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Ruth Kelly: I do not want to rehearse all the arguments about the minimum contribution method. We have had that debate once in Committee, and will no doubt have it again on Report. I can offer no comment on the story from the Financial Times. The decision on the minimum contribution is intimately linked to the charge cap level.
Mr. Laws: Will the Minister confirm whether anybody in the Treasury told the Financial Times that the minimum contribution level would be £10?
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Ruth Kelly: I do not see how they could have done, as the decision has not been made. However, as I have said, I do not want to rehearse the arguments that we have already had in Committee.
The hon. Gentleman referred to the impact of income tax settlements legislation on child trust funds. He has largely missed the point. The child trust fund is not likely to be used as a vehicle for tax avoidance. That is partly because contributions made by a parent would be tied into the CTF account until the child reached the age of 18, but also because the money will belong to the child, rather than the parent. In other children's accounts, the parent has access to the money as the child and the fund mature. That situation is much more likely to be used for the purposes of avoiding income tax.
The hon. Gentleman asks whether it is merely a matter of complexity. Obviously, it would be complex to apply the tax settlement legislation, but the fact is that we would want to apply it only if we thought that there was a substantial likelihood of income tax being avoided through the child trust fund.
The hon. Gentleman asks about the figures involved. The CTF accounts will run for 18 years, and the tax legislation might have caught large numbers of people in the later years. Parental contributions of £100 a year would have tax consequences after 11 years, and contributions of £200 a year would have tax consequences after six years. In other words, the settlements rule would be triggered after 11 years and six years respectively on relatively modest contributions to the account, and contributions of £100 or £200 are what we want to see. I do not think that many people would argue that such behaviour was linked to tax avoidance.
The Government publish estimates on the cost of tax relief twice a year, at the time of the Budget and pre-Budget reports. The hon. Gentleman asked how much the tax incentives on a child trust fund would cost the Government. We have said that the costs are expected to be negligible in the early years and to rise over time. I can reaffirm that, as was made clear to the Treasury Committee, over time the cost remains small in relation to the cost of an endowment.
The amendment would require a report on the scope of tax avoidance in CTF accounts. Reports on tax avoidance and compliance and child trust funds would form part of the annual report that the Paymaster General makes to Parliament on the Inland Revenue's activities, alongside reports on all other areas operated by the Revenue. I believe that the proposals for tax relief for child trust funds fit with the objectives of encouraging long-term savings and the building up of an asset for the child. I therefore recommend that the Committee reject the amendment if the hon. Gentleman decides not to withdraw it.
Mr. Laws: I am grateful to the Minister for her comments. I appreciate that the Exchequer has made a low estimate of the cost of this particular measure. However, such estimates have a habit of going astray
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over time. May I gently remind the Minister of the estimates that the Treasury made just a few years ago for the costs of the film industry tax relief? That was supposed to cost £30 million or £40 million, but within a very short period the estimate had risen to something like £400 million a year.
The Minister said that many people would not wish to take up the tax avoidance opportunity because the beneficiaries would ultimately be children rather than themselves. However, there are many individuals who, precisely because they have a high income and large tax liabilities, want to minimise those liabilities in any way they can, including giving money to children. If that minimises their tax liability, it reduces the amount of money going to the Exchequer and the amount available for more worthwhile schemes.
I will not press the amendment to a Division, but I hope that the Minister will keep the issue under review. In the Select Committee, the Minister told the hon. Member for Newcastle upon Tyne, Central that she would go away and consider the issue in the general context of when the income tax settlements legislation should apply.
I hope that the Minister will confirm that the annual Treasury booklet, which shows the cost of tax relief, will include an estimate of the cost of this relief. I hope also that, through that mechanism, the annual Budget statements and the pre-Budget reports, we can keep an eye on whether the tax relief grows in line with the Treasury's estimates. I hope that if it does not we will have the opportunity to intervene. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 13 ordered to stand part of the Bill.
Clause 14 ordered to stand part of the Bill.
Clause 15
Information from account providers etc.
Mr. Osborne: I beg to move amendment No. 181, in
clause 15, page 8, line 6, leave out paragraphs (b) to (f).
The Chairman: With this it will be convenient to discuss the following:
Amendment No. 62, in
New clause 3—Income disregard for purposes of income-related benefits, etc.—
'(1) In determining the matters specified in subsection (2), no regard shall be had of income and gains arising on—
(a) Inland Revenue contributions to,
(b) subscriptions to, and
(c) investments under
a child trust fund.
(2) Those matters are—
(a) eligibility for,
(b) entitlement to, and
(c) levels of
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the benefits and credits specified in subsection (3) in respect of the holder of a child trust fund.
(3) The following are specified in this subsection—
(a) child tax credit,
(b) Council Tax benefit,
(c) housing benefit,
(d) income support,
(e) income-based jobseeker's allowance, and
(f) working tax credit.'.
New clause 8—Income disregard for purposes of benefits and tax credits—
'The value of a child trust fund will be wholly disregarded with respect to the calculation of entitlement to all benefits and tax credits in respect of—
(a) the parents of children holding child trust funds,
(b) children holding child trust funds, and
(c) persons holding child trust funds who are aged 18 or over.'.
Mr. Osborne: I begin by giving hon. Members some good news: a member of the Committee has just become eligible, as a parent, for a child trust fund, as the wife of the hon. Member for Witney (Mr. Cameron) gave birth to a baby daughter yesterday. The first thing that he said to me was that he was looking forward to receiving the child trust fund voucher.
Vice-Chamberlain, Her Majesty's Household (Jim Fitzpatrick): Where is he?
Mr. Osborne: The Government Whip presses me to say why the hon. Member for Witney is not present. We have relaxed terms here. The hon. Gentleman is on paternity leave, but he is making an exception and breaking it next Tuesday evening to return for important Divisions in the House. He may also be around on Wednesday when we think we will be privileged to have early access to the Hutton report.
Having tried your patience, Mr. Benton, I will move on to the much more interesting subject of the amendments. The clause deals with the requirement for account providers to provide information to the Inland Revenue. Amendment No. 181 probes whether the wide-ranging powers proposed for the Revenue are really necessary. We have not yet seen the regulations, but the clause provides that they may require any relevant person
''(a) to make documents available for inspection on behalf of the Inland Revenue, or
(b) to provide to the Inland Revenue any information relating to, or to investments which are or have been held under, a child trust fund.''
The relevant persons include not just account providers, for whom a strong case can be made that they should fall within the remit of the clause, but any person who holds a child trust fund, any person issued with a voucher, any person opening a child trust fund, any person who manages a child trust fund and, indeed—it is striking—anyone receiving child benefit. That is pretty much every parent in the country.
Is it really necessary to give the Inland Revenue such wide-ranging powers, especially in respect of anyone receiving child benefit? That gives the Revenue
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enormous scope. The amendment would restrict its power to requesting information documents from account providers only. They should have to provide information and it is important that they stick to the rules on matters such as the maximum subscription limits and the fact that the CTF scheme is set up on time, and so on. That is wholly right and proper, but is it really necessary to give the Revenue such extensive powers to poke its nose into everyone's business? I am happy to be convinced by the Minister.
Amendment No. 62 and new clause 3 are more important. They are an attempt to protect child trust funds from the clutches of the means test, and to prevent the Government from taking back with one hand what they have given with the other. At present, the Bill does not protect a child trust fund from being taken into account when an 18-year-old is being assessed for jobseeker's allowance or income support. Indeed, in such circumstances, one could argue that if an 18-year-old were applying for jobseeker's allowance or income support, the best thing that they could do is spend most of their child trust fund as quickly as possible.
If we want the child trust fund to target lower-income families, to help people to understand the benefits of saving and investing, and to encourage children to develop the savings habit—to use the words in the policy document—it seems to be totally self-defeating if we demonstrate that after 18 years' saving, the whole thing can be snatched away from them. I am not alone in thinking that: the Treasury Sub-Committee, in its excellent report on child trust funds, made that point strongly. In its conclusions, it said:
''There is a potential interaction of the Child Trust Fund with the welfare system (or any other entitlements that might be affected by possessing an asset) which might deter additional contributions to the Child Trust Fund accounts from family and friends, if the result were to be a potential reduction in benefits for the child in the future, or an actual reduction in benefits for the contributor. The Government therefore needs to clarify the extent of this potential interaction, in order to overcome fears of potential disadvantage to the child in later life. We believe it is essential that this is done before the scheme starts, and we therefore welcome the statement by the Financial Secretary that this will be the case. We believe it would be helpful if these matters were clarified and resolved during the passage of the Bill through the House.''
The Sub-Committee made it clear that it thought the issue a problem, and when one considers the answers given in the evidence sessions by both the Minister and Mr. Holgate, it is not difficult to understand why. The latter was pressed by the hon. Member for Newcastle upon Tyne, Central, who asked:
''How does this Child Trust Fund interact with income-related benefits?''
Mr. Holgate said:
''When the child reaches 18, were nothing to change between now and then, then the normal rules would apply. It would be part of the child's assets.''
The hon. Gentleman continued:
''So my parents have saved this money for me and, as a result, I cannot claim Job Seeker's Allowance?''
Mr. Holgate responded:
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''We are aware of the implication and we cannot say at the moment what exactly we plan to do about it—but we are fully aware of the implication that you draw.''
The hon. Member for Wallasey (Angela Eagle) then chipped in with a surprisingly aggressive question:
''Are you saying that you might be considering doing something about income-related benefits and the way that the benefit rules interact with savings at that point of 18? It does seem absurd.''
Mr. Holgate said—shock, horror—
''The problem is obvious. The problem has occurred to us but we cannot say this afternoon what we are going to do about it.''
The hon. Lady asked:
''You are looking at it, however?''
Mr. Holgate said:
It is clear from Mr. Holgate's evidence that the Treasury is aware that there is a problem. The Minister was, of course, more circumspect when she was questioned. She said, to paraphrase her, ''We are aware there is a problem, but we would normally make an announcement at the time of the pre-Budget report or in the Budget.'' I am happy to take an assurance from the Minister today that there will be something about the issue in the Budget, even if she cannot say what it is. I do not understand why it cannot be revealed to the Committee or why it is so Budget-sensitive. We are debating this important clause, but we cannot see what the Government have in mind.
The Minister said on Second Reading that she has increased the threshold at which savings reduce eligibility for means-tested benefits from £3,000 to £6,000. That is welcome. As she pointed out, when I made my speech on Second Reading I was not aware that she had done that, nor was the Chairman of the Treasury Committee, so I thought that I was in good company. The change goes some way to addressing the problem, but it is not a long-term solution, unless she says that the threshold will regularly be increased to avoid this trap.
On Second Reading, the Chairman of the Treasury Committee, the hon. Member for Dumbarton (Mr. McFall), said:
''An 18-year-old receiving jobseeker's allowance or income support will be in an invidious position if his benefit is disregarded because of the extra income provided by the allowance. The Financial Secretary has come up with one or two surprises already, and I hope that that point may be clarified today, but if that is not possible it must be clarified in Committee.''
He went on:
''I am delighted to hear from the Financial Secretary that the disregard has been increased from £3,000 to £6,000, but it was pointed out that there is a barrier somewhere along the line. This scheme has the potential to have profound effects, but if the wrong message is given to those who will be adding to the savings—parents, grandparents and friends—that will do it no good.''—[Official Report, 15 December 2003; Vol. 415, c. 1357.]
The hon. Gentleman made that point forcibly, and he, like me, wants this scheme to work. I agree with him that if the Minister is going to clarify her position she should do so to the Committee, because if it remains the case that a child trust fund will interact with means-tested benefits at the age of 18, it is possible to envisage there being people, particularly among the poorest in our society, who will derive almost zero benefit from such a fund as it will be taken away at the age of 18 if they are not in employment.
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