Clause 1

Savings Accounts and Health in Pregnancy Grant Bill – in a Public Bill Committee at 3:00 pm on 4th November 2010.

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Photo of David Hanson David Hanson Shadow Minister (Treasury) 3:00 pm, 4th November 2010

I beg to move amendment 26, in clause 1, page 1, line 6, leave out ‘3rd January 2011’ and insert

Photo of George Howarth George Howarth Labour, Knowsley

With this it will be convenient to discuss the following:

Amendment 1, in clause 1, page 1, line 6, leave out ‘2011’ and insert ‘2014’.

Amendment 10, in clause 1, page 1, line 6, leave out ‘2011’ and insert ‘2016’.

Amendment 19, in clause 1, page 1, line 6, after ‘2011’, insert ‘, and after 3 January 2012’.

Amendment 27, in clause 1, page 1, line 8, leave out ‘3rd January 2011’ and insert

Amendment 2, in clause 1, page 1, line 8, leave out ‘2011’ and insert ‘2014’.

Amendment 11, in clause 1, page 1, line 8, leave out ‘2011’ and insert ‘2016’.

Amendment 28, in clause 1, page 1, line 14, leave out ‘3rd January 2011’ and insert

Amendment 3, in clause 1, page 1, line 15, leave out ‘2011’ and insert ‘2014’.

Amendment 12, in clause 1, page 1, line 15, leave out ‘2011’ and insert ‘2016’.

Amendment 29, in clause 1, page 1, line 17, leave out ‘3rd January 2011’ and insert

Amendment 4, in clause 1, page 1, line 17, leave out ‘2011’ and insert ‘2014’.

Amendment 13, in clause 1, page 1, line 17, leave out ‘2011’ and insert ‘2016’.

Amendment 30, in clause 1, page 1, line 18, leave out ‘3rd April 2011’ and insert

Amendment 5, in clause 1, page 1, line 18, leave out ‘2011’ and insert ‘2014’.

Amendment 14, in clause 1, page 1, line 18, leave out ‘2011’ and insert ‘2016’.

Amendment 31, in clause 1, page 1, line 21, leave out ‘3rd April 2011’ and insert ‘a date to be set by regulations made by the Secretary of State by statutory instrument’.

Amendment 6, in clause 1, page 1, line 22, leave out ‘2011’ and insert ‘2014’.

Amendment 15, in clause 1, page 1, line 22, leave out ‘2011’ and insert ‘2016’.

Amendment 32, in clause 1, page 2, line 2, leave out ‘3rd January 2011’ and insert ‘a date to be set by regulations made by the Secretary of State by statutory instrument’.

Amendment 7, in clause 1, page 2, line 2, leave out ‘2011’ and insert ‘2014’.

Amendment 16, in clause 1, page 2, line 2, leave out ‘2011’ and insert ‘2016’.

Amendment 33, in clause 1, page 2, line 4, leave out ‘3rd January 2011’ and insert ‘a date to be set by regulations made by the Secretary of State by statutory instrument’.

Amendment 8, in clause 1, page 2, line 4, leave out ‘2011’ and insert ‘2014’.

Amendment 17, in clause 1, page 2, line 4, leave out ‘2011’ and insert ‘2016’.

Amendment 34, in clause 1, page 2, line 5, leave out ‘3rd April 2011’ and insert

‘a date to be set by regulations made by the Secretary of State by statutory instrument’.

Amendment 9, in clause 1, page 2, line 5, leave out ‘2011’ and insert ‘2014’.

Amendment 18, in clause 1, page 2, line 5, leave out ‘2011’ and insert ‘2016’.

Amendment 35, in clause 1, page 2, line 8, at end add—

Photo of David Hanson David Hanson Shadow Minister (Treasury)

Good afternoon, Mr Howarth. That was a brave attempt from the Chair to talk us out this afternoon, just by listing the amendments.

Photo of George Howarth George Howarth Labour, Knowsley

Order. It is not the Chair who tables the amendments.

Photo of David Hanson David Hanson Shadow Minister (Treasury)

It is the Chair who selects them. I welcome you, Mr Howarth, and your co-Chair, Mr Streeter, to the Committee proper. We have had some useful evidence sessions.

My hon. Friend the Member for Bristol East and I intend to introduce a fruitful discussion with these amendments, which are designed to be helpful to the Government. It is always my intention to be helpful; I was as a Minister, and hope that I shall be as an Opposition spokesman. For the avoidance of doubt, I state that the Opposition have extremely strong views on the Bill. If our amendments to clause 1 are not agreed, we will vote against the clause, because we believe the child trust fund to be a valuable asset. We  want it to be maintained, even in its slimmed-down form following its emasculation by the statutory instrument that was made in July. Having said that, I am pragmatic and will give the Minister and the Government the opportunity to reflect on our suggestions in this group of amendments.

The amendments would do one of three things. The lead amendment would give the Minister the opportunity to delay the implementation of the clause by order. There are also amendments that would delay the ending of eligibility for the child trust fund until either 2014 or 2016.

The first date of 2014 would allow for greater assessment of the economic situation and of how the deficit reduction plan was working before eligibility was ended. I will return to that point later. The second date of 2016 is after the final date for the next general election; helpfully, the Government have stated that it will be on 6 May 2015. That would allow Conservative Members—not Liberal Democrat Members, whom I exempt from this charge—to seek a proper mandate for the abolition of the child trust fund, given their manifesto commitment on the subject. The last election was on 6 May 2010; that is not that long ago, but they have already ditched the manifesto commitment as part of this Bill. The second date gives Conservative Members an opportunity to reflect on upholding what they were elected to do. I will also return to that point later.

I start by discussing amendment 26, which would amend the Bill so that eligibility for the child trust fund was not cut off on 3 January 2011. It would give the Minister the flexibility to meet his objective of ending the scheme—an objective that we oppose—at a date that he sets, by means of regulations made by the Secretary of State. There are two reasons for the amendment. First, it gives the Minister the opportunity to reflect on the evidence sessions and on the value of the child trust fund for many sectors of our society. Secondly, it is important that he reflects on the representations we have received on the gap that will occur between the ending of eligibility for the child trust fund and the introduction of the replacement ISA, which, on Second Reading, the Minister proposed introducing at some date before October 2011. He could fill that gap in several ways, and I want to reflect on those in our discussion. He has announced a new child ISA, and when he responds, I hope that he will give more detail and outline the nuts and bolts of that proposed ISA.

There are effective ways of filling that gap at the moment, and amendment 26 gives the Minister the opportunity to consider some of them. He could effectively keep the lower payments of £50 in place for children born after 3 January 2011, until the product is replaced in due course with the child ISA. He could end Government contributions but maintain the facility for parents to establish a child trust fund for children born after 3 January.

Photo of Sheila Gilmore Sheila Gilmore Labour, Edinburgh East

The rationale that appears to have been given for the abolition of the child trust fund is the need to reduce the deficit. We have heard a great deal from the Government about how, in their view, their plans will reduce the deficit within a five-year period—  although I am not sure that I agree. On that basis, however, given that we are talking about a long-term programme, would it not be advantageous to be able to reinstate it in due course, when the deficit is reduced?

Photo of David Hanson David Hanson Shadow Minister (Treasury)

My hon. Friend makes a valuable point. All three sub-groups of amendments could give the opportunity to do that. Amendment 26 allows the Minister, by regulation, to end the child trust fund at a later date, which provides an opportunity for him to reflect on the alternative. The date of 2014 gives a three-year gap before the implementation of the measures in the Bill. I accept that that has a cost, but in theory, it could allow for some reflection on the economic circumstances over the next three years. The date of 2016 gives the opportunity for a total of five years before implementation. The Minister, rather than using the proposals to hit children’s future assets as part of the deficit reduction plan, could look at how that plan as a whole impacts on the economy and the Budget. That way, he would not necessarily have to use dogma to end the child trust fund scheme because he did not agree with it. All three options give the Minister the opportunity to reflect on the current role of the deficit, the progress in lessening the deficit, the replacement for the child trust fund and indeed, the commitments made in his manifesto.

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

Earlier, the right hon. Gentleman said that the Opposition would vote against the clause unless the amendments were accepted. Would they vote for it if the amendments were accepted?

Photo of David Hanson David Hanson Shadow Minister (Treasury)

I would have to reflect on that. [ Laughter. ] The hon. Gentleman asks a good question. If it meant that the Labour Opposition had amendments accepted that put in place a stop-gap for the next nine months, I would reflect on whether to vote for the clause. At the moment, we have nothing; the child trust fund will be abolished. If it meant that we had a three-year gap before abolition, I would certainly vote for the clause, in the hope that the economic situation would improve and there would be some reflection. If we had a five-year gap, I would hope that, in a general election, we would be returned, and we would be able to unpick this particular policy fiasco of the Government’s.

My first comment to the Committee was that we oppose clause 1 of the Bill. I also said—as the hon. Gentleman will see if he wants to look at Hansard tomorrow—that I am pragmatic in these matters. I want to see something of the child trust fund salvaged from this train crash. I believe, as the evidence sessions have shown, that the fund is a valuable asset, helps develop assets for people at the age of 18—particularly the poorest in our community—and has been valued by those who have used it. It has also helped to develop a savings culture as a whole.

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

On the evidence sessions, obviously it is not surprising that those who make a living out of providing child trust funds are enthusiastic about them continuing. What I did not hear—I wonder whether the shadow Minister did—is any evidence that they were getting a good return, beyond the charges levied on it, or any evidence that people were saving any more than they would have done otherwise.

Photo of David Hanson David Hanson Shadow Minister (Treasury)

The hon. Gentleman will reflect that before the child trust fund, savings were at some 18%, and they have now risen to 31%. We had this discussion when the original order was before Committee. There is different evidence as to how much people on lower incomes have been helped, but there has been, non-contentiously, a rise in savings, including among people on lower incomes.

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

I thank the shadow Minister for giving way again; he is being very generous with his time. The Royal College of Midwives has argued that if a family on low income have money available, they should spend it on improving their health. Does he disagree with that?

Photo of David Hanson David Hanson Shadow Minister (Treasury)

Again, the hon. Gentleman is giving an and/or solution. There is a potential argument for people spending their money on day-to-day living, but, equally, the child trust fund, as he will know, is not something to which individuals have to contribute. The Government have been contributing to encourage savings, and people can, if they have resources in their pocket, put some in for their children. Some do, and some do not. They can also put nothing in at all and leave that initial Government contribution to mature when the child reaches 18. They can opt in or opt out at different times in their financial cycle. It is a matter of choice. Individuals can choose when to put money into their children’s futures. What is uncontroversial from today’s discussions is that the scheme generates greater saving across the board than there had been before it came into effect.

Photo of Yvonne Fovargue Yvonne Fovargue Labour, Makerfield

Does my right hon. Friend agree that in Tuesday afternoon’s evidence session, people who were not providers, such as 4Children and Scope, agreed that it was absolutely too soon to abolish the scheme? This group of amendments relate to that.

Photo of David Hanson David Hanson Shadow Minister (Treasury)

Indeed. The scheme has been operational for a relatively small number of years. The children who have child trust funds are relatively young because of when the scheme commenced. I should perhaps have declared an interest, Mr Howarth, because I have four children, three of whom are older, but the fourth is aged 7 and is in receipt of a child trust fund—I had them all with the same wife, but that is another story. The key point is that there are individuals who have generated savings that would not have been made before the child trust fund came into place. There are people on lower incomes who are saving whatever they can, whenever they can. That money is not lost to society; it is put away for the 18th year, when matriculation takes place.

Photo of Claire Perry Claire Perry Conservative, Devizes

I agree with the right hon. Gentleman; we have heard a lot of evidence stating that people do save into the scheme. We can debate statistics relating to how much poor families save, but the point that has not been proved at all is whether additional savings are being made. I have heard no evidence that there is any additionality in the savings numbers, or that such savings would not have otherwise been made. We took evidence from a variety of experienced witnesses, but there are numerous comments on the Netmums website, for example, in which people have asked what was wrong with saving into a bank account. People have commented that they would be saving anyway and that the child trust fund was nice to have, but not essential. Has the right hon. Gentleman seen  any evidence that it has generated any additional savings, particularly among the most disadvantaged groups? If so, would he be prepared to put that before the Committee?

Photo of David Hanson David Hanson Shadow Minister (Treasury)

I am grateful for the hon. Lady’s comments. I have already said that empirical evidence suggests that savings have risen, in the cohort, from 18 to 31% over the period. There is no definitive evidence as yet as regards the breakdown between the poor and more affluent members of society, but there are certainly poorer people who are saving, who were not saving before. That is an advantage for the scheme as a whole.

At the moment, for example, some £2 billion in assets is under control of the scheme, and £22 million a month in regular contributions is going into child trust fund accounts. We could argue all day about whether that has moved from building societies, from banks or from shares to child trust funds, but everybody who has given evidence to the Committee has said that there has been success in raising the level of savings into child trust funds, and that that has had a material benefit in encouraging people, particularly those on the poorest incomes, to consider saving, when they can afford to, for their children’s future.

On amendment 26, I want to ask about the implementation date of the scheme. It is quite clear from what we heard during the evidence sessions that nobody, including the Minister, expects the replacement scheme to be in place by 4 January 2011. In a press release issued on 26 October 2010—for the sake of accuracy, at 17.55—the Minister stated:

“The Government will now work closely with stakeholders to finalise the structure of the accounts, and intends for the new accounts to be available by autumn 2011.”

One of the key issues on which the Minister needs to reflect is the speed of the abolition of the child trust fund and the replacement product that he is putting in place in 2011. Amendment 26 would not stop the Minister abolishing the child trust fund or eligibility for the child trust fund, nor would it close down the scheme. It would not stop the Minister establishing the new scheme in autumn 2011. It would simply allow him to continue the child trust fund scheme between 3 January 2011 and whatever date he chooses to introduce the new scheme proposed in the press release.

Photo of John Hemming John Hemming Liberal Democrat, Birmingham, Yardley 3:15 pm, 4th November 2010

At some stage, it would be nice to clarify the right hon. Gentleman’s figures of 18% and 31%. On the point that I intervened on about delaying the abolition of the scheme, I refer him to column 58 of the Hansard report of the Committee’s proceedings on Tuesday 2 November; sadly, I was unable to attend. Marc Bush, who spoke on behalf of Scope, referred to his concern that people were losing benefits as a consequence of saving money in the child trust fund. Does the right hon. Gentleman agree that that is a bad situation? Is it not sensible to take a break and sort matters out, so that such situations do not occur?

Photo of David Hanson David Hanson Shadow Minister (Treasury)

I do not accept that a break would be helpful. If we are trading contents of Committees, I trade with him column 27 of the Committee Hansard from 2 November. In response to my question, Mr Shaw said:

“Therefore the investment in setting up a new product would in effect be like starting from scratch. There is no legacy that you can continue.”

He also said:

“I suspect most of my members would not be ready to provide a junior ISA by early January. The child trust fund itself is a completely different animal to an ISA.”––[Official Report, Savings Account and Health in Pregnancy Grant Public Bill Committee, 2 November 2010; c. 27, Q69.]

The amendment is designed not to tell the Minister not to abolish the fund—although I hope that he does not—but to encourage him to have his alternative in place before the child trust fund is abolished, with the nuts and bolts thought through. It is designed to encourage him to present that alternative with clarity. What is the rush?

Photo of Sarah Newton Sarah Newton Conservative, Truro and Falmouth

We also heard considerable evidence that over 100 products are available to parents or grandparents who want a tax-free saving scheme for children. The right hon. Gentleman’s hypothesis that nothing will be available for parents who want to save for the future simply is not true. We heard from the Institute for Public Policy Research this afternoon that the most trusted financial services brand for the over-40s on low incomes is the Post Office. For the under-40s, the most trusted brands are supermarkets. All those organisations have well known tax-free savings products.

Photo of David Hanson David Hanson Shadow Minister (Treasury)

I am grateful to the hon. Lady for her comments, but I believe that she misses the point of the child trust fund. There is still a Government contribution, albeit a reduced one, to help kick-start that fund. The scheme will be abolished on 3 January 2010, and no definitive scheme will emerge until perhaps autumn 2010. The Minister has said that those who want to participate in that scheme will be able to backdate contributions accordingly; that is fair enough. I am simply asking: why have that hiatus? Why have that gap?

The Minister could accept the amendment or, if it is flawed or not strictly correct—I have been a Minister and I accept that sometimes amendments do not work out exactly, and parliamentary counsel might need to look at the issue—he could come back on Report with a thoroughly thought-out measure that allows the abolition of child trust fund contributions, eligibility and mechanisms to occur on the date on which the new scheme comes into play. What is the rush? The cost will be relatively minimal because contributions are lower than they were when the Labour Government were in power, due to an order passed earlier this year. Contributions are minimal. On a point of principle, why not let the two schemes run into one?

On Tuesday, Carl Emmerson of the Institute for Fiscal Studies mentioned an “extremely short consultation period.” He said:

“I do not think that it is possible to make decisions on how the policy should look and also ensure that the financial sector is geared up to operate a market of that size.”

That is a quote from him, in the evidence session, in response to the idea of the Minister introducing a new ISA scheme in October or November next year. He also said:

“One option, which was what I thought the Government were going to do back in June, would simply be to abolish the Government contribution to the child trust fund but still allow families to open a child trust fund with tax-free saving tied up to age 18, as they  currently do. You would be abolishing the contribution, not the actual accounts.”––[Official Report, Savings Accounts and Health in Pregnancy Grant Public Bill Committee, 2 November 2010; c. 16, Q37-38.]

The amendment would give the Minister time to think about that.

What is the justification for abolishing the child trust fund when a parent whose child is born on 4 July next year, for example, could make a donation of £50 of their own? That involves no Government contribution or taxpayer funding, but it does involve a child trust fund account. The mechanism is there because, as the Minister has recognised, those of us who currently have children who qualify for the child trust fund will still have that resource tied up, and the computer system and reference numbers will be in place until those children matriculate at the age of 18.

Why not continue with non-Government contribution to the child trust fund, rather than establish a whole new product to deal with the issue—a product that will not, in my view, help the poorer members of our society to save? A tax-free ISA is not important to them, but the contribution of the child trust fund was.

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

My reading of the Bill is that children born before 3 July would be entitled to the provision, as long as an application is made within the next three months. Accounts are still going to be opened. However, there is no massive urgency for the replacement. Children will continue to be born, and they can apply retrospectively for a new account. If people are losing benefits as a result of the fund, the previous Government clearly made major mistakes in its implementation.

Photo of Sheila Gilmore Sheila Gilmore Labour, Edinburgh East

I have read the section to which the hon. Gentleman refers—perhaps he was not actually present and did not hear what was said. Mr Bush stated:

“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.”––[Official Report, Savings Accounts and Health in Pregnancy Grant Public Bill Committee, 2 November 2010; c. 58, Q161.]

He then went on to say that people were afraid—wrongly, I think—that some officials misinterpreted the child trust funds as affecting benefits. Is not the solution to ensure, perhaps with a minor amendment, that for disabled children, child trust funds would not interfere with benefits? It may well be that they do not, and that that was only a fear. Mr Bush’s evidence suggested that child trust funds were actually the best form of investment.

Photo of George Howarth George Howarth Labour, Knowsley

Order. Before the hon. Lady intervenes, I should say that, in the short time we have been meeting, I have noticed that interventions have been getting longer and longer. There is nothing wrong with  interventions. It is a good way of debating these matters, but members of the Committee should be aware that interventions should comprise a single point and a single question.

Photo of Sarah Newton Sarah Newton Conservative, Truro and Falmouth

Thank you for that reminder, Mr Howarth. Does the right hon. Gentleman also recall that the IFS said that by far and away the most tax-effective way for parents to save would be with ISAs?

Photo of David Hanson David Hanson Shadow Minister (Treasury)

That is all very well for those parents who pay tax. Not every parent pays tax. The hon. Lady needs to reflect on the fact that the child trust fund was a universal benefit whereby a sum of money, admittedly now lower, would be paid in to help kick-start the investment.

Photo of Yvonne Fovargue Yvonne Fovargue Labour, Makerfield

On Tuesday, Anne Longfield said that the language of ISAs is confusing, does not relate to the experience of most low-income families and should be kept as simple as possible, which the child trust fund is.

Photo of David Hanson David Hanson Shadow Minister (Treasury)

Indeed. I accept what my hon. Friend says. The key point, and this is genuinely trying to be helpful to the Minister as I am not one to cause him grief—

Photo of Mark Hoban Mark Hoban The Financial Secretary to the Treasury

The right hon. Gentleman certainly has not so far.

Photo of David Hanson David Hanson Shadow Minister (Treasury)

Well, it is not for me to cause him grief, but for the people who lose the benefit in due course and who will react against the policy. What is wrong with just making sure that we continue to run the existing child trust fund mechanism beyond 3 January 2011, and he can then, by order, end that scheme on a date when the scheme that he is bringing forward is in place? I cannot see the difficulty there. The Minister may be able to help me again today. In his press release of 22 October he said:

“Annual contributions will be capped”.

Has he made a decision on what that cap will be yet? He has not responded and I will certainly give way to him if he has made a decision on that.

Photo of Mark Hoban Mark Hoban The Financial Secretary to the Treasury

I know that the previous Government had their own way of making policy, but we are consulting and it would be wrong to pre-empt that consultation by deciding what the cap is now. I am sure that the right hon. Gentleman would agree that good policy making is based on consultation. I may be diverging from past practice but we want to consult with providers and stakeholders about the level of the cap.

Photo of David Hanson David Hanson Shadow Minister (Treasury)

Perhaps the Minister could tell me exactly how much consultation he had on the abolition of the child trust fund because I do not think there was a great deal of consultation on that. Today is 4 November. Clause 1 abolishes the child trust fund contributions eligibility from 3 January 2011 without the Minister yet being able to tell us what will replace it in any shape or form. I refer again to Mr Shaw who said:

“An ISA is run on an annual renewal basis, whereas a child trust fund is run as a trust for the child over a much longer period.”––[Official Report, Savings Accounts and Health in Pregnancy Grant Public Bill Committee, 2 November 2010; c. 27, Q69.]

There are differences in the product. The Minister will not confirm, because he is still consulting, what product will replace the child trust fund while asking the Committee to abolish the child trust fund under clause 1. Amendment 26, whatever its technical faults and the political principle behind it, simply says that if the Minister is going to abolish it, he should do so from the date when the new scheme comes into operation. That would avoid all the confusion of two schemes being run at once and people not knowing what the final scheme is. It avoids the problem of backdating contributions from the commencement of the new scheme to 3 January 2011. I cannot understand why the Minister will not reflect on that. I am throwing him a ball to help him achieve his objective of abolishing the child trust fund, even though we oppose that abolition.

Photo of Kate Green Kate Green Labour, Stretford and Urmston 3:30 pm, 4th November 2010

It is interesting that Tony Vine-Lott told us on Tuesday that one of the features that had been attractive to providers who had significantly entered the child trust fund market was the Government contribution. Is it not the case, therefore, that the Minister ought to be clear about how providers would respond to a product that might or might not have a Government contribution? Until that is known, he cannot proclaim the likely commercial success of the junior ISA.

Photo of David Hanson David Hanson Shadow Minister (Treasury)

My hon. Friend makes a valuable point. I will provide the Minister with some statistics behind the figures. Currently, about 70,000 children are born every month. If the scheme is abolished on 3 January 2011, it means that in January, February, March, April, May, June, July, August, September, possibly even October and November, approximately 70,000 children will be born each month who are not eligible for the child trust fund. They will have to learn from their parents, retrospectively, about the new product, even though their parents may have different levels of educational attainment and different information sources. They will have to learn from the Government, retrospectively, about how they then put money into the fund under the Minister’s new ISA proposals. They may have not realised that they can put money aside before those periods of time. I contend that as many as 500,000 children could be disadvantaged, because they will not have been in the child trust fund and they will not necessarily have taken up the child ISA, because we do not yet know what the child ISA is.

The amendment simply gives the Minister a chance to say, “On 1 October, this contribution”—much as I do not want it to happen—“will end, and the new scheme will come into place on 1 October.” I will even give him a commitment that I will not oppose the regulation’s passage through the House next June or July, so that he can agree to the date of 1 October and end the hiatus. What is the problem with that? I am compromising dramatically my beliefs and those of my hon. Friends in offering the Minister that opportunity, because it will ensure that children born from 3 January through to whatever date he issues his ISA will have a child trust fund contribution of £50. They will be able to establish that and maintain the continuity that, sadly, the Minister wishes to throw up in the air and lose. I cannot see the argument against that.

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

May I put an argument against that?

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

If a person has an account of £500, it earns £7.50 at an annual rate of 1.5%. If they have only £50, it is 75p, which most providers would run at a loss, and I am not sure that providers would financially be able to cope with that.

Photo of David Hanson David Hanson Shadow Minister (Treasury)

I hate to disillusion the hon. Gentleman, but most providers are losing potential future clients now. They will find great difficulty in maintaining the existing infrastructure for the child trust fund from now to commencement. When we get to the clause stand part debate, I want the Minister to talk about how the abolition of the fund will impact on the current providers of child trust funds. They provided the fund in good faith, in line with Government policy. The Minister has given a commitment to maintain the child trust fund for people who paid into it, so that they can matriculate at the age of 18.

Photo of Stephen Williams Stephen Williams Liberal Democrat, Bristol West

The right hon. Gentleman may recall the evidence session with Tony Vine-Lott from the Tax Incentivised Savings Association. I asked him to confirm that, for the remainder of the child trust fund’s life—because, of course, the existing funds have not been abolished—they would still be charging annual fees. Although none of the witnesses said yes, they all nodded.

Photo of David Hanson David Hanson Shadow Minister (Treasury)

There has to be an element of financing for the operation of the scheme. That is understood. That has to be the case. By my estimates—I may be a few hundred thousand pounds out either side—we are talking about a possible cost of around £31.5 million until October, plus the costs of maintaining the existing child trust fund. In deficit reduction terms, that is not a great deal of money. It would ensure that the hiatus did not happen and the Minister could introduce his scheme at the right time without damaging the child trust fund from 3 January. It would ensure that another 500,000 children had some contribution towards their child trust fund, and that many people, as mentioned by the hon. Member for Truro and Falmouth, could contribute to the fund over that period of time. I hope that the Minister will reflect on that.

Amendment 1 states that we should leave out 3 January 2011 and insert 3 January 2014. Again, the Minister will know, because Government Members have indicated it, that the next general election will be in 2015. It is quite possible for him, therefore, to accept the amendment; to examine the continuance of the child trust fund with lower contributions of around £31 million or £32 million a year—£50 for each person; to encourage that savings culture over the next three years, and to consider how the economy develops in that period.

The Minister wants—and believes that they will—the general deficit reduction measures, employment measures and reductions in public spending to benefit the economy as a whole. We think that those measures might cause 500,000 jobs to be lost in the public and private sectors, but he presumably believes that the economy will get better because of the medicine that the Government are giving it over the next three years.

Why is the Minister punishing future generations of children by abolishing the scheme in that three-year period when he could allow a much lower contribution? The amendment gives him the opportunity to abolish the higher rate and would allow for a contribution rate over the next three years of £50 per child for the 70,000 children who are born each month. That would save a considerable amount of public resource, which is important, as the hon. Members for Congleton, for West Worcestershire, and for Devizes mentioned. He would save a considerable resource without abolishing the scheme. If, therefore, the economy picked up, he could either maintain the scheme beyond 2014, or consider returning to a higher rate of contribution to help alleviate poverty, and help asset-poor individuals at the age of 18. The scheme could be maintained for a three-year period.

I accept that the proposal involves a cost of £31.5 million to £32 million a year. However, over the three-year period, that might be £100 million or £120 million, rather than the £500 million that the Minister is considering saving. It would help him to save—I am throwing this ball to him, so I hope that he picks it up and runs with it—a considerable amount of public resource, but still give him the flexibility to ensure that we have the benefits of the savings culture about which we heard in the evidence sessions. It would ensure that the mechanism and infrastructure are still in place so that we can continue to contribute. If the economy picks up—and we will fight an election on that in four years’ time—

Photo of David Hanson David Hanson Shadow Minister (Treasury)

Four and a half now. If it picks up, the Minister can reflect on the abolition of the child trust fund. If he does not accept the amendment, I will presume—and far be it from me to presume, because the Minister can speak for himself—that he is against the fund on the basis of dogma, not of deficit. He is against the fund because it is a Government contribution to help partnership with parents to secure assets for people who are asset poor at the age of 18 and will remain so unless he does something about it. If it is not dogma, he can save a large amount of public money by accepting the lower rate, running it for three years until 2014, and maintaining the infrastructure of the scheme.

If the Minister did that, he would not have to start his new ISA. He could stop developing that, stop the hiatus with the new product, and maintain the existing child trust fund at a lower rate of contribution. The Government would not have to go through the mechanisms of Treasury officials developing a new ISA, talking to the market, throwing all the cards in the air and seeing how they land. He could maintain the current product for a much lower rate without abolishing the trust fund.

I have moved a long way on that, from opposing the reduction of the £250 contribution in July to saying to the Minister, “Here is an offer from the Opposition—have the £50 rate, maintain the scheme, run it for three years, see how the economy picks up and, at the end of the three years, if the economy is still going belly up, abolish it.”

Photo of Fiona Bruce Fiona Bruce Conservative, Congleton

Would a £50 contribution not produce the worst of all worlds for young people? The Labour party has said that the one benefit for young people  whose families do not engage with the scheme is that they at least have a nest egg at age 18. That contribution would not provide that.

Photo of David Hanson David Hanson Shadow Minister (Treasury)

If the hon. Lady votes for clause 1, there will be no nest egg at the age of 18 for contributions to be paid into; there will be a nest egg only for those people who can afford to put money into a tax-free ISA. Fifty pounds is not perfect—I do not want £50, and it is not what the Labour Government did—but it is £50 more than the hon. Lady will be voting for if she supports the clause in due course.

Photo of Kate Green Kate Green Labour, Stretford and Urmston

Is it not also the case that, by keeping in place a mechanism that allows for Government contributions, we could reactivate the mechanism to make a second payment at age seven? After the economy recovers, we might have the opportunity to resume the previous scheme.

Photo of David Hanson David Hanson Shadow Minister (Treasury)

Indeed. By amending it to 2014, I am giving the Government an opportunity to reflect on the fact that they do not have to abolish the scheme to save money. The Minister could take a payment holiday for that three-year period. I do not necessarily think that that is a great idea, but he could do that. He could maintain the structure of the child trust fund and wait to see how the economy develops. What is wrong with that? What is the problem with taking a payment holiday and having a reduced figure while maintaining the structure of the child trust fund? Or does the Minister not believe in the concept of a child trust fund? If that is the case, he should tell us so. If the Bill is about deficit reduction, I am offering him £350 million to £400 million of deficit reduction by maintaining the scheme for the next three years.

Photo of Kerry McCarthy Kerry McCarthy Shadow Minister (Treasury)

Is it not also the case that, if the child trust fund’s structure were maintained, as the economy recovers, and as the deficit is reduced, Government contributions could be phased in so that priority could be given to disabled or looked-after children? The Government could then move on to making payments across the board.

Photo of David Hanson David Hanson Shadow Minister (Treasury)

My hon. Friend makes a valuable point. I do not want to discuss it now, but we will table amendments concerning looked-after and disabled children. We will also table amendments concerning the poorest children in society.

I remind the Minister, because we will be moving on to it in a moment, that the Conservative manifesto, on which eight members of this Committee stood, stated that they would maintain child trust fund payments to those in receipt of disability living allowance and maintain payments for the poorest third of society. The Minister could take a three-year payment holiday in payments to those groups, then look at the economy, and still go back to the electorate in 2015 and say that he had maintained payments to the poorest third and to those in receipt of disability living allowance. He would have to admit that he took a payment holiday, because he had difficulties with finances, but he could say that he had restored the payments. If the mechanism is not in place, the Minister will not be able to do that, because  he would have put in place a totally different product with a hiatus in between in which he would have reneged on his manifesto commitments. He would not have achieved what hon. Members—and they are honourable Members—wish to do to meet the manifesto commitments that got them into Government.

Photo of Stephen Williams Stephen Williams Liberal Democrat, Bristol West

The right hon. Gentleman seems to be going back to points that he raised earlier in our considerations. He raised them on Second Reading, too. Perhaps the Labour party’s preferred alternative is now to focus this fund on poor and disadvantaged children, or children with special educational needs and disabilities. Does he acknowledge that by the next general election £2.5 billion a year will be spent on precisely those groups in the form of the pupil premium?

Photo of David Hanson David Hanson Shadow Minister (Treasury)

I think that I would be in danger of being called out of order if I were to stray on to the pupil premium. There is a major debate about that, and my hon. Friend the Member for West Ham feels particularly strongly about how it would affect her constituency.

I remind the hon. Gentleman that he has a clear position of integrity, and he is supported by his electorate. He opposes the child trust fund and he said that he did in Bristol West. The hon. Member for Birmingham, Yardley also went to his constituency and said that he opposed it. They are fulfilling their obligation in this Committee. I say to every other member of the Committee, however, that they will not fulfil their manifesto obligations. Potentially, if I am honest, we are not now going to meet our obligations either, because we might even give ground to save—[Hon. Members: “Ah!”] We are giving ground to salvage the potential for the child trust fund.

The first thing that I said to this Committee is that we will oppose clause 1, because we think that it is wrong. However, I am giving the Minister the opportunity to keep the child trust fund in place by looking either at a payment holiday, or at alternatives to the child trust fund over that period of time.

Photo of Sheila Gilmore Sheila Gilmore Labour, Edinburgh East 3:45 pm, 4th November 2010

I appreciate that the alternative uses of the money might be outwith the scope of the Committee, but will my right hon. Friend reflect on the fact that that there is a real loss for children in Scotland, who will not be getting the pupil premium?

Photo of David Hanson David Hanson Shadow Minister (Treasury)

Not only poor children in Scotland. The pupil premium is an England-only scheme. My constituency is in north Wales and the pupil premium will not apply there. If my hon. Friend the Member for South Down was here, she would say that the pupil premium will not apply in Northern Ireland. The hon. Member for Bristol West might want to speak for England, but we happen to speak for the United Kingdom.

While I am on the topic—amendments have been tabled related to the devolved Administrations—the Welsh Assembly Government tops up the child trust fund with contributions. The proposal is to scrap the scheme on 3 January. The six to seven months for which amendment 26 would provide would allow further discussions to be held with the Welsh Assembly Government  on their contributions to the current child trust fund. Indeed, a longer gap between now and 2014 could achieve the same thing.

I again quote Anne Longfield, the chief executive of 4Children, from the evidence session on Tuesday. She said:

“I think that we do have a structure here. There has been a massive investment in getting the information of 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…there is much to be said for building upon what is already there and what already works.”––[Official Report, Savings Accounts and Health in Pregnancy Grant Public Bill Committee, 2 November 2010; c. 58, Q161.]

All I am doing is giving the Minister the opportunity to do that.

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

Does the right hon. Gentleman agree that it would be entirely possible, after consultation, to reinstate the system that currently exists, without the payment and without any break in entitlement? People would merely have to apply a little later.

Photo of David Hanson David Hanson Shadow Minister (Treasury)

I am trying to make my points. I believe that the Minister has an opportunity to reflect on the amendments and not to abandon his principle regarding the abolition of the child trust fund. Under amendment 26, he would abandon that principle for the next eight months until he has a replacement or, under amendment 1, he would abandon that principle until 2014, at relatively low cost, and then see whether the economy picks up. Both approaches would maintain the child trust fund infrastructure and both would represent an opportunity at least to avoid the disturbance that we have today.

We are in danger of throwing the baby out with the bathwater. We have an incredibly successful scheme in which millions of families are saving that could be maintained at a relatively low cost. Indeed, hon. Members should not listen only to me. We have received evidence in the past 24 hours from Save Child Savings, which comprises the Daycare Trust, the director of ResPublica, the IPPR, the London School of Economics, the Young Women's Christian Association, the National Childbirth Trust, the Children’s Mutual, the chief executive of the Family and Parenting Institute, Scope and others. In its written evidence to the Committee today, it states:

“The savings black hole of six months or more…would result”— in—

“an unnecessary hiatus — certain to damage consumers, the industry and the UK’s already struggling savings culture”.

Rather than read all this into the record—it is already on record—Members can look at the correspondence from Save Child Savings. However, paragraph 2.1 states:

“Our request is simple — for legislative provision to be made for the core CTF infrastructure of the tax-fee wrapper to continue to run, without state contribution”— to ensure that—

“until the Government has finalised, legislated for and introduced its plans for a replacement savings product during 2011”— the allowance infrastructure continues. I cannot understand why the Government do not accept that request.

Amendment 10 proposes that we should replace the 2011 date with 2016. I have touched upon that already, but it is important that the Minister responds to the amendment. I tabled it because it would help Conservative Members to return to their electorates in 2015 having fulfilled their general election manifesto commitments. I would not want the Minister to return to Fareham, or the hon. Member for Scarborough and Whitby to return to his constituency, and say, “Not only have we not fulfilled our manifesto commitment, but we have done the exact opposite of what we said we would do.”

The Conservative party manifesto for the general election on 6 May said that the party would

“cut government contributions to Child Trust Funds”,

as the Government did in July. The manifesto, however, had the important caveat—the Prime Minister held it in great esteem during his election campaign—that the contributions would be cut

“for all but the poorest third of families and families with disabled children”.

The Committee will be given the opportunity to accept that principle later in our deliberations, but I am trying to ensure that the Minister and his esteemed colleagues, for whom I have the greatest respect, look at the issue and undertake to postpone the decision on the complete abolition of the scheme until 2016. If they accept amendments 26 or 10, they will be able to bring into effect a scheme that allows the poorest third of families and families with disabled children to maintain a child trust fund at a future date. The Minister would also be able to introduce a tax-free ISA scheme for people who are not in those particular groups at that time.

Photo of Stephen Williams Stephen Williams Liberal Democrat, Bristol West

When the right hon. Gentleman was a Minister, he was used to a system in which his party had an absolute majority and could do whatever it liked. It did not, however, always honour its manifesto commitments. Does he accept that this is a coalition Government and that the coalition agreement therefore supersedes the manifestos of both parties? If the negotiations between my party and his had succeeded and a different coalition was in place, would he have thought it reasonable if a Conservative shadow Minister, which is what my hon. Friend the Minister would have been, had put the same point to him?

Photo of David Hanson David Hanson Shadow Minister (Treasury)

There are many members of this Committee, yet only two went into the election committed to the abolition of the child trust fund. None of the Conservative or Labour members did that. It is a strange democracy indeed in which two members of a Committee ensure that the other 16 members have to do their bidding.

Once upon a time, when I was leader of my local authority, we had 27 Labour members, 25 Conservative members and three Liberal Democrats. Every time we had a discussion, we had to look to the three Liberal Democrats to determine what the local authority’s final policy would be. One Liberal Democrat always wanted to vote with the Tories, another wanted to vote with us, and the other could not make up their mind. I pay tribute to the two Liberal Democrat members of the Committee, because their position is totally consistent, but I disagree with them. The Liberal Democrats returned fewer Members at this election than they had in the previous Parliament. However, they have the  opportunity to tell the Conservative members of the Committee to ditch their manifesto commitment and to tell the Labour members not to support the scheme that we introduced.

Photo of Claire Perry Claire Perry Conservative, Devizes

In the real world, when facts change, policies can change, too. The incontrovertible fact is that when we came into power as a coalition Government, we were left a helpful note by the former Chief Secretary, the right hon. Member for Birmingham, Hodge Hill (Mr Byrne)—[ Interruption. ] Labour members of the Committee may all groan, but the fact is that there is no money. We are prepared to change our policies to deal with the new reality of the world, and I am surprised that the right hon. Member for Delyn is unable to do the same.

Photo of David Hanson David Hanson Shadow Minister (Treasury)

If the hon. Lady is concerned that there is no money, perhaps she will tell me why she has not argued for raising the bank levy from £2.5 billion to £3.5 billion and thus getting an extra £1 billion. The continuation of the child trust fund will cost about £130 million. If the hon. Lady is saying that we should not put women and children first on the Titanic of our financial situation, so be it, but I do not believe that that should happen. The key point is that the amendments would allow us to keep the child trust funds so that the Government could honour the pledge in the Conservative party manifesto over the course of this Parliament.

Photo of Sarah Newton Sarah Newton Conservative, Truro and Falmouth

To save more of the right hon. Gentleman’s crocodile tears on my behalf, may I say to him that I am very confident about facing the people who sent me to represent them in Westminster and defending my record in five years’ time?

Photo of David Hanson David Hanson Shadow Minister (Treasury)

I wish the hon. Lady every success. I am sure that she will do fine and that she will be able to have a coalition with the Liberal Democrat who was, I think, about 435 votes behind her. We will see which of them will be the next Member of Parliament for the constituency and so from which half of the coalition that Member will come. Indeed, there might be only one candidate, and she may be it. Perhaps she will be carried through the streets of Truro and Falmouth, and acclaimed by the Liberal Democrats who opposed her so fiercely only a few months ago.

Photo of George Howarth George Howarth Labour, Knowsley

Order. I think that fun time is over.

Photo of David Hanson David Hanson Shadow Minister (Treasury)

I simply say to the hon. Lady that manifesto commitments are important. The Liberal Democrats have made theirs, as have the hon. Lady and others, and we have made ours.

I simply commend amendments 26, 1 and 10 to the Committee in the hope that I will allow enough time for the Minister—and, if they wish, my hon. Friends—to contribute to this important debate. I am simply putting on record that it does not need be like this—there is an alternative. The Minister has it in his power to accept any of the amendments, and therefore reflect the will of what we heard in the oral evidence sessions and—in due course, I hope—that of the majority of the Committee. I look forward to the Minister’s contribution.

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

I am pleased to serve under your chairmanship, Mr Howarth. I reiterate my declaration of interest: I chair a company I founded many years ago that provides software for financial services providers, including those who provide ISAs.

I was attracted by the idea put forward by Save Child Savings and others of just keeping the infrastructure going. In practice, however, we already know that we will not stop opening accounts on 3 January, because accounts will be opened over the next three months. Clearly, the issue to be resolved is the practicality of how to handle children’s savings without the £500 or £250 from the Government, which makes a difference to running those accounts.

The Government are entirely right to have a consultation process, because nobody will lose out from having a period of consideration before the new system is brought in. That new system might be the same as the old one, in the sense of the infrastructure and the computer systems, or there might even be two different alternatives, with one feeding into the ISA mechanisms and the other into the child trust fund mechanisms. The reality is that the investment for putting in place all the computer systems has already been made by organisations such as the Children’s Mutual, which should be recognised. The Revenue has its links to such systems, as it does to those of the ISA providers. All that is in place, so there is no problem in switching it back on to allow people to open accounts.

One good thing about the route of the child trust fund is that people are given a chitty—a piece of paper with which they can open an account. Therefore, there are none of the money-laundering problems that arise with opening other accounts. It is an easy process, but there is absolutely nothing that means that everything has to be kept going. The current system opens up a default account, without any money. A lot of accounts will have to be managed without money in them, and there will also be a requirement to send a document on children’s birthdays to say that they have no money. That is not a good use of funds whoever is paying for them—whether a private provider or the Government.

Much as I was persuaded by the people citing evidence that it would be a good idea just to keep the process going as it is, having thought about it at more length and remembering that this is one of the things in which I have been involved for many years, it is far better to have a period of consideration during which we work out whether to use the infrastructure without the default opening of a bank account, because that is a bit silly. We cannot just continue the process as it is, because that would just cause a massive problem without any funds from the Government. Do we have both options, one based on the ISA and one based on the infrastructure of child trust funds? The amendments set out the idea that we should just keep things ticking over.

Photo of Sheila Gilmore Sheila Gilmore Labour, Edinburgh East 4:00 pm, 4th November 2010

The hon. Gentleman seems to be suggesting that a period of reflection is necessary to decide which mechanism to use. On that basis, is he suggesting that we should, in fact, accept amendment 26, which would not abolish the entire child trust fund mechanism in January, but would allow it to continue until such time as that period of reflection has gone through and the Minister can put in an order?

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

Within the current law, if lots of empty accounts are opened when pieces of paper have to be sent out each year, there are costs of maintaining the computer systems, the database, postage and so on. It might be very good for the Royal Mail to have lots of pieces of paper floating around the country saying, “You’ve got no money”, but someone has to pay for it. Whoever has to pay for it has a difficulty that comes out of the infrastructure, which is supposed to benefit children, but will not.

We need to put a halt to opening new accounts. To the extent that there is a process of consultation that identifies the best way forward, I will not support the amendments. There might be a very good argument that such a system is the right infrastructure as long as we do not have the empty accounts, but we must stop opening up accounts with no money in them.

Photo of Mark Hoban Mark Hoban The Financial Secretary to the Treasury

It is a pleasure to serve under your chairmanship, Mr Howarth. I will not be quite as lengthy in my remarks as the right hon. Member for Delyn. We might want to leave some issues to a stand part debate, although I am not quite sure what they are after his speech. Let me address the three sub-groups of amendments. The right hon. Gentleman says that he is pragmatic. He first produces a menu of choices for the Committee. I am not sure which one of the three choices he put before us he himself favours. We may see if he presses the amendments to a Division.

Photo of Mark Hoban Mark Hoban The Financial Secretary to the Treasury

The hon. Lady says that it is fairly obvious. I am not sure that it was fairly obvious from the 50-minute speech that we heard.

Photo of Mark Hoban Mark Hoban The Financial Secretary to the Treasury

No. The right hon. Gentleman spoke for so long that we just want to move on to discuss the amendments in substance and deal with some of the issues that have been raised.

Photo of Mark Hoban Mark Hoban The Financial Secretary to the Treasury

If I can start off by dealing with the amendments, I might resolve the hon. Lady’s concern. Let me deal with the first ball that the right hon. Gentleman threw me, amendment 26. It is one of the three pragmatic options and suggests that we defer the date for implementation until the final details of a replacement of the junior ISA are pinned down. My hon. Friend the Member for Birmingham, Yardley made a good point about the cost of simply keeping open, re-opening and opening accounts. We need to draw a line on such matters. It is the case that we have had initial discussions with providers. We issued a further consultation document on the day of Second Reading, but I wish to clarify some issues that have been raised.

The hon. Member for Stretford and Urmston, who is not in Committee, asked whether providers would be interested in a junior ISA. It was clear from those to whom I spoke when meeting stakeholders in July this year that they were indeed interested in providing that. In terms of the appetite that there is in the savings industry, it is clear that people are interested in providing the product. The hon. Member for Makerfield, in an  intervention in the speech of the right hon. Member for Delyn, suggested that people on low incomes do not understand ISAs. She might be interested to know that 12 million people with incomes of less than £20,000 a year have ISAs. It is clear that the ISA is a product. It is a well-recognised brand. People understand exactly what it does and those on low incomes are prepared to save.

Photo of Yvonne Fovargue Yvonne Fovargue Labour, Makerfield

The Minister might be aware of the evidence from Anne Longfield, which I believe he was not in his place for, when she stated, as the chief executive of 4Children, that ISAs were confusing to low-income families. That was not my point; that was the point from Anne Longfield, who stated that there was no need to produce another savings product, and that ISAs were confusing and had no benefit to low-income families.

Photo of Mark Hoban Mark Hoban The Financial Secretary to the Treasury

I cite as evidence—we like to have evidence in these Committees—12 million people on low incomes who do not find ISAs confusing, are quite happy to take them out and who understand them. They are a well-established brand. One in five people on low incomes have ISAs. That is a significant take-up and people do seem to understand them. For families there is a choice: there is a cash ISA and there is an equity ISA. The cash ISA is something that people will understand.

Photo of Kerry McCarthy Kerry McCarthy Shadow Minister (Treasury)

The Minister has just said that one in five people on low incomes have ISAs. Does he have any breakdown of whether they are older people, people with young children, or families and so on? Is there any analysis about the kind of person on a lower income who sets up an ISA account?

Photo of Mark Hoban Mark Hoban The Financial Secretary to the Treasury

I do not have that information to hand, but I suspect that a whole range of people on lower incomes have ISAs, whether they are families or older people. As was said earlier in the evidence session, credit unions will say that people on low incomes are able to put money aside in accounts. I think that people understand the merits of saving. It is not appropriate to argue that that is a socially exclusive product. It is not. It is a very popular vehicle for saving money.

Photo of Mark Hoban Mark Hoban The Financial Secretary to the Treasury

If the hon. Lady would pause just for a moment, I appreciate that that may be difficult to swallow, but people on low incomes do understand ISAs very well.

Photo of Yvonne Fovargue Yvonne Fovargue Labour, Makerfield

Will the Minister tell me which credit unions provide ISAs? I believe that they are precluded from providing ISAs under their rules at the moment.

Photo of Mark Hoban Mark Hoban The Financial Secretary to the Treasury

If the hon. Lady looks back at the record she will see that I did not say ISAs. I said that people with credit union accounts are able to save money and do save money for their future.

The right hon. Member for Delyn quoted Carl Emmerson’s evidence to the Committee, who said that there is an extremely short consultation period. Of course, he then went on to say that one response, once  we get to the stage of introducing these junior ISAs, would be to backdate them. We accept that and think it is right to take that point on board.

Photo of David Hanson David Hanson Shadow Minister (Treasury)

Will the Minister clarify how, where, when and under what mechanism he will ensure that individuals know about that backdating? If my child was born on 4 January 2011, and it is a contribution from the parent, how will I know that the scheme is in place? What is the mechanism, what is the cost and how is he going to do it?

Photo of Mark Hoban Mark Hoban The Financial Secretary to the Treasury

There is a range of mechanisms that we can use to ensure that people are aware of them. If there are a large number of providers interested in providing the accounts, they will market them—they will advertise them. We do not have to go very far through a newspaper’s money supplements on a Saturday or Sunday to find great adverts for ISAs. That shows to me that people who want to promote them will advertise them or make them known. There are other mechanisms we can use, perhaps through the Consumer Financial Education Body and the work that it does with expectant mothers, to remind them about the opportunity to open children’s ISAs, so there is not a shortage of ways to make this known to individuals. I do not believe that there will be a hiatus. There will be the opportunity to continue promoting saving among young people.

Photo of Mark Hoban Mark Hoban The Financial Secretary to the Treasury

I just want to make progress on the concept of amendment 26 and putting off the end date for CTFs. The consequence of that is to continue the lower rate of contribution that we agreed in this place in July, in discussions with CTF providers. My hon. Friend the Member for Birmingham, Yardley touched on that. He commented on the return that people would get for opening a £50 account. I think he said something about 75p.

Photo of Mark Hoban Mark Hoban The Financial Secretary to the Treasury

Yes. Of course, CTF charges are capped. With a £50 contribution, it would not be economically viable for many providers to continue to offer CTFs. All three batches of amendments that the right hon. Gentleman tabled would make the accounts economically unviable for providers. I therefore think that we are taking a reasonable step.

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

I am concerned about people on lower incomes. In the consultation process, will the Minister look as hard as he can to find a mechanism to ensure that one does not need a minimum amount of money to open an account?

Photo of Mark Hoban Mark Hoban The Financial Secretary to the Treasury

My hon. Friend makes an important point. That is something we need to think about when designing the scheme. I am clear that it should be as socially inclusive as possible. We must take into account families on low incomes that might not be able to put away a huge amount.

I do not think that the arguments for deferring the end of the child trust fund are robust. I do not believe that the first batch of amendments is sensible. We need to make progress in saving taxpayers’ money because we inherited a huge deficit.

That brings me to the next batch of amendments, the first of which is amendment 1. These amendments encapsulate Labour party policy, which is, “Let’s just put it off. Let’s just wait for another day. Let’s just wait and see what turns up.” That is a Micawberish approach to economic policy. We recognise that we need to make progress now. That is why we started to reduce the contributions with the statutory instrument in July. The Bill completes that process. This is the right thing to do. We do not want to put off tackling the deficit because, as the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown) said, the cost of doing so would be borne by the poorest in society. We need to make progress now. There has been no suggestion from the Opposition about what the alternative might be. If we prolonged the process, the money would have to be found from somewhere—perhaps through a reduction in the pupil premium, through increased borrowing or through increased taxation. I will not dwell on that.

This decision must be confronted. My hon. Friends in the coalition are very supportive of taking difficult measures now. I therefore do not think that deferring this measure until 2014 would be helpful. That proposal suffers from the same defect as the last: that for the next three years, CTF providers would find it economically unviable to service accounts. It would be wrong for those providers. The third batch of amendments, the first of which is amendment 10, compounds that argument. We need to take tough action to tackle the deficit.

In his wide-ranging opening speech, the right hon. Member for Delyn forgot to mention amendment 19. The Committee ought to consider it. He is an experienced Member of this House and, as he acknowledged earlier, he used to be a Minister. If the Committee passed amendment 19, it would require something that is medically impossible: it would require babies to be born twice. The Bill would state that a child has to be born “before 3rd January 2011” and “after 3 January 2012”. The purpose of the amendment is not clear to me. I will try to be helpful and pass him the ball, as it were, to rescue him from this problem. I think that he might be trying to realise the suggestion of the hon. Members for Stretford and Urmston, for Makerfield and for Bristol East—his fellow shadow Minister—of having a payment holiday, rather than deferring the end date for the CTF. I think that is why the amendment suggests a year’s gap in payments, but perhaps the right hon. Gentleman would like to clarify its purpose.

Photo of David Hanson David Hanson Shadow Minister (Treasury) 4:15 pm, 4th November 2010

If the hon. Gentleman can tell me that every amendment he ever tabled in opposition was perfectly correct then I will take my hat off to him and say well done. I have half a researcher dealing with these issues; the hon. Gentleman has the whole Treasury. The purpose of that amendment was to delay the abolition for a further 12 months, which could have allowed the Minister to have a payments holiday. If it is technically incorrect, the principle is still there. We still think that we should not abolish the scheme and there is a range of options in front of him which he appears to be rejecting.

Photo of Mark Hoban Mark Hoban The Financial Secretary to the Treasury

So we have a fourth option. Either we implement the end of this by statutory instrument or by January 2012, or January 2014 or January 2016. That is a veritable smorgasbord of options and we will be able to make our decisions.

Photo of David Hanson David Hanson Shadow Minister (Treasury)

Let me remind the Minister that my first option is to vote against clause 1, which we believe is the wrong choice. But I am trying to be pragmatic to ensure that we at least give him the chance to reflect on the damage he will do and to look at how we could mitigate that. I will make him an offer. I will withdraw any or all of these amendments if he will look at them, take them to the Treasury officials, work on them and bring back the principle of any or all of them on Report.

Photo of Mark Hoban Mark Hoban The Financial Secretary to the Treasury

The problem is not so much the drafting of the amendments—there is work that we can do to tidy them up, particularly amendment 19—but the principle behind them. We need to tackle the Budget deficit. We are not doing this from dogma. As he will recollect from the excerpt from Hansard that he read out and our lengthy debate on the programme motion on Tuesday, my right hon. Friend the Prime Minister referred to the fact that he and my right hon. Friend the Chancellor served on the Committee that introduced the child trust fund. We are not doing this because we feel there is an ideological need to scrap child trust funds. We are doing it because we need to sort out the mess that we have been left by our predecessors. That is what is driving this Bill—

Photo of Mark Hoban Mark Hoban The Financial Secretary to the Treasury

Let me finish my point. We are trying to tackle those problems and reduce the level of borrowing in this country so that we can keep taxes and interest rates low. That is in the interests of everyone, particularly the poorest in society who are more vulnerable to the ebbs and flows of the economic tide. I will happily give way to the hon. Lady.

Photo of Sheila Gilmore Sheila Gilmore Labour, Edinburgh East

I am still unclear whether the Minister opposes the principle of child trust funds or it is simply because of the financial situation that he wants to abolish them. Some of his hon. Friends indicated in the evidence-taking sittings that ideally they would wish to keep them. On that basis would it not be better to keep the mechanism in place so that when and if the economy recovers in the way that he clearly expects it will, it will be possible to restore this provision, which, apparently, his party considers to be a good thing?

Photo of Mark Hoban Mark Hoban The Financial Secretary to the Treasury

This is the problem. It is all very well to say that we should keep it going for a while but it means that we will have to force providers to open accounts that will not be economic. It means that we will have to keep the system going in HMRC. We have a much better alternative, which is cheaper for the taxpayer, and reflects some of the design features of the CTF that we approve of such as locking up savings until someone is 18 and allowing a range of people to contribute to that product. Those are important matters. It would cost probably about £2 million a year simply to keep the CTF ticking over. I can think of much better ways to spend £2 million in HMRC, such as trying to tackle tax evasion and things like that. I am sure that the hon. Lady would agree with me on that point.

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

Obviously, the Government will keep the accounts that exist at the moment, so a certain amount of the infrastructure will be there. Does the Minister not agree that, whereas it would be fair to  criticise me for being dogmatic about abolishing the child trust fund, it would be very unfair to criticise him, as it was in his manifesto and agreement was reached in the coalition negotiations to get rid of it?

Photo of Mark Hoban Mark Hoban The Financial Secretary to the Treasury

My hon. Friend is being quite kind to me. It is a pragmatic decision that we had to reach given the scale of the challenges that we face. When the Child Trust Funds Bill was debated in the 2001-05 Parliament, his hon. Friends were very principled. They voted against it and they had a view about where that money would be better spent. We are making that decision now. We are recognising that, given the financial situation that we inherited, better ways exist of spending that money, and that it is better to try to tackle the deficit than simply to lock up money until children are 18. It is better to be able to spend the money in ways that will help families now than to wait until their children are 18. That is the challenge that we must acknowledge.

Photo of Fiona Bruce Fiona Bruce Conservative, Congleton

Dr Callan said during the evidence sessions that the scheme disproportionately favours the middle class. If we are making judgments about priorities, we need to consider how we can most benefit those who are most in need and vulnerable. The fund does not do that.

Photo of Mark Hoban Mark Hoban The Financial Secretary to the Treasury

My hon. Friend makes an important point. Returning to the evidence, in 2008-09, 13% of low-income families contributed to a child trust fund, and 30% of better-off families did so. The average contribution of £23 was across all child trust funds held by low-income families, but only 13% of those accounts received any additional contributions. We must take on board the point that my hon. Friend the Member for Birmingham, Yardley has made that there are better ways to spend the money, which will tackle inequality and disadvantage among young people.

Photo of David Hanson David Hanson Shadow Minister (Treasury)

My intervention may be helpful to the hon. Member for Congleton. Perhaps she will consider voting for the next set of amendments, which restricts the child trust fund to the poorest third of society, as per the manifesto on which she stood. If we abolish and do not accept the regulations through the amendments that we are considering, we will not be able to look at those later amendments in the same light. I hope that the Minister will consider how he can target the benefit towards the poorest third of society, which is what the hon. Lady has just indicated that she supports.

Photo of Mark Hoban Mark Hoban The Financial Secretary to the Treasury

I would love to discuss amendments 20, 21 and 22, and perhaps we can move on to them shortly. We still have some time, and it would be good to cover those amendments. I will make my arguments against them at that point.

We need to find ways of helping the disadvantaged. The question is whether it is better in current circumstances to perpetuate the child trust fund or to find a different way of helping the disadvantaged. That is why we stick to the principle of the Bill, which is to scrap the scheme on 3 January 2011. It is not an easy decision for the coalition Government to make, but it is the right decision to tackle the problems that we have. If the right hon. Member for Delyn chooses to press his amendments, I would encourage my hon. Friends to oppose them.

Photo of Sheila Gilmore Sheila Gilmore Labour, Edinburgh East

There is an incoherence in what is being said. On the one hand, the purpose is said to be saving money and paying down the deficit quickly, relying on the fact that that will turn the economy around. On the other hand, there is the question of whether this is a good mechanism for helping poorer families, for asset transfer, and for helping young people to make decisions in their lives at important times.

Either it is a good policy or it is not, and I am hearing very mixed messages. At times, the message is that it would be a good thing to do if we could afford it, but that we cannot afford it at present. At other times the scheme is criticised because it locks money away and makes it unavailable, and it would be better for poorer people if money were available. That would make sense if the Bill stopped the child trust fund and gave an equivalent sum of money to such families now, but that is not the choice before us. The choice before us is to abolish the child trust fund, with effect from January, without putting anything similar in its place. The money will not be spent on poorer families, because the only alternative that is suggested—it is not in the Bill at all, but we have devoted a great deal of time to it—is setting up something called junior ISAs. Junior ISAs are of no assistance in providing an incentive to save to families who do not pay tax. The attraction of ISAs for most people, including those on low pay who appear in the tax bracket, is the tax relief available. For others, there is little attraction other than putting the money into a Post Office account, or any other form of saving. The ISA works for those who pay tax. Some people under 25 undoubtedly pay tax, but many people pay no tax at all.

Photo of Mark Hoban Mark Hoban The Financial Secretary to the Treasury

I appreciate that the hon. Lady is trying to keep things going while the right hon. Member for Delyn is not in his place, but does she not recognise that the provision is partly about attractive vehicles for people to save whether they pay tax or not? ISAs are a well-recognised brand for saving, which is why so many people on lower incomes use them.

Photo of Sheila Gilmore Sheila Gilmore Labour, Edinburgh East

It will be interesting to see how many people who do not qualify for tax relief will use ISAs for saving. I suspect they will be few in number. In my experience, ISAs are attractive because tax relief is available, and I think that is the case with the vast majority of people.

Photo of Kerry McCarthy Kerry McCarthy Shadow Minister (Treasury)

Does that not go back to my earlier point to the Minister that we need more information? If he is to rely on the fact that one in five people on low incomes take out ISAs, we need to know what sort of people they are. Are they former taxpayers who worked, but who are now on lower incomes? Are they older people? Do they have families? If we look at that, we might have an idea of what sort of people will take up junior ISAs. I suspect that it will be people who have used up their £10,600 or so adult ISA and who will see a junior ISA as another way of saving money.

Photo of Sheila Gilmore Sheila Gilmore Labour, Edinburgh East

That is an interesting point. People in those categories will find the ISA the most attractive way of saving. The purpose of the child trust funds was not just to provide an attractive form of saving to people who already could save, but to enable a step  change in relation to asset transfer. A number of people gave evidence to us on that. The scheme is part of the long-term thinking for reducing inequality and improving the future of children, particularly those from the least well-off backgrounds. It needs to be given time to work. The stop-start, turn-the-tap-on, turn-the-tap-off approach to dealing with problems has been particularly harmful to this country’s social policy—all Governments can be criticised for that—and, as a result, we rarely give social programmes time to work to their conclusion. On child trust funds, we would have to wait some considerable time, but there would be merit in enabling us to return to the issue and put more money into them in future.

I am confident that the economy will recover, but there is an issue about exactly when that will happen, given the drastic deficit-reducing measures, which will, in my opinion, increase, not reduce the deficit. Leaving that aside, we all expect that a time will come when the economy will improve. We would then be able to pay money back into provision for a generation of children.

It is interesting to hear people making other proposals for what that money might or might not be used, but that is not what we are being asked to address today. We are not even being asked to address whether the money should go into the pupil premium, as suggested by the Liberal party manifesto. Indeed, I have heard many people suggest that the pupil premium will be financed by reductions in other parts of the education budget rather than the budget that we are considering. We are looking at whether we should retain child trust funds at all, or at least some form of mechanism that would allow them to be reopened, rather than having to reinvent a completely new mechanism at some future point.

Photo of George Howarth George Howarth Labour, Knowsley

You cannot intervene when an hon. Member has sat down, but you can make a speech.

Photo of Claire Perry Claire Perry Conservative, Devizes

Thank you, Mr Howarth. I did not know whether the hon. Lady had finished her speech. Perhaps it is because her constituency is not in England, but I felt that she was—as many of us are—confused by the plethora of initiatives to help the poorest children and families that the previous Government introduced. They were initiatives that, given an unlimited supply of money, which the previous Government believed that they had—[Interruption.] It is interesting that Labour Members tend to groan whenever the notion of the deficit is introduced, indicating that, while in opposition, they continue to think that the deficit is something that came out of the swamp, rather than something that they created, but let us put that to one side as it is not relevant to the Bill.

In an ideal world, the political ambition of throwing lots of money at a wall called “child poverty” and hoping that some of it sticks is a laudable one, which is a nice thing to have to justify in one’s constituency—unlike the current situation that we have inherited. However, when times are tough, all Members should be looking for the highest value-added things that we can possibly do with every scarce tax pact. On both sides of the House, we are committed to early interventions and to helping the most disadvantaged families in society. Even in leafy, rural Devizes, we have our fair share of poverty,  unemployment and families who desperately need Sure Start centres and educational support for the most disadvantaged children.

It is simply a question of what works best. Yesterday, we heard quite interesting evidence, from, for example, the gentleman representing the credit unions, stating that what we need is a step change in lending and financial support for the poorest families. That has not been delivered, despite the best intentions, but we have had some creative thinking about using post offices as a potential channel, which could be extremely helpful in rural constituencies.

Given where we are—none of us came into politics to be in this situation—all Members should be thinking creatively about which pound delivers the most value for our most disadvantaged children and families, rather than putting up a blanket smokescreen of opposition to reducing everything. We had conversations with some of our witnesses whereby we tried to ask them what, if we cannot have everything, the most valuable interventions are. Is it giving our poorest families a nest egg of £50? Even when amortised at today’s relatively low interest rates, that is, frankly, not a huge amount. We should ensure that our poorest families have stable family structures, access to excellent health care early in their lives and a pupil premium that means that they are attracted to schools and that schools will actually want to invest in supporting those families.

We should also ensure that our poorest families have an annual financial health check, because we have heard compelling evidence that it is not simply a question of families not taking up their allocation for their child trust funds because they do not know about it, or it is difficult. In many cases, they are chaotic families for whom the whole concept of saving and investment is completely alien.

One does not solve those problems by throwing money against the wall and hoping that some of it sticks. One solves it by tackling the issues, getting involved, ensuring that those families have far higher levels of support than they have received before and that they are helped into sustainable employment, for example.

One of the other compelling things that we heard from our trio of representatives was on single parenthood and women struggling to bring up families—one of the biggest issues around child poverty. Those are not women who will be accessing such financial products, no matter how much money we throw at them. They can be helped so much more effectively in so many other ways.

I will be happy to vote against the amendments. They are not a particularly effective use of the taxpayer’s pounds. Our coalition agreement has set out far more important ways of effectively tackling child poverty earlier in life. I urge all Members who care about child poverty and about our poorest families to vote against the amendments.

Photo of Yvonne Fovargue Yvonne Fovargue Labour, Makerfield

I support the amendments, but I am slightly confused. The child trust fund money, because it is a voucher that is put into the account, is somehow, as Graeme McAusland said, seen as real money, whereas tax relief on ISAs is also money provided by the Government. I would like to see some examination of how much tax relief on the ISAs would be given to families as well.

Child trust funds are also an encouragement for people to save. I have a lot of experience with low-income families, and financial products are difficult for them to access. The understanding is not there. Banks are seen as an enemy in quite a lot of places; they are somewhere that you put a suit on to go to. The child trust fund has encouraged people to take up a financial product. As I said, 74% of people take it up. I appreciate that that means 26% do not take it up, but 74% means it is a much more successful financial product than any other on the market, including ISAs.

Anne Longfield gave evidence that the poorest people are contributing a higher percentage of their income as a top-up to the child trust fund than the richer families, and that percentage means a lot. We are ingraining a habit. We all accept that people at different times of their lives can save different amounts of money. That percentage means something. Being able to put £2 a week away means a lot more to some families than putting £200 a week away. Delaying this measure in order to look at what we can do for the low-income families would have great value.

At the end of its term, the child trust fund provides an asset. The most compelling argument I heard today was in the evidence from the United States that assets give choices. Having an asset can change behaviour. It gives people choices that they would not otherwise have, and we will be depriving children of choices. Perhaps I should declare an interest as my first grandchild is due in May, and she or he will be one of those lost children who will not be there at the right time for the ISAs and who will lose the child trust fund. Also, the fund means engaging with financial institutions and seeing who can provide savings. We heard the credit unions say that they no longer trust the Government’s processes, because things are removed at short notice, as has happened with the child trust fund. I urge delay. For the families that I see, I do not think that a financial health check would help, frankly. They know that they do not have enough; they know that they are in debt.

Photo of Yvonne Fovargue Yvonne Fovargue Labour, Makerfield

Not at the moment. I have nearly finished.

Families do not want to be reminded that they are in debt. It is known in the CAB as the “behind the clock” syndrome. I believe that the child trust fund encourages people to examine their financial circumstances. I strongly urge delay until we can consider an alternative product.

Photo of David Hanson David Hanson Shadow Minister (Treasury)

I have two options—either to press the amendment to a Division or to withdraw it. Having listened to the debate, I wish to press certain amendments, because I am compelled to consider the written evidence in memorandum SA 02 from Save Child Savings. The respected organisations listed in paragraph 1.2 of that document have given evidence to us today, and they are considering the issue in the round. Save Child Savings alliance states:

“scrapping the CTF infrastructure, as proposed in the Bill, will not only endanger the UK’s savings culture—at this highly challenging point in the economic cycle—but will also result in a lost generation of children” that the Minister has not planned for, before the summer of next year.

We need to examine such things in detail, and I wish to reaffirm, before we press the matter to a vote, that none of the amendments are ideal. Amendments 26, 1 and 10 are ones that, in the real world, we would not wish to table. We wish to retain the integrity of the child trust fund scheme, even at the scaled-down level that the Minister has suggested, following consideration of the amendments in July this year.

In the interests of pragmatism, however, we are trying to salvage something from a difficult situation in which we face, under clause 1, the complete abolition of the fund and the ending of the infrastructure accordingly. With that, I am minded to ask for votes on amendments 26, 1, and 10.

Question put, That the amendment be made.

The Committee proceeded to a Division.

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

On a point of order, Mr Howarth. As we will have several Divisions and we are all in the room, is it possible to shorten the waiting time?

Photo of George Howarth George Howarth Labour, Knowsley

It is possible if I get a signal from both sides.

Photo of Lyn Brown Lyn Brown Opposition Whip (Commons)

No, I am not content, Mr Howarth.

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

I was not talking necessarily about this Division, but about subsequent ones, because the same hon. Members will be voting in each one.

Photo of George Howarth George Howarth Labour, Knowsley

We will come to that later.

The Committee having divided: Ayes 6, Noes 9.

Division number 1 Decision Time — Clause 1

Aye: 6 MPs

No: 9 MPs

Ayes: A-Z by last name

Nos: A-Z by last name

Question accordingly negatived.

Amendment proposed: 1, in clause 1, page 1, line 6, leave out ‘2011’ and insert ‘2014’.—(Mr Hanson.)

Question put, That the amendment be made.

The Committee proceeded to a Division.

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

May I repeat my point of order, Mr Howarth?

The Committee having divided: Ayes 6, Noes 9.

Division number 2 Decision Time — Clause 1

Aye: 6 MPs

No: 9 MPs

Ayes: A-Z by last name

Nos: A-Z by last name

Question accordingly negatived.

Amendment proposed: 10, in clause 1, page 1, line 6, leave out ‘2011’ and insert ‘2016’.—(Mr Hanson.)

Question put, That the amendment be made.

The Committee divided: Ayes 6, Noes 9.

Division number 3 Decision Time — Clause 1

Aye: 6 MPs

No: 9 MPs

Ayes: A-Z by last name

Nos: A-Z by last name

Question accordingly negatived.

Ordered, That further consideration be now adjourned. —(Mr Goodwill.)

Adjourned till Tuesday 9 November at half-past Ten o’clock.