| Child Trust Funds Bill
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Mr. George Osborne: I beg to move amendment No. 179, in
'(2A) Regulations under subsection (2) may prescribe a supplementary contribution of nil.'.
The Chairman: With this it will be convenient to discuss amendment No. 125, in
Mr. Osborne: I shall deal first with amendment No. 125, which is the less important of the two and would omit subsection (5)(b). The clause establishes the eligibility for the supplementary contribution, which will be linked to receipt of child tax credit. That is spelt out in subsection (5)(a) which states that the condition is
I do not understand the point of the second condition and amendment No. 125 is a probing amendment. The second condition seems to be that the household does not exceed the income threshold for child tax credit, or that a member of the household was receiving either income support or income-based jobseeker's allowance. Perhaps the Minister could explain why that is necessary; perhaps I am missing something obvious. If the household income does not exceed the income threshold for child tax credit, surely the household is in receipt of that benefit, thus satisfying the condition in subsection 5(a). Amendment No. 179 is more fundamental. Although I do not propose to press it to a vote, I tabled it in an attempt to debate means-testing and the means-tested supplementary contribution. My amendment says that the supplementary contribution could be zero. The Minister boasts that one of the Column Number: 139 great virtues of child trust funds is that this is both a universal and progressive policy. She calls it progressive universalism, which will definitely go in my lexicon of new Labour phrases.Mr. Love: It is good, isn't it? Mr. Osborne: Yes. It could go the other way round and become universal progressivism. Whatever it means, it is contradictory and we have a means-tested welfare benefit. The advantages of a means-tested supplementary contribution are obvious—no doubt the Minister will put those with greater force and passion than I. A strong argument could be made for directing a little bit extra into the child trust funds of the third of children from the poorer families who are receiving child tax credit. That sum is £250 at birth, and perhaps an extra £50 at seven years old. We debated that earlier. However, even on the Government's estimates, that supplement will not add up to a huge amount over the course of a child trust fund. It is clear, if one considers table 3.1 of the White Paper, that better-off children receiving a £250 initial contribution will have £456 at the end of their 18 years, whereas after the same period, with the £500 supplementary contribution, a child will have £911. There is a £455 difference. I am not saying that that is not a tidy sum of money, but it is likely to be completely swamped by the difference between accounts where parents and relatives have contributed to the funds and those where they have not. Even if a relative or a family is putting £10 a month in a child trust fund, it will be worth £3,941, which is far more than the £456 or the £911. Indeed, if parents contribute the maximum amount, which many will, the child will have £35,000 when they are 18. The supplementary contribution will not make a huge difference or level the playing field. As I argued on Second Reading, that is likely to mean that this measure will increase wealth inequality in our society. Although I do not have a philosophical objection to that, perhaps many Labour MPs do. They should be under no illusion: as a result of this policy, children from better-off families will have much larger sums at 18 than those from less well-off families. The means-tested supplementary contribution would have to be much greater than £250 to overcome that. Mr. Laws: Did the hon. Gentleman say that he has no objection to Government policies that increase the inequality of wealth in society? Mr. Osborne: Yes; nor have the Government, otherwise they would not have introduced them. In return for the questionable benefits of the supplementary contribution, there are all the disadvantages of means-testing, which are familiar to everyone. First, there are the anomalies. The child from a family whose income is £13,230 receives the voucher for £250, whereas the child from a family with an income of £13,231—£1 above the child tax credit—receives zero. Such anomalies are inherent in means-testing. This is not a means-tested benefit with a taper of any kind, but a straightforward policy with a single cut-off point. There is the confusion and intrusion that arise from the means-testing web, which again we are Column Number: 140 all familiar with as constituency MPs. Indeed, there are added complications, because, according to the Treasury document, the supplementary contribution will be paid only when someone's child tax credit award is finalised at the end of the tax year in which the child is born. I would argue that it is an intrinsic problem with tax credits, but it is certainly an intrinsic problem with linking the award to a tax credit.
4.30 pmThe Treasury document makes it clear that
In other words, if a child is born on 7 April, the parents will have to wait for up to a year for the supplementary contribution and, I assume, will lose the interest that they could have earned on that contribution over the year. The Minister said in an earlier debate that a month was quite important in the scheme of this policy; yet this device will deprive people of the benefits of a supplementary contribution for up to a year. I wonder whether table 3.1 takes that into account and whether the £911 is over 18 years or over 17 years, as it may be in some cases. Then there is the philosophical objection to means-testing, which I shall not explore at great length. Nevertheless, we shall be exposing a third of children to means-testing at birth and telling them that they are poorer than the two-thirds of children who do not receive the supplementary contribution. In case Labour Members think that that is a Tory point, it was a point made to me by the Child Poverty Action Group and other parts of the poverty lobby. They said that when child trust funds are discussed in classrooms everyone will see whose parents are rich and whose are poor, whose parents got the supplementary contribution and whose did not, whose parents are making additional contributions into their child trust fund and whose are not. Certainly the CPAG was concerned that child trust funds could add to the stigma of poverty, and means-testing makes that worse, for limited financial gains. A back-of-the-envelope sum says that if all children got an equal sum of money—in other words, if there was no supplementary contribution—and the pot of money stayed the same, every child would get a voucher for above £333. Therefore, the supplementary payout that we are talking about is not £250 but £166 more than if there was no supplementary contribution, so it is even less of a benefit than we are led to believe. The point of the amendment is to question whether a means-tested society that will now literally extend from cradle to grave is a price worth paying for an extra payment of £166. Ruth Kelly: The hon. Gentleman made a number of points in his contribution, some of which—dare I say it?—argue contradictory cases. First, he argues that the additional endowment to poorer children will not Column Number: 141 be sufficient to make up for a lack of parental contribution. On the other hand, he argues that it is not right to give them the additional contribution, because the children could be stigmatised as a result. Let me break it down into the different segments.Mr. Osborne: Before the Minister attempts to deconstruct my argument, I should tell her that it entirely follows. Given that it is a limited benefit, the Government are paying a high price for it because of the stigma associated with means-testing. If the means-tested supplement were much larger, the Government would have a stronger case. Ruth Kelly: Obviously the hon. Gentleman will have to wait and see what the level of supplementary contributions is in due course, but we have already said that the endowments at the age of seven will be means-tested. It falls to me to say that I have discovered the table to which I believe my friend Gavin Kelly was referring when he spoke at the seminar that the hon. Member for Tatton is so keen on quoting. There is a table in the document entitled ''Savings and Assets for All'' that demonstrates the impact of a £250 endowment and a £500 endowment at birth, plus supplementary top-ups of £50 and £100 over the course of the development of that policy. If the hon. Gentleman so wishes, I can provide him with the page references, and I am sure that he will be able to find it during the course of my contribution. In response to the hon. Gentleman's argument that somehow the endowment will be swamped by additional parental contributions, I have never suggested that there would not be some parents who chose to put in a full £1,200 a year contribution on behalf of their children; but I would argue that the majority of parents would not do so. That is because there are already very significant tax breaks in the system that are there for children. Parents can gift children money, and provided that the income is not greater than £100 a year, they will not be taxed. There are tax breaks among ISAs and in other areas, and there is no evidence that parents are systematically knocking up against the limits of those tax-advantage vehicles on behalf of their children. There is no reason to suspect that a large proportion of parents will take advantage of the £1,200 tax advantage in the child trust fund to make maximum contributions on their children's behalf. Of course, a small minority of parents might choose to do so.
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