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Lord McIntosh of Haringey: Let me assure the noble Baroness, Lady Noakes, that I accept that the amendments are probing, so I shall not criticise the drafting at all. Of course, there are issues of principle here, and genuine conflicts between our desire that the child trust fund money should be available to as many young people at 18 as possible and the possibility of perverse incentives that might arise if we depart from the principles set out in the Bill.
I have no difficulty in reassuring the noble Baroness that the child trust fund assets, and the incomes and gains from them, do not impact on family benefits and tax credits before the account reaches maturity when the child reaches 18. In other words, they are not part of the family's capital for benefit purposes. After the child's 18th birthday, the account ceases to be a child trust fund account. The Government's intention is that when the child trust fund account matures, if the account holder wishes, the funds can be rolled over into tax-effective savings schemes available at the time. Income from investment in tax-free savings schemes does not affect entitlement to tax credits. That is a qualification to the argument that has been made.
Contributory benefits, such as invalidity benefit and the contributory element of jobseeker's allowance, are not subject to a means test, so no account is taken of savings or income from savings. The Government acknowledge, however, that there may be concern that saving in the child trust fund or any other savings vehicle may affect entitlement to income-related benefits, such as income support and income-based jobseeker's allowances when the individual is an adult. It is to that that the amendments refer.
The treatment of capital in income-related benefits needs to strike a sensible balance between providing targeted state support, incentives to work and not unfairly penalising those who have acted responsibly by saving. The Government will continue, as they always have, to keep this under review.
As a first step, the Financial Secretary announced at Second Reading in the Commons that, from April 2006, the Government will increase the £3,000 threshold above which savings reduce the amount of income support, jobseeker's allowance, housing benefit and council tax benefit payable to £6,000. That was confirmed yesterday in the Budget.
The first child trust fund accounts will not start to mature until 2020. It is unlikely that the rules on income-related benefits will still be the same then. That is why it would not be realistic for me to give costings as I have been asked to do. Nevertheless, the increase announced from 2006 will be sufficient to give parents, carers, grandparents and friends the reassurance that they need at this stage that the child will not be unfairly penalised in future for savings made now.
When I said "as a first step", I meant that as a first step the threshold is being raised from £3,000 to £6,000. As we have 16 years to go before the first accounts mature, clearly a second stepin other words, a further review of the thresholdis a real possibility.
On Amendment No. 78, Clause 19 allows the Inland Revenue to make a payment to the parents of a child who has died before payments to which the child was entitled have been credited to a child trust fund account. The amendment seeks to ensure that payments to parents in this event do not affect their entitlement to benefits and tax credits.
Normal intestacy rules will apply if a child dies before reaching age 18. That is, the child trust fund will go to the parentsor spouse if the young person was marriedand be taken into account as part of their capital as soon as it is available to them. Normal rules for income-related benefits and tax credits will still apply.
This issue is not unique to child trust funds; it applies to any assets in the estate of a dead child. We do not see a persuasive case for special treatment for the child trust fund compared to other children's savings. There is also the practical problem of specifically exempting CTF money. This is because, if a child dies, the CTF will cease to exist and it would be difficult to ring-fence the money; it could be placed in any number of savings products by the parents.
As I have said, the increase in the threshold above which savings reduce the amount of income-related benefits payable from £3,000 to £6,000 in April 2006 will reduce the number of people affected by the capital rules for all kinds of savings, not only the child trust fund. We shall keep this under review so that it strikes a sensible balance between providing targeted state support, incentives to work and not unfairly penalising those who have acted responsibly by saving. In other words, I am afraid that we cannot support the amendments.
Baroness Noakes: I thank the Minister for that reply and noble Lords who have taken part in the debate. I particularly thank the noble Baroness, Lady Hayman, for her contribution in relation to the death of a child. It raised many important issues.
I was pleased that the Minister said that the child trust fund would not affect family capital. I would be grateful if he will let me know under what provision we will find that. It is certainly not in the Bill, and I would like to be clear about it. The noble Baroness, Lady Hollis, may have to provide that information.
I take the Minister's point that we have 16 years or so to sort this out. I am completely unimpressed by increasing the limit, because I think we need something much more targeted than that. However, I accept that specifying the benefits in the legislation 16 years ahead is not a particularly effective solution. For me, the general issue remains open. I do not think that the Minister really answered the points made by the noble Baroness, Lady Hayman.
I should like to receive the information that the Minister has promised. We should be finding some mechanism in the Bill to go beyond the first step that the Minister has described and to make it clearer. As the noble Baroness, Lady Hayman, said, we have the opportunity to say how we want this to be treated as part of the benefits system. We do not have to take the benefits system as a given because we are creating a new approach to savings and investment. Therefore, it is open to us to vary the interaction of existing systems if that is what we think appropriate. We will want to reflect on what the Minister has said; equally, I suspect that we will want to come back to this on Report. I beg leave to withdraw the amendment.
The word "first" is in the Bill to ensure that there is clarity over the basis of a child's entitlement to a child trust fund account. The child will be eligible either through a child benefit award or through the special arrangements we have put in place for looked-after children.
The inclusion of "first" in both places in the Bill ensures that there is a level playing field for all children and that their entitlement is always based on their personal circumstances. For example, a child who goes into care immediately after birth or who enters care with a child benefit claim never having been made in relation to them will have a child trust fund account opened for them by the Inland Revenue. They will receive an amount equal to both the initial and the higher rate endowment because they could never receive a higher rate through the normal ruleschildren qualify for that by being in a household in receipt of child tax credit and on an income below the current income threshold of £13,230 at the time the child benefit award is first made in relation to them. The potential for ambiguity over the basis of a child's entitlement is unhelpful. I hope that that message may be conveyed to the Law Society of Scotland.
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