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Mr. Osborne: The hon. Gentleman has hit on an important point. It is part of a broader theme, which we will discuss in other sittings, about the interaction of the benefit system and contribution to and gains from child trust funds.
I do not want to add much to what the hon. Gentleman said, except to say that he did not do full justice to Mr. Holgate's evidence to the Treasury Committee. There was a brilliant series of exchanges between Members of the Committee and Mr. Holgate, the director of welfare reform and the brains behind the child trust funds, which were very revealing. The hon. Member for Newcastle upon Tyne, Central said:
''So if some very well-meaning grandma puts money into this Child Trust Fund for their grandchild, could they put themselves in a position of depriving themselves of capital?''
Mr. Holgate replied:
''That is a very good question. I am conscious of parliamentary questions and answers going on at the moment with various, as it were, permutations on the theme. I think, yes, that is a possibility.''
My hon. Friend the Member for Bury St. Edmunds (Mr. Ruffley) then asked in his punchy style:
''After two years, with some of the greatest minds in HM Treasury and the Revenue, you have not come up with a solution? It is pretty pathetic, is it not?''
Mr. Holgate responded:
''No, because the Committee has not yet seen the Bill''.
Obviously, he was looking forward to these sittings. He continued:
''Parliament has not yet discussed the Bill''.
My hon. Friend then said:
''This is a flaw at the heart of the structure.''
To which Mr. Holgate replied:
''It is a flaw at the heart of the structure only if it is still there in 18 years' time. I think that you have to wait and see what ministers say when it comes to a later point in your deliberations.''
Finally, the hon. Member for Wallasey (Angela Eagle) asked a tough question. When she does that, we know that there is a real problem. She said:
''You might admit at least that there are some issues of concern round the interaction between these old benefit rules and the more innovative systems being brought forward to deal, for example, with wealth allocation.''
Mr. Holgate said:
''Yes, we are alive to that.''
Mr. Holgate was all over the place when he gave evidence. He looked forward to this sitting, and suggested that the Minister might have some answers to the points raised by the hon. Member for Yeovil. I look forward to hearing them.
Ruth Kelly: The hon. Member for Yeovil makes an interesting point about capital deprivation rules, and wants clarification and complete certainty that no grandma, no matter what her circumstances, will fall
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foul of the DWP rules on anti-abuse if she makes a contribution, whatever the size, to a child trust fund. I cannot give the Committee that certainty, because of course the DWP have anti-abuse measures in place to ensure that people to do not unreasonably get rid of their capital solely in order to increase the amount of benefit to which they are entitled. There is a necessary element of discretion in the system to stop such abuse. Under the pension credit system, a grandma in the situation that the hon. Gentleman describes would have to have income close to or greater than the £6,000 threshold to be in that position, because the first £6,000 is disregarded. Only 13 to 14 per cent. of pension credit recipients have capital above the £6,000 limit, so families on lower incomes whom he seems so keen to ensure benefit from this excellent policy are unlikely to do so.
We, too, are concerned that lower-income families should have the opportunity to benefit. The Inland Revenue assures me that the capital deprivation rules will be applied in a fair and consistent manner to the child trust fund, as they are to all payments relating to possible proceedings under deprivation of capital. It would be completely reasonable to assume that it is unlikely that modest contributions to a child trust fund would be treated as a deprivation of capital. With that on the record, I hope that the hon. Gentleman will withdraw the amendment.
11.15 am
Mr. Laws: I am rather disappointed that the Minister has not gone further in offering clarification. We are shortly to debate some of the steps that the Government have taken to offer protection for those on high incomes, who will be paying thousands of pounds into child trust fund accounts. The Government specifically disallowed some of the tax-avoidance legislation that would prevent such people from exploiting tax loopholes. Here, we are considering a situation to which one would have expected a Labour Minister to be much more sympathetic. People on quite low incomes—the Minister cited £6,000 in savings as though it were an extraordinary amount, whereas it is very little for somebody at any stage of life—will end up subject to the judgment of the fraud department of the Department for Work and Pensions on whether their contributions to a child trust fund account constitute deprivation of capital.
We know that under the present pension credit rules that would be likely to be regarded as deprivation of capital; that was the exchange that the Financial Secretary had with the hon. Member for Newcastle upon Tyne, Central. I am grateful to the hon. Member for Tatton for having highlighted Mr. Holgate's other contributions to the Select Committee proceedings. He did it extremely effectively. I have been trying to manage the various quotations that I wish to use, but the filing system that the Chancellor of the Exchequer pioneered—the use of bits of sticky paper to find the right page—seems to have failed. However, the hon. Member for Tatton has provided a back-up, and was able to quote the very choice comments that Mr.
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Holgate made when he appeared before us. Having made no progress in dealing with the issue since it was raised in the Select Committee by the hon. Member for Newcastle upon Tyne, Central, the Government should take fully into account the needs of people on lower incomes, rather than just protecting those on higher incomes.
Mr. Osborne: It is worth remembering that Mr. Holgate agreed that it is
''a flaw at the heart of the structure''.
That is a telling phrase.
Mr. Laws: Indeed, a very telling phrase. The hon. Gentleman is developing a powerful case. He is making such a strong contribution that he has persuaded me to do what I was already minded to do—to ask whether we might vote on new clause 9 in order to press the Government on this important issue.
The Chairman: As the hon. Gentleman will be aware, we are discussing new clause 9 with clause stand part. When we come to new clause 9, it can be moved formally.
Question put and agreed to.
Clause 12 ordered to stand part of the Bill.
Clause 13
Relief from income tax and capital gains tax
Mr. Laws: I beg to move amendment No. 155, in
clause 13, page 7, line 26, at end add—
'(6) Before this section comes into force the Treasury shall lay before each House of Parliament a report setting out the additional costs to the Exchequer over the period from 1st April 2004 to 31st March 2022 of relief from income tax and capital gains tax as a consequence of the introduction of child trust fund accounts, together with an assessment of the scope for greater tax avoidance activity.'.
The Chairman: With this it will be convenient to discuss the following: Clause stand part.
Amendment No. 159, in
Mr. Laws: The key amendment is amendment No. 155; amendment No. 159 is a cross-reference to it. It deals with the way in which contributions to the child trust fund account will be treated for tax purposes. Here, we come to the contrast between the measures that the Minister is willing to take in order to protect the interests of those people on upper incomes, who may be making large contributions into the child trust fund accounts, and the way in which she seems to be treating the issues affecting those on low incomes, including the minimum subscription amount and the deprivation of capital.
Further interesting exchanges took place in the Treasury Committee. I hope that the hon. Member for Tatton will turn to the appropriate pages so that he can pick me up if I miss any relevant information. This time, I shall quote from another member of the Select Committee, not the hon. Member for Newcastle upon
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Tyne, Central, at least to begin with. I have no doubt that the Minister will have enjoyed some robust exchanges with the hon. Member for Bury St. Edmunds over the years, and one usually thinks of him as something of a Daily Mail man. Indeed, most of his contributions to the Select Committee tend to end up in the Daily Mail, and the paper seems to be briefed before meetings have ended.
On this occasion, the hon. Gentleman paints himself as the scourge of the affluent middle classes, who will potentially benefit from the Government's proposals in the Bill. He is clearly worried that the Bill might simply end up favouring those people on middle and upper incomes, which is why he referred to it as a £500 million PR stunt. In his discussions with the Minister and the ill-fated Mr. Holgate, the hon. Gentleman presses the Treasury on who will benefit from the tax breaks, and on how much they will cost. He expresses the concern that for financially literate middle-class parents who are not getting a tax break at the moment it will be a tax break benefit. The hon. Gentleman says:
''It is the case, is it not, that it''—
that is the child tax credit and the associated tax changes—
''will help people who do not really need it?''
In the following proceedings, there is some pressure on Treasury officials to give an estimate of the costs of the decision by the Treasury and the Inland Revenue to lay aside existing tax regulations that relate to the amount of income that can be earned by children in their accounts without ending up with a tax charge being applied to the parents who have contributed to it. The existing provision states that if an individual
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child earns more than £100 in interest income return from a particular financial asset in any financial year it is regarded as tax avoidance by the parent so a tax charge is applied.
In clause 13, the Inland Revenue has laid aside that tax legislation to allow people to have unlimited benefit from the tax relief, rather than apply the existing limits that are there to protect the interests of the Exchequer and the taxpayer. Mr. Holgate's initial assessment of the bid in terms of his cost estimate for tax relief—he described it as a ''starting bid to you'' in his evidence to the hon. Gentleman—was that it was ''negligible''. When questioned by the hon. Gentleman, he added:
''Yes, and we will see as time goes by.''
That is not particularly reassuring for the interests of the taxpayer. That issue was returned to by the Select Committee when the Minister came before it following the exchanges that had take place with officials earlier. She was pressed for her estimate of how much it would cost to set aside the income tax settlements legislation. She had obviously done some work, because she came up with a higher figure and said that it would be about £10 million.
Ruth Kelly: Less than that.
Mr. Laws: The Minister clarifies that it is less than £10 million. After the Financial Secretary had spoken, Mr. Holgate helpfully chipped in that essentially the assumptions are arbitrary.
It being twenty-five minutes past Eleven o'clock, The Chairman, adjourned the Committee without Question put, pursuant to the Standing Order.
Adjourned till Tuesday 20 January at half-past Nine o'clock.
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The following Members attended the Committee:
Benton, Mr. Joe (Chairman)
Barnes, Mr.
Brown, Mr.
Cameron, Mr.
Coleman, Mr.
Cruddas, Jon
Dawson, Mr.
Fitzpatrick, Jim
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Foster, Mr.
Kelly, Ruth
Laws, Mr.
Love, Mr.
Osborne, Mr.
Purnell, James
Robathan, Mr.
Turner, Dr.
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