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Standing Committee A
Tuesday 6 January 2004
(Afternoon)
Mr. David Amess
Clause 2
Eligible children
Amendment moved [this day]: No. 6, in
clause 2, page 2, line 4, leave out subsections (3) and (4).—[Mr. Osborne.]
2.30 pm
Question again proposed, That the amendment be made.
The Chairman: I remind the Committee that with this we are discussing the following:
Amendment No. 7, in
clause 2, page 2, line 10, leave out subsection (5).
Amendment No. 163, in
clause 2, page 2, line 18, at end insert—
'(5A) A child is also an ''eligible child'' if he is—
(i) a child for whom a parent gains entitlement to child benefit in respect of the child at any time before the child's eighteenth birthday; or
(ii) a child whose parents were not previously entitled to claim child benefit, who is subsequently taken into the care of a local authority.'.
The Financial Secretary to the Treasury (Ruth Kelly): May I start by saying what a pleasure it is to welcome you to the Chair, Mr. Amess? I look forward very much to working with you as you steer our proceedings during the next few weeks.
It falls to me now to deal with amendments Nos. 7 and 163. The hon. Member for Angus (Mr. Weir) asked whether children whose parents have successfully claimed asylum in the United Kingdom will be eligible to the child trust fund. I assure him that such children will be eligible, and I wish to clarify the position of people seeking asylum. While an application for asylum is being considered, there is no entitlement to claim benefit, including child benefit. Children of parents in that position will not be eligible for the child trust fund.
However, when permission to remain definitely in the United Kingdom has been granted, people are entitled to claim benefits in the same way as British citizens. Parents who previously claimed asylum will be entitled to claim child benefit for their children, and those children will become eligible for the child trust fund, subject to other conditions being met such as the child being of the appropriate age. I trust that the hon. Gentleman is satisfied on that point. On the basis of my comments, I ask him and the hon. Member for Tatton (Mr. Osborne) not to press their amendments.
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Mr. Michael Weir (Angus) (SNP): The Minister did not deal with the second part of my question, which was about children who may be taken into care under the asylum legislation that is currently going through the House. Does she have any comments to make on that?
Ruth Kelly: Yes. When children have been granted indefinite leave, they are entitled to other benefits according to the same criteria as other families. As soon as they are settled permanently in the United Kingdom, they will be entitled to the child trust fund. If an unaccompanied child had not been granted that status and was refused asylum, the child would be removed only if appropriate reception and care arrangements existed in the country to which he or she was to be removed. However, if the child were granted asylum, he or she would be eligible for the child trust fund as would other children in care.
Mr. Weir: I am sorry to press the Minister on the matter, but I do not understand her argument. She is referring to the position when a child is granted asylum. There could be a situation in which parents who are in danger of being, or who have been, refused asylum, disappear and the child is taken into local authority care. Would that child be permanently resident in the country and entitled to the child trust fund or would the child be in danger of being deported and, thus, not eligible for the fund?
Ruth Kelly: An argument about the possibility of deportation threatens to go outside the scope of the hon. Gentleman's amendment. When children are granted asylum, they will become entitled to the child trust fund. If they are refused asylum, their claims will not stand. On that basis, I ask the hon. Gentlemen not to press their amendments.
Mr. Weir: I shall press for a vote on the amendment in my name. I am not satisfied that the Minister has given me a clear answer.
Mr. George Osborne (Tatton) (Con): I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Amendment proposed: No. 163, in
clause 2, page 2, line 18, at end insert—
'(5A) A child is also an ''eligible child'' if he is—
(i) a child for whom a parent gains entitlement to child benefit in respect of the child at any time before the child's eighteenth birthday; or
(ii) a child whose parents were not previously entitled to claim child benefit, who is subsequently taken into the care of a local authority.'.—[Mr. Weir.]
Question put, That the amendment be made:—
The Committee divided: Ayes 1, Noes 12.
Division No. 1]
AYES
Weir, Mr. Michael
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NOES
Barnes, Mr. Harry
Coleman, Mr. Iain
Cruddas, Jon
Dawson, Mr. Hilton
Efford, Clive
Fitzpatrick, Jim
Foster, Mr. Michael Jabez
Kelly, Ruth
Laws, Mr. David
Love, Mr. Andrew
Perham, Linda
Purnell, James
Question accordingly negatived.
Clause 2 ordered to stand part of the Bill.
Clause 3
Requirements to be satisfied
Mr. Osborne: I beg to move amendment No. 9, in
clause 3, page 2, line 31, at end insert—
'(1A) Regulations under subsection (1) may not impose a requirement that the charge levied by the account provider must be set at less than 1.5 per cent. of the total value of the relevant funds under management by the account provider, divided by the number of child trust funds held with the account provider.'.
I should like to welcome you to the Committee, Mr. Amess—[Interruption.]
Normally, hon. Members try to get out of Committees, not into them. The hon. Gentleman is a keen Treasury Minister who wants to check up on his colleague.
Amendment No. 9 is about the charge cap, which is one of the most important unresolved issues in the Bill. I propose that the regulations may not impose a requirement that the charge levied by the account provider must be set at less than 1.5 per cent., and later I shall say why I chose that figure. This element of the Bill is crucial. Many financial providers argue that the level of the charge cap will be fundamental to the success of child trust funds. Does the policy encourage lower-income families who do not currently save for their children to do so? That will be the test of whether child trust funds really work.
I know that the Minister has set out various objectives for this policy—we debated them on Second Reading—among which are encouraging savings, building assets, and helping people to understand the benefits of savings and make better financial choices. Those are laudable objectives, but I suggest that the last three are dependent on the first. If the proposal does not get people saving, they will not understand the benefits of it, they will not build a substantial asset, and they will not be able to make the better financial choices that we all want to see.
Regardless of how the Minister will judge whether the policy is successful, it is clear to members of the Committee and the wider world—or at least those who are remotely interested—that child trust funds will
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succeed only if it is clear that lower-income families who do not currently save are using them as a vehicle for saving and building up assets of their own.
Mr. Andrew Love (Edmonton) (Lab/Co-op): I am intrigued by the fact that the hon. Gentleman's amendment contains a minimum for the charge cap but not a cap on the maximum that may be charged.
Mr. Osborne: The hon. Gentleman makes a fair point, but that is the job of the Government. I am trying to establish what figure they will set as the minimum. The amendment is intended to tease out of them information that the Committee should, but does not, already have.
It is important that people understand that it is not enough simply to set up child trust funds for everybody, give them a voucher and hope for the best. If the policy is going to work, financial institutions must encourage people, market the idea to them and coax them. Sadly, people in our society do not wake up on a Sunday morning and think, ''It is time to start saving, for my children or for myself.'' The fall in the savings ratio over recent years is proof of that. With trust funds, we are particularly targeting lower-income families, many of whom will never have saved before.
Financial providers, who we hope will take up this policy, have never targeted their marketing at lower-income families, and they will need to make a double effort. As I am sure the Minister accepts, the blunt truth is that financial institutions will do that only if they can make money from it. They are not in this business because they are charities, and they will make an effort to encourage people to save, and to reach out to lower-income families who do currently save, only if they feel that they will get a financial return. All that depends on the level of the charge cap and on the related issue of the sales regime that will accompany this product.
The charge cap will be set by the Government, and frankly it is incredible that, as we debate the Bill in Committee, we do not know what it will be. I remind the Minister of what the Treasury Committee said in its report:
''The Child Trust Fund Bill was introduced into the House without the relevant regulations covering important aspects including the proposed sales regime. We consider that these must be produced in time for the standing committee to consider them thoroughly.''
The Treasury Committee felt strongly last month that the Government should announce, as soon as possible, the relevant sales regime and the charge cap so that the Standing Committee could take that information into account during our debates. However, we have not received that information from the Government. This is all the worse because, as we said on Second Reading, we were promised this information by the end of last year.
The Financial Secretary is shaking her head, but she needs to read her own White Paper, published in October. [Interruption] Now she says ''Ah, yes, the White Paper. Heaven forbid that we are held accountable for what we put down in White Papers.'' However, it says:
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''The Government will issue a report detailing the charge cap for the CTF (including specifying whether a charge cap will apply to non-stakeholder CTF accounts) and other products in the Sandler suite later this year.''
In that context, ''later this year'' means 2003, not 2004.
When I pressed the Minister on Second Reading, she eventually responded:
''When we made those comments the Financial Services Authority told us that it would be ready to make an announcement about the appropriate sales regime in December, although it now appears that that date has slipped to the new year. However, to benefit the Bill's parliamentary passage and to ensure the Parliament is kept fully informed, I intend to make the announcement on the charge cap for the child trust fund during the passage of the Bill. It is important''—
she said without a hint of irony—
''that Parliament is kept fully informed.''—[Official Report, 15 December 2003; Vol. 415, c. 1394.]
This is the only debate on the charge cap that we will have, even without the details. I would like the Minister to tell us in her reply when she expects to make an announcement on the charge cap. Perhaps she will make it now; we wait in anticipation. Certainly I would welcome her assurance that it will be announced by the time the Bill passes through the House of Commons. I suspect that, when she said that the announcement would be made during the Bill's passage through Parliament, that was a get-out clause, intended to include the time that the Bill would spend in the House of Lords. However, if the Minister intends to make her announcement during the Bill's passage through this House, I must point out that we have only a couple of weeks left to discuss it in committee. After that, I suspect that the Government business managers will ensure that the Report stage comes along, and we will dispense with the Bill on Third Reading—assuming that the Liberal Democrats do not vote it down at that point.
There is a strong indication from the Government that the charge cap will be set at 1 per cent. In the White Paper, they say that there is
''a high threshold of persuasion for any move from a 1 per cent. charge cap''.
The Government do not want to be seen to be retreating from the 1 per cent. commitment that they made when they quickly responded to the Sandler report.
Those of us who completed A-level maths will understand that a 1 per cent. cap means that on a child trust fund worth £250, the financial provider will be able to charge just £2.50 per year, and on a £500 fund, the charge will be just £5. Out of that, the provider will have funds the costs of setting up an account, taking the customer through the sales process, storing the voucher, administering the account, dealing with any inquiries that the customer might have, on the telephone and so on, and sending the customer an annual statement. All that is set out in the Bill. On top of that, there are the costs of designing and selling the product.
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2.45 pm
I am sure that the Financial Secretary is aware that the result is that many financial providers say that they will simply not bother selling child trust funds or, if they do, they will focus all their marketing efforts on better-off families who are more likely to make contributions to the fund rather than on the more expensive and less lucrative—as far as they are concerned—marketing to lower-income families. That is the view of the Association of British Insurers, the Association of Friendly Societies, the PEP and ISA Managers Association, the Building Societies Association and the British Bankers Association.
That is also the view of Norwich Union, the biggest long-term savings provider in the country. It got its fingers a bit burnt over stakeholder pensions, for which the charge cap was set at 1 per cent. The result of that is that almost all stakeholder pensions are now sold to people who are already making pension provision for their retirement. Norwich Union has publicly stated that if the charge cap for this product is set at 1 per cent. it will not bother to sell it.
There are also the views of other companies, such as Children's Mutual. I have met its chief executive; it is worth hearing what he has to say. Children's Mutual is enormously enthusiastic about child trust funds. It would like to claim that it was in at the beginning of designing the whole thing, and it specialises in selling products to parents on behalf of their children. When its chief executive was asked about the matter by the Chairman of the Treasury Committee, the hon. Member for Dumbarton (Mr. McFall), he said:
''If the charge cap on the Child Trust Funds were reduced as low as 1 per cent . . . I am not sure, in our view, that there would be any providers in the market at all. I think the danger would be, at best, that you would force people to cherry pick at the rich end of the market . . . and the lower income groups would be left out.''
That is the danger of low price caps. The chief executive of Children's Mutual is the most enthusiastic person I have met when it comes to child trust funds, and he makes his case very clearly.
The industry is reluctant to set out the figure that it wants but, reading between the lines, it is clear that it is calling for a price cap of about 2 per cent. I suspected that the industry was asking for more than it was going to get, so I decided to split the difference between its figure and the 1 per cent. referred to by the Government, and to table an amendment that fixes the price cap at 1.5 per cent. It is not terribly scientific.
If the amendment is agreed to today—I am ever an optimist—we will end the uncertainty that surrounds the mystery of what the price cap will be. That will allow the financial providers to get on with designing the products and systems, which will reduce the risk, referred to by the Minister, that child trust funds will not be ready in time. It will also increase the chances that financial providers will market their products at low-income families, which we all want to happen, and it will make it much more likely that child trust funds will encourage people to save. I therefore urge the Minister to agree to my amendment, or to say that she will do the same thing by regulation.
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