Child Trust Funds Bill

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Mr. Laws: I understand why the hon. Gentleman raises this issue, but he does not propose that the Government should contribute to the accounts of children born before the date that they have set, and the tax advantages of the child trust fund are pretty marginal for most people compared with existing savings reliefs. Therefore, is the only advantage that he is really offering parents who would take advantage of his proposals a tax-advantaged account that has some handcuffs, if I can put it that way, in that the money is kept in it for 18 years? Otherwise, they could presumably exploit other means of tax-advantaged saving.

Mr. Osborne: There are other savings vehicles on the market. That issue has been raised in discussion of child trust funds, but the truth is that many parents do not use those savings vehicles, for whatever reason. I think it quite likely that parents in my situation—with one child or more who qualify and one child or more who do not—will want to open accounts for the older children. My proposal would be time-limited. After 12 or 13 years or so, it would be redundant anyway, because everyone will have child trust funds. People will not need to be able to open child trust funds for older children, because they will already have them.

The Government's stated objective, as the Minister repeated on Second Reading, is to encourage

''children and their parents to save for the future.''—[Official Report, 15 December 2003; Vol. 415, c. 1337.]

I am merely asking why we should restrict the benefits of child trust funds to newborn babies.

Mr. Laws: I still have not heard a clear explanation of what the hon. Gentleman would gain as a parent from having the option to put money into a child trust fund for a child who is not covered by the Government's proposals, compared with using another form of tax-advantaged saving. Is he merely saying that the risk is that parents will be irrational in not understanding the other savings options open to them, so the Government should provide accounts for irrational parents to encourage them to make equal provision?

Mr. Osborne: I do not want to disappoint the hon. Gentleman, but many people are irrational in life.

James Purnell (Stalybridge and Hyde) (Lab): The Tory party.

Mr. Osborne: The hon. Gentleman mentions the Tory party, but I shall come on to a list of Labour people. [Interruption.] One Labour Member who is about to intervene supported this proposal on Second Reading.

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Mr. Michael Jabez Foster (Hastings and Rye) (Lab): Does not one advantage relate to charges? The charge for the child trust fund will probably be limited to 1 per cent., whereas many of the schemes currently available rob children of 3, 4 or even 5 per cent. of their savings simply to set up those expensive options. The child trust fund will be a better alternative.

Mr. Osborne: The hon. Gentleman makes a good point. I do not necessarily support the 1 per cent. charge, but I certainly do not support charges as high as 3, 4 or 5 per cent. We shall discuss the charge cap later. My proposal is about simplicity. I would be able to say to my children that they both had child trust funds—which would mature at the age of 18—and, indeed, the tax-free savings that would accrue as a result.

Mr. Michael Weir (Angus) (SNP): Is there not a potential problem here? I am sure that the hon. Gentleman has already made provision for his elder child, as most of us whose children will not qualify for the bonds probably have. Is he not in difficulty with his promise that those who would benefit from child trust funds by receiving the initial Government input are those on lower incomes? Under his proposal, they would not get such an input for older children. I fail to see how that would benefit any older children.

10.15 am

Mr. Osborne: Of course, in an ideal world, if we had vast sums of money at our disposal, we could provide initial contributions in the form of Government vouchers to children of all ages. I am, frankly, realistic; I know that that is not feasible, as the money is just not available. I am merely suggesting that many of the other benefits of the child trust funds scheme—benefits that go beyond the initial voucher—can be offered to parents with older children. I am in good company here, because the Treasury Sub-Committee's excellent report on child trust funds—to which a Liberal Democrat member of the Committee signed up—concluded:

''We consider that the natural reaction of parents with children born on either side of the cut-off date will be to try to see that they are treated equally. This may mean that those parents with sufficient financial resources will make additional provision for children who do not qualify for a child trust fund account. We believe they would be encouraged to do this if child trust fund accounts, identical in all respects save the absence of a Government endowment, were available for their other children. In the light of the evidence of the cost to the Treasury of the extra tax relief afforded by child trust funds is negligible, we recommend that consideration be given to extending the availability of child trust fund accounts but without Government endowments, to children born before 1 September 2002.''

The amendments seek to implement the recommendations of the Treasury Sub-Committee, to which Conservative and Liberal Democrat Members signed up.

Dr. Turner: I thank the hon. Gentleman for his patience in giving way so often. I am puzzled by the spat between Conservative and Liberal Democrat members of the Committee. As an outsider to it, it seems that the Conservatives are adopting the mildly

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generous view that is more traditionally associated with the Liberal Democrat party, and the Liberal Democrats are adopting the more traditionally Conservative Gradgrind meanness. Can the hon. Gentleman explain that?

Mr. Osborne: Yes, I can. We have worked out how to get out of Opposition into Government.

Mr. Laws: I do not want the hon. Gentleman to misrepresent the Committee's views in any way. He will be aware that the responsibility of Select Committees is to try to come to a majority view, even when their members may have slightly different emphases on particular points. If he finds that surprising, I refer him to the comment made by one of the Committee's Conservative members, the hon. Member for Bury St. Edmunds (Mr. Ruffley), who referred to child trust funds as

''a quarter of a billion PR stunt''.

That seems to collide with the views that the hon. Gentleman has expressed on behalf of the Conservative party.

Mr. Osborne: My hon. Friend the Member for Bury St. Edmunds is a good friend of the Minister—they had some good, lively discussions in the Committee—and believes that the proposal is a bit of a gimmick, but he still supports it. He suspects that the timing of the introduction of the vouchers, just before the general election, makes them a bit of a gimmick. However, he supports the principle behind child trust funds, which is to encourage savings. He did not vote against the proposal, unlike the Liberal Democrat Member who, strangely, signed up to the report, but then went into the Opposition Lobby to vote against the measure on Second Reading.

Mr. Laws: Will the hon. Gentleman give way?

The Chairman: Order. We are moving slightly off the point of the amendment. I will take the intervention, and then ask hon. Members to return to the amendment.

Mr. Laws: I am grateful for your guidance, Mr. Benton. I am sure that you are quite right to warn us of the dangers of moving away from the amendment. The hon. Member for Tatton sought to claim, on the basis of the Select Committee report, that there was agreement on all points. Does he really believe that the hon. Member for Bury St. Edmunds supports the proposals after he described them as a £250 million PR stunt?

Mr. Osborne: Well, he can support a PR stunt. However, taking into account your advice Mr. Benton, I will bring my remarks back to the amendment and pray in aid other authoritative sources, for example the report from the Treasury Sub-Committee. As well as that, the Chairman of the Treasury Committee, the hon. Member for Dumbarton (Mr. McFall), urged the Minister on Second Reading to

''keep open the opportunity to open a child trust fund for children born before 1 September 2002.''

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He said that the Government

''should not give endowments, but offer the same tax breaks for such sums.''

He reminded the Minister that she told the Committee that

''extra tax relief afforded by the child trust fund is negligible'' —[Official Report, 15 December 2003; Vol. 415, c. 1357.]

and he urged the Financial Secretary to consider the measure.

The hon. Member for Hastings and Rye (Mr. Foster) will remember that, on Second Reading, he also urged the Financial Secretary to open the scheme up to other children. He said:

''The Financial Secretary said in her opening remarks that the scheme is for all children, but it is not for all children if 80 or 90 per cent. will not be included... Extending the scheme to all would be a popular choice; it would also be an important one''.—[Official Report, 15 December 2003; Vol. 415, c. 1369.]

He went on to set out the reasons for that, and he will perhaps speak later in this debate.

There is support for the measure from all parts of the House and from the Treasury Committee. It is difficult to understand why the Financial Secretary refuses to accept that. It cannot be an issue of cost, because she told the Treasury Committee under cross-examination, to which I have already alluded, that the cost of extra tax relief would be negligible. Therefore, the cost is not what is holding the Government back. It seems that the Financial Secretary is concerned about the financial providers' ability to deliver child trust funds to more children. On Second Reading, she said that she was

''disappointed to tell the House that the administrative burden on providers of allowing all children from previous cohorts to benefit from an identical tax-free vehicle is disproportionate to the benefits that would be offered. Providers would have to monitor and track the accounts of all children. We would require returns on all accounts, and the Inland Revenue would need much larger IT systems.''

The hon. Member for Hastings and Rye intervened and said

''Is that not a problem anyway? As time goes on, greater numbers will apply, so in 18 years' time people would have to deal with that volume of applications in any event.''—[Official Report, 15 December 2003; Vol. 415, c. 1394.]

The financial providers that are likely to offer the products have universally said that they want to do so. They believe that they will be able to market the products better to parents if they can say, ''You can have them for all your children, not just those that received the initial voucher and have a plum set up anyway.'' The Association of British Insurers told the Treasury Committee that it considers that

''a strong case can be made for extending the Child Trust Fund regime so that parents could open a Child Trust Fund account in their child's name even if they did not receive Government money''.

That is an example of a representative body saying that its members are more than up to delivering the product and do not share the Financial Secretary's concerns about their ability.

In response to the Financial Secretary's comments on Second Reading, the chief executive of Children's Mutual, in a note to the Committee, stated:

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''We urge the standing committee to ensure the regulations are brought in to allow the children born before the 31st August 2002 to benefit from tax-free savings. The Minister in her remarks in the 2nd Reading argued that one reason for not extending the CTF to ineligible children is that it would impose a burden on providers. We would be happy to work with the Government on how any administrative burdens could be overcome, something we believe to be possible.''

Thus the industry is also saying that it is up to offering older children the benefits of child trust funds, of which the Minister has frequently spoken. The Opposition are proposing it, the financial sector is saying that it can do it, the Labour Members who spoke on Second Reading propose it, and the Treasury Sub-Committee, which has a Labour majority, called for it. I cannot understand why the Financial Secretary does not want to spread the savings culture, and the virtues that savings bring, to older children.

Finally, amendment No. 104, which was also signed by the hon. Member for Yeovil, would remove the extraordinary subsection (7), which I had to reread several times to make sure that I had not misunderstood it. As members of the Committee, who will have done their homework, know, clause 2 clearly specifies that the measure applies to children born after 31 August 2002. It is about the only hard fact in the Bill, because most of its important features are left to regulation, which we have not yet seen. Subsection (7) states:

''Regulations may amend subsection (1) by substituting for the reference to 31st August 2002 a reference to an earlier date.''

So, the Minister has provided herself with a subsection that allows her to extend the benefits of child trust funds to children born before 31 August 2002. I should be happy not to press my amendment if the Minister can assure me that she will use the get-out clause in subsection (7) to extend the benefits of child trust funds to children born before that date.

 

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Prepared 6 January 2004