this Bill has led you to consider how we could improve on that in light of the fact that the financial savings education element, say of the child trust fund, is going. It has also been pointed out that only three out of four young people’s families engage with the savings education element of that, so we have one out of four young people potentially receiving no benefit at all bar what one witness called a handout at 18, which perhaps does not inspire savings at all—but rather the opposite. Have you considered how we can improve our service to young people to give them the best start in life in terms of financial management?

Mr Hoban: This is something that I feel passionately about. I have seen a number of programmes delivered in schools that improve financial literacy. PFEG does a very good job. It is funded by the consumer financial education body to help its work. A lot of businesses support financial education projects in both primary and secondary schools. We cannot afford to wait until today’s five-year-olds are in their 60s to say that the job has been done on financial education. That is why we were very supportive of the consumer financial education body, when it was in the Financial Services Bill last year. We were very keen to see that set up. We were the first party that advocated the national roll-out of financial advice to tackle some of these problems, and to help people face them now. Education and school have an important role. There are plenty of people there to provide support, but it is a multi-generational issue that we need to tackle.

Q 305

Photo of Kerry McCarthy Kerry McCarthy Shadow Minister (Treasury)

During the evidence sessions that we have had, one of the main points of criticism—to the extent that there was any criticism—was the fact that it is not targeted sufficiently. It would be a better  use of money if it was means-tested and went to families who need the money most. Was that under consideration at any point when you looked at introducing the Bill? You are obviously going down the road of means-testing child benefit to an extent. Many people see the health in pregnancy grant as an advance on child benefit before the child is born. Was the possibility of using that money more wisely under consideration, rather than axing the whole thing entirely?

Mr Hoban: One thing you need to bear in mind when looking at these three measures is to recognise that you cannot look at them in isolation. For example, with health and pregnancy, there are other sources of funding available to those on low income who are pregnant. So we need to not just look at one measure in isolation, but take into account the broader ranges of financial support.

Q 306

Photo of Kerry McCarthy Kerry McCarthy Shadow Minister (Treasury)

But there are no other payments available to pregnant people that are rising to compensate for this being axed.

Mr Hoban: In terms of the balance you have to strike in policy making, yes we are scrapping this. But it is an important contributor to tackling the deficit and there are other sources of funding available to those on low income who are pregnant.

Q 307

Mr Hoban: The Sure Start maternity grant is available. There is a voucher programme for food that starts at a relatively early point in pregnancy and, I think, carries on until the child is four years old, so there is other support. This is untargeted. It was not piloted. It was just introduced in the 2009 Budget. There is no link between receipt and what it is used for, and that was very well established in the last session. One of the advantages of the voucher programme is that it is clearly linked to nutrition.

Q 308

Photo of Kerry McCarthy Kerry McCarthy Shadow Minister (Treasury)

Several people said on Second Reading that you cannot trust women to spend it on the right things—you can’t trust them to spend it on their own health in pregnancy or on things for their unborn child. If that is the case, why are we not far more prescriptive about other benefits that are paid to people, such child benefit and winter fuel allowance? Are you suggesting that we go down the road of vouchers for everybody?

Mr Hoban: It is clearly a grant that is designed to come with no strings attached. People can choose how to spend it. There has been a lot of discussion, now and in the previous evidence session, about how people might choose to spend it. I am just saying that there are more targeted means of support available than the health in pregnancy grant.

Q 309

Photo of Kerry McCarthy Kerry McCarthy Shadow Minister (Treasury)

But you are saying that that is a criticism—the fact that it can be spent on things that it is not designed to be spent on?

Mr Hoban: It is a criticism that a number of people have made of it across the spectrum.

Photo of Harriett Baldwin Harriett Baldwin Conservative, West Worcestershire

The Minister just replied to the point I was going to raise.

Photo of George Howarth George Howarth Labour, Knowsley

Is there anything further you would like to say to the Committee, Minister?

Mr Hoban: No, I am sure that I will have plenty of opportunity over the course of the next few days, Mr Howarth.

Photo of George Howarth George Howarth Labour, Knowsley

I will now suspend the Committee until 3 pm. We will resume in Committee Room 10 in the House for line-by-line consideration of the Bill.

Sitting suspended.

On resuming—