House of COMMONS
MINUTES OF EVIDENCE
Wednesday 14 May 2008
KITTY USSHER MP, MS GWYNETH NURSE, MR DAVID RICHARDSON
and MR GEORGE ROWING
USE OF THE TRANSCRIPT
Taken before the Treasury Committee
on Wednesday 14 May 2008
Mr Michael Fallon, in the Chair
Ms Sally Keeble
Mr Andrew Love
Mr Mark Todd
Witnesses: Kitty Ussher MP, , Economic Secretary to the Treasury, Ms Gwyneth Nurse, Team Leader, Assets, Savings and Wealth, HMT, Mr David Richardson, Director, Charity, Assets and Residence, HMRC, and Mr George Rowing, Assistant Director, Savings and Audit, HMRC, gave evidence.
Q1 Chairman: Can we make a start, because there may be a division during our proceedings. Economic Secretary, welcome to the Sub-Committee. Could you introduce yourself formally, and your team, please?
Kitty Ussher: Certainly. Can I say what a pleasure it is to be here? I think this is my first Treasury Select Committee appearance, and before I start I must ingratiate myself to you by saying many happy returns of the day, Chairman! On my right is one of our key Team Leaders of the Treasury, Gwyneth Nurse, who is the Deputy Director of Assets, Savings and Wealth for the Treasury. On my left is George Rowing, who is the Assistant Director from HMRC of Savings and Audit, and on my far right is David Richardson, also from HMRC, who is the Director of Charity, Assets and Residence issues for them.
Q2 Chairman: Thank you very much. Could we begin with the issue of take-up, which was a concern to this Sub-Committee when we initially reported on the proposal, and I know a number of colleagues have got questions on that? As I understand it, around a quarter of eligible parents are failing to cash the voucher. Have you done any assessment as to why that is?
Kitty Ussher: Yes, we have. It is an interesting question, actually, because through an independent agency we have been tracking awareness of the Child Trust Fund itself and found that there is a 98% awareness, which is obviously extremely high, but in terms of the number of parents opening accounts it is only 75%. Some of the qualitative and quantative work we have done has shown that 27% of people are aware of the Child Trust Fund and are comfortable with the idea that the Government should actually open an account for them. This is not necessarily desirable, but it does imply that there is a sense of apathy out there. So I think it is not that people are not aware of it, it is that perhaps it is not a top priority and we do see that when large efforts are taken to remind people of this opportunity, take-up rates do increase but not by enough. In a sense perhaps it does not matter, but the reason why I think it does matter is that if the parent or the guardian opens the Child Trust Fund account they are more likely to contribute to it and so the child ends up with a higher asset, but obviously there is no difference as far as the child is concerned if the parent opens the Child Trust Fund and does not contribute compared with the Government opening it for them and I think there is perhaps around a quarter of the population who are happy with that latter situation. But we will endeavour to do more, obviously.
Q3 Chairman: Sure. Have you profiled that quarter? To what extent levels of take-up lower amongst disadvantaged or low income groups? Is that who they are?
Kitty Ussher: It is more likely under less well off families, but there is not a very obvious direct relationship, a sort of causality relationship. There are people of middle income groups as well who, for whatever reason, have not got around to opening the accounts. I have got some statistics which may help here. If you look at the accounts of what are probably broadly described as middle income parents, in that they do not receive additional payments from the Government, so they are not on full Child Tax Credit or equivalent, 81% are opened by parents. For those who do qualify for additional payments (i.e. low income families) 69% are opened by families. So there is a greater propensity to open it if you are a middle income family.
Q4 Chairman: So of the 25% what proportion do you think are in fact low income, disadvantaged households? You said it is likely, but have you done any work on that?
Kitty Ussher: I can definitely break down the 25%, but I cannot do the maths off the top of my head, so perhaps I can come back to you in that regard.
Q5 Chairman: Of course. Are you concerned that take-up rates are actually falling now slightly? It was, I think, over 75% back in 2005 and it is now only around 70% in the last quarter of 2006.
Kitty Ussher: There was a fall. I am happy to bring this forward to now, but I understand that when we do the next quarterly figures, that is for the first quarter of this year, they are rising again, up from 70 to 72. That is for the first quarter of this year. So of course we are concerned that it is not 100%, for the reasons I mentioned earlier, but, fingers crossed, I hope we have turned the corner.
Q6 Chairman: These are new figures which you are pre-releasing today, are they?
Kitty Ussher: I am pre-releasing them to you as a birthday present, Chairman!
Chairman: We appreciate that.
Q7 Ms Keeble: In the 2008 Budget you announced that from April 2009 it will only be voluntary rather than mandatory for parents to actually provide the vouchers to the provider before opening an account. What is your profiling of what that is going to do to the take-up rate?
Kitty Ussher: I am fairly sure that it will improve the take-up rate. The consultation we did on this with parents indicated that it was a bit of red tape which was likely to make them less likely to actually do that.
Q8 Ms Keeble: How is it going to work? Can you just say how you expect the process to work, because there is a downside to it, which is that some people do not open up an account and some people might open up two?
Kitty Ussher: They will still be given the voucher, but they will not have to send that in to the provider unless the provider decides by themselves to ask for it. The crucial point is the unique reference number, which they will have to give to the provider, but perhaps Mr Rowing has something to add to this.
Mr Rowing: Clearly, the voucher provides tangible evidence to the parents that they have a Child Trust Fund amount waiting to go to their child. As the Economic Secretary said, the key issue around that is that the voucher itself provides a unique reference number which both enables the provider to quickly process that and to be sure that the person presenting it is presenting it on behalf of a particular child who has been identified. Some providers want to retain that because it means that they can indeed quickly process that application to open an account. But the voucher itself is not absolutely necessary. What is necessary is that the number taken off that voucher is validated through with us, and that will still happen.
Q9 Ms Keeble: Can I just flag up that when the Department for Education in one of its previous incarnations did a similar thing, some very sharp sales people went around the estates mopping up all the PIN numbers. Have you actually built in some strong anti-fraud protection in here?
Mr Rowing: Yes. One of the useful things to bear in mind, certainly as I was working my way into the Child Trust Fund at the very beginning, is that this account is not going to be available for anyone to withdraw from until in fact the child reaches 18. So it is opened in year one, but actually becomes available 17 or more years later. That in itself means that there is a long waiting period should anyone want to steal it. It is not an easy access issue.
Q10 Ms Keeble: But are you just making sure that there are some anti-fraud devices to stop people getting the PIN numbers and using them?
Kitty Ussher: I absolutely understand what you are saying here. The new system has not been introduced yet. It seemed a fairly clear conclusion from the consultation that we did with people. Obviously if there was any thought that it would lead to abuse, that would be extremely serious. However, what we are talking about is that people will no longer have to go and send something in. It is a unique reference number, which is the crucial thing, and even previously I guess people could have said, "What's the unique reference number? Just give us the voucher," and that would have led to the same situation you are describing.
Q11 Ms Keeble: Yes, except clearly if somebody goes in with a fist full of vouchers, say, who has had sextuplets, or something like that, that would be interesting. What other steps are you taking to increase the take-up?
Kitty Ussher: We have done a number of things. We have done very targeted marketing. Obviously when the Child Trust Fund was first introduced we had a sort of large pool of potential parents we needed to get to. As the years have gone on, we have been able to focus much more specifically, so we are doing things like advertising on Baby TV and that sort of thing, where mothers and fathers of very small children might be more likely to be than the rest of the population. We are also working with the voluntary sector and those people who are in contact with very young families, and have trained them and have training packs, and so on, in order to make sure the word gets out there, and of course through midwives the Financial Services Authority is doing a fantastic piece of work called The Parents' Guide to Money, which is in the process of a roll-out phase. It is going to be distributed to everyone who has a baby.
Q12 Ms Keeble: Is that going through the Bounty bags?
Kitty Ussher: Yes, at exactly the same time, but through the midwives, and that discusses all sorts of household budgeting issues, including of course the Child Trust Fund. Of course, we are tracking it from the other end by the kind of polling work we are doing on awareness and with a 98% awareness rate we feel we are doing pretty well. The challenge is to get them to do it for themselves and to address this issue of apathy, which arose out of the Chairman's question.
Q13 Ms Keeble: In terms of opening it, it is very interesting that it is that specific group which were excluded and one of the things we asked National Savings about, here in fact on the Select Committee previously, was why they did not have a Child Trust Fund for that. I wonder if any thought has been given to actually getting a product which people can get, for example, through a post office or through an outlet on the estates where they do not have banks?
Kitty Ussher: There is nothing legally to stop National Savings from doing it.
Q14 Ms Keeble: I think there is. I think it is a requirement for the equity products, which they cannot do. That is what they said.
Kitty Ussher: Perhaps I will seek clarification about that, but I think the remit of National Savings is such that it has to do something quite specific in terms of Government debt and servicing Government debt. I think it is around the guarantee that they can give to do that, which I think is often only a five year Government underwriting, so with a longer share-based product perhaps it is tricky for them to do it. Your general point I would absolutely agree with. I am told that the Post Office is actually a distributor and so they can signpost members of the public towards different Trust Fund providers. So that is something we are looking at.
Q15 Ms Keeble: But the point is about the most excluded people opening something which they would not normally do. If there is no provider on the estate or within walking distance, or within a reasonable bus ride, then they might not do it and the issue is, what are the outlets on the estates, post offices and agency outlets?
Kitty Ussher: There is a large number of providers in this market and there is an even larger number of places where people can be signposted. I am not sure I would agree that there is a post office on every estate, but where there is one and somebody walks in and asks, then the information is there. I think rather more to the point, they all get the voucher sent to their door. They also get a reminder letter after eight months and we are finding that that is improving take-up. So we are currently doing everything we can. We are already doing it through the Post Office. I should also say that I wrote to every Member of this House in the second half of last year to urge them to use their publicity mechanisms to encourage people to make the additional payments, and so on. We all have a responsibility for this.
Q16 Ms Keeble: Yes. Have you actually set specific targets for HMRC on take-up or not?
Kitty Ussher: Not specific no, but it is quite clear, and we all have a shared view that it needs to be as high as possible because that is the best way to encourage additional payments to be made by the child's family and friends, which of course is in their interests.
Q17 Chairman: Would you consider specific targets, now that we are past the initial stage of launching it all, and so on? Do you not think there is a case for that?
Kitty Ussher: I do not have an ideological objection to targets. My colleagues can speak for themselves, but I think they completely understand what we are trying to do and we are continually having policy conversations about how to raise the take-up rate, and indeed some of the initiatives we introduced last year seem to be having a positive effect. I do not have a problem with considering it, but I think they understand what their job is.
Q18 Nick Ainger: I just want to ask some questions about the eligibility for the additional payments, the additional £250 for those families who have an income of £15,575, the Child Tax Credit threshold, or below. Is it the case that in order for those families to be sure they actually receive the additional £250 the Child Tax Credit award must be in place from the time when the family make the application for Child Benefit?
Kitty Ussher: No. A child will be eligible for the extra £250 if the household income was below the threshold for the Child Tax Credit award, but they do not actually have to be receiving it, as long as they are receiving one of the other benefits when Child Benefit was first paid. I can just run through what those are. The eligible criteria are the Child and Young Person's Credit in Working Families Tax Credit, the Child and Young Person's Credit in Disabled Person's Tax Credit, the Children's Allowance Income Support or the Children's Allowance and Job Seeker's Allowance.
Q19 Nick Ainger: But on the Child Trust Fund website it says, "If your CTC claim is finalised before your child's CTF account is opened, any additional amount due will be paid into the CTF account after it is opened, but remember you must have a CTC award and family income under the CTC threshold." The point is the timing. As Child Tax Credits can only be backdated a maximum of three months, it would be possible for families actually to lose out because they have not been as prompt in making the application for Child Tax Credit, or for some reason they have made no application for Child Tax Credit. It is this timing issue.
Mr Richardson: The Child Tax Credit will be annually and therefore is only actually finalised after the end of the year, and therefore after the end of the year in which a child was born. That is what the point on our website was alluding to. So Child Tax Credits are normally finalised between April and August, and providing they are finalised then for the year in which the child was born you are entitled to the additional payment. Now, for a child actually born at the end of the year you have got 12 months to open the Child Trust Fund, so you may well open the Child Trust Fund at a point after the Child Tax Credit has been awarded to you, and that is where you get the Child Tax Credit coming before the Child Trust Fund and the arrangements where once you open the Child Trust Fund you then also get the supplementary benefit in relation to the Child Tax Credit you have applied for and been awarded.
Q20 Nick Ainger: But why in the information pack does it actually say, on page 8, "A CTC award must be in place for the time at which the Child Benefit is awarded to get the extra payment. As CTC claims can only be backdated three months, make sure you don't leave it too late." So it is possible that if you do not get that CTC application in, then you could lose out on the additional payment if you do not do it within the three months' time limit? Is that right?
Mr Richardson: I think, more significantly, if you do not get your Child Tax Credit claim within the time you should do then you miss out on the Child Tax Credit, which is probably more significant. The point about Child Tax Credit is that it is not for a particular day, such as the date of birth, that you get Child Benefit, it is an award for a year and as long as you apply for Child Tax Credit you get it for the year in which the child is born. You then get the supplementary payment.
Q21 Nick Ainger: So there is no way that this supplementary payment could not be awarded because there is a late application for CTC?
Mr Richardson: If you fail to make your claim for Child Tax Credit in time, then clearly you do not trigger the point to get the additional payment, but if you link Child Trust Fund supplementary payments to Child Tax Credit then clearly the time limits for getting a Child Tax Credit are operative.
Nick Ainger: I am still not clear. Your advice is quite clear, as far as I can see, that as Child Tax Credit cannot be backdated any further than three months, if there is, for whatever reason, a late -
Ms Keeble: Can I give an example which actually happened, where a woman who had a baby had a mental illness and she only applied for her benefits when the baby was about six months old, or something. So she could have got the Child Benefit from the date of birth, because that is the date when the payment comes in. I think Nick Ainger's point is that the Child Tax Credit payment would only be triggered from the date the application is made, but it could be backdated three months, so it could be backdated to when the baby was three months old. So the child would get the Child Benefit from birth, the Child Tax Credit from three months old, but because they missed out on claiming the Child Tax Credit then they could not get the supplementary payment for the Child Trust Fund. That is Nick's point, and these would be the most needy children.
Nick Ainger: Absolutely.
Q22 Ms Keeble: Is that right? Is my example correct?
Kitty Ussher: I am being advised that your example is correct, which is the first I have heard of it, so with your forbearance perhaps we should go and consider this point.
Q23 Ms Keeble: If someone has got post-natal depression, or something, they are depressed for a while and they do not get the payment. It does happen.
Kitty Ussher: It seems to me that if normal benefit payments can be backdated to a certain degree and we are linking the Child Trust Fund additional payment to that, then there is a logical extrapolation that perhaps we should consider doing the same there. So I am going to ask my team to come back to us on that. I am very grateful for that line of questioning. Chairman, I am not sure if this is a point of order, but there is something else I feel I should say around additional payments.
Q24 Chairman: Just on this point, Nick and Sally's point, the Low Incomes Tax Reform Group did say to us in evidence, "Nowhere on the websites we studied did we get any obvious message of urgency being transmitted to claimants about making all claims to CTC within three months of the commencement of Child Benefit."
Kitty Ussher: Child Tax Credit?
Chairman: Yes, within three months of the commencement of Child Benefit. If that message of urgency is not on the website, how else are they going to know it is urgent?
Q25 Nick Ainger: It is on page 8 of the information pack. That seems silly. It should be right on the top of the website.
Kitty Ussher: I completely accept what you are saying. This is a slightly wider point around the take-up of Child Tax Credit, which I am very happy to take back to my colleagues.
Q26 Nick Ainger: The problem is that that links back then to the Trust Fund payment and there is a specific statement on the information pack, "Make sure you don't leave it too late for making the Trust Fund application."
Kitty Ussher: Chairman, this has been a very interesting line of questioning and we need to go back and make sure, firstly that we have considered the policy point raised by the Honourable Members, and also that we look at the way it is presented so that people get the best possible advice. I will do that as a result of this. Chairman, while we are on the subject of additional payments - and I promise I am not, I hope, wasting the Committee's time - I had thought, I have to say, that I was going to make some opening remarks and there is something I very much wanted to say there whilst I am under scrutiny from Parliament. I can champion our policy ad nauseam, but there was a specific point I wanted to make because it has recently come to our attention - and I did not want in the future to be asked why I did not mention this - that there is a discrepancy between our forecast of what the number of additional payments should be and the actual amount paid. There seems to be an IT technical problem, which we are currently working on with our contractors to resolve, and I will be making a statement in due course.
Chairman: I think we will have to stop you there. We are going to adjourn the Committee now for 15 minutes and resume at 4.32pm.
The Committee suspended from 4.17pm to 4.28 pm for a division in the House.
Q27 Chairman: I think you wanted a little more time to explain the discrepancy issue. How many people is this? Of what order is this problem?
Kitty Ussher: If I could just finish saying, first of all, that this seems to be a technical issue which I, as Minister, was made aware of when I returned from some months' parental leave last week. I wanted to bring it to the Committee's attention because when we get completely to the bottom of it, I would like to write to you, Chairman, and set the whole thing out. Because this session is scheduled now, I did not want there to be a perception that I had deliberately not told Parliament. But we have not got to the bottom of it yet. There is a discrepancy between our forecasts of the number of additional payments which we think there should be and the actual amount of payments which have been made. I think some of the providers began to ask questions about it because they sensed there was a gap as well. It is a technical thing. It is due to the way the various computers at HMRC (and I defer to colleagues here) talk to each other around people who are eligible for benefit payments and actually paying them out the additional Child Trust Fund payments. The important thing to say is that no child will lose out. Some of the payments will be made late and they will be compensated in a way which means that they have a generous compensation based on the interest they would have received according to the best cash rates in the market. I just wanted to make that absolutely clear now. We can go into it in detail if you would like to.
Q28 Chairman: No, I simply wanted to get a handle on how large the discrepancy was. Is it thousands, tens of thousands, hundreds of thousands?
Kitty Ussher: I think it is tens of thousands for the IT programming error that we know about. There is an additional discrepancy, which is also tens of thousands, that we have not quite got to the bottom of. As soon as we do, which I hope will be soon, I will write to you, Chairman. By all means, call me back to discuss it then.
Chairman: Fair enough.
Q29 Nick Ainger: Can we just clarify exactly what the position is on the eligibility? Your officials will have had time to put their heads together. There does seem to be an issue where which the Low Incomes Tax Reform Group seem to have identified about notification. We have obviously got a problem with IT in terms of the additional payments. Have we got any idea how many of the families who should be eligible for the additional payments are not actually getting them because they are too late in making the application? Have we got any idea about the numbers involved on that score?
Kitty Ussher: I do not, because we were only aware of this issue when you brought it to our attention a few minutes ago, unless there are estimates? No. I am going to ask for urgent advice on this. I am really glad you have raised it. I was not aware of that slight discrepancy and I want to sort it out, if you will give us leave to do that.
Q30 Ms Keeble: I just want to clarify one point which I had asked previously, which is about putting the information in the Bounty Bags, to which you said yes, but my colleague did not hear the words "Bounty Bags" and I just wanted to check that you were doing that.
Kitty Ussher: I misunderstood you. I thought you meant with the Bounty Bags. Parents of new-borns are given Bounty packs, which tend to be free samples and that sort of thing. It is not physically in there, but it is given at the same time. I attended the launch in my own constituency for East Lancashire and it is a very accessible sort of ring-binder folder which has got a whole load of stuff around household finances and Child Trust Funds. We can send you a copy if you like.
Ms Keeble: It would be interesting to see it.
Chairman: Sally, you had some further questions on marketing.
Q31 Ms Keeble: Yes. You have mentioned a range of activities which have been undertaken. They were set out in the 2007 Report. Have you seen which of them are actually successful or otherwise?
Kitty Ussher: We know that the overall rate has risen in the last quarter, so we are feeling comfortable that our approach is making things go in the right direction. In terms of the detailed breakdown of exactly which are more successful than others, I am not sure that we have the exact - yes, we have noticed that they are going in the right direction and we do anyway do this, as I have said, as a sort of independent agency, monitoring awareness and so on. I do not have a breakdown of which specific things we have done in the last six months have had a positive effect, but obviously that is a very sensible thing to do so that we can target what is the most effective.
Q32 Ms Keeble: At the outset there was a lot of activity, obviously, around the Child Trust Fund, a lot of awareness and all of us were encouraged to do that as well. I have to say that since then if you go around doctors' surgeries, community centres and things like that you are not so immediately aware of it being raised and promoted and I wondered if you were going through all of those outlets on a reasonably regular basis?
Kitty Ussher: We are doing it through midwives and at the point babies are born, because that must be the most effective use of the money.
Q33 Ms Keeble: I think people sometimes get a bit forgetful, too, when babies are born, do they not?
Kitty Ussher: Which is why they are reminded after eight months, and we will obviously be evaluating that work in the next few months to see what is the most effective, and I am very open to new ideas.
Q34 Ms Keeble: If it is after eight months, then you will fall into the problem which Nick Ainger identified, that if they had not paid the Child Tax Credit in time they will miss out on the supplementary payments, will they not?
Kitty Ussher: Indeed, but I presume most people do actually claim the Child Tax Credit in time. But I am very concerned about the specific issues where there is a very genuine reason why not for that small segment of people and we are looking into that.
Q35 Ms Keeble: You have talked about the work you have done with the other agency, but have you done any specific targeted work with any organisation which has particular links with these very hard to reach groups, which seems to be the problem area and the area of greatest need as well?
Kitty Ussher: Yes. We are very specifically working with the kind of third sector which does face-to-face work with perhaps particularly disadvantaged or hard to reach families.
Q36 Ms Keeble: Which organisations?
Kitty Ussher: I can give you a list. I have a list of about 15 in front of me, which I am happy to read out, with your permission, Chairman, but they tend to be regional, for example in Liverpool there is an anti-poverty case worker who works for the Citizens' Advice Bureau, who will be coming into contact with these types of people. In London there is a student midwife who has been trained up and has it as her job. There are 400 different voluntary community organisation branches which have been specifically trained in order to improve our outreach work in this area. I do not know if Mr Rowing wants to add anything?
Q37 Ms Keeble: Perhaps we could have a list of all the different organisations.
Kitty Ussher: Shall I send that in, in writing?
Q38 Ms Keeble: That would be helpful.
Mr Rowing: This was something that we tried this year as part of the exercise in targeting awareness or maintenance work on new parents, and in fact focusing on the same sort of thing the Committee is itself focusing on, which is getting at the hard to reach groups. What we tried this year was an exercise of engaging with the voluntary and community organisations by taking as a pilot a small number, seven people, from various organisations, mainly from Citizens' Advice Bureaux from around the country, whom we have trained up to train others. Each one of those trainers then has access to a wide range of organisations, which then can deal with and help facilitate people who are least likely to open accounts on a face-to-face basis. This trialling of the face-to-face work is really quite novel. The Economic Secretary was giving examples of particular organisations which have day to day contact with these difficult groups, such as travellers or immigrants, lone parents or parents of disabled children. All of that work was done as a pilot and that is now in evaluation. So that is back with us for evaluation and we are looking at that with interest.
Q39 Ms Keeble: When will that report be ready?
Mr Rowing: I do not know, because it has only just gone into evaluation, so it will be some time before we have the report.
Q40 Ms Keeble: You have said that 98% of eligible parents are aware of the Child Trust Fund and that is presumably all new parents, apart from a few particular groups. Are you satisfied with the robustness of that research, because that is an astonishingly high awareness rate, is it not?
Kitty Ussher: Yes, I am very pleased by that number, but the challenge is obviously to have that awareness translate into making additional payments and opening the accounts for themselves. We use an independent research company called TMS, which is contracted in the normal way. I think it is a great success, that number. What we need to do is translate the 98% into future 18 year olds having substantial pots of money they can use.
Q41 Ms Keeble: Yes. The 2007 Child Trust Statistical Report does not provide us with figures for t.v. spending to promote Child Trust Funds. What are the figures, and can you just say what your assessment is as to whether that was actually value for money spending?
Kitty Ussher: We thought it was useful to do quite a large t.v. campaign at the beginning to get society to be aware of the new policy. As the years have gone by, our evaluation has indicated that to do it on that scale is not actually an effective use of taxpayers' money, which is why, as I said previously, we have been targeting the precise t.v. channels parents of new babies would be watching, such as Baby TV and the other specific marketing areas I have outlined. It might make us all feel good to have a national billboard campaign, but it is not actually the best use of taxpayers' money.
Q42 Ms Keeble: Can I just come back briefly to the issue about outlets, because quite a number of people in the most disadvantaged groups, the hard to reach groups, will get cash out from their convenience store or from a cash-point there, they will pay their utility bills there, they will buy their Lottery tickets there and they will not necessarily think of going into any larger centre for financial services. I just ask again whether any thought is being given to making sure there is a way where - not just so that people can go into one of these places and be signposted on to somewhere else but somewhere they can actually get their Child Trust Fund where they do all their financial services, which is often on their estate?
Kitty Ussher: Ultimately, the providers of Child Trust Funds are private sector companies and they want to make sure that they get as many people coming in as they can.
Q43 Ms Keeble: But it is a Government scheme.
Kitty Ussher: Absolutely, and we have a 98% awareness of it. What we have to do is to work out why a quarter of people are not actually bothering to do it. I entirely agree with you that it needs to be made as simple as possible, but I would say that we are doing the right thing by trialling face-to-face advice. We are working also with credit unions, who obviously are much better at talking to people on low incomes about financial services products. It is available in all the High Street banks. We are writing to people. We are sending them vouchers. There is a hot line if you are in the Internet. There is a kind of micro site as well as the main site as well. So I would say we are doing everything we have thought of so far in order to reach out to these groups. I am very happy to take further advice from the Committee.
Ms Keeble: Thank you.
Q44 John Thurso: I wanted to ask about the different types of funds, but before I do that can I come back to your statement and the comments you were making before the bell went. If I have got this right, what it actually says in the statement is that you are concerned that payments have "not been happening at the rate that we had expected," which I think means that they are late. How late are the payments?
Kitty Ussher: When we have got to the bottom of it, it should be around 18 months late, I think. There are some payments in the 2006/7 financial year which we presumed to have been made, but it is quite clear when you look at the aggregate figures of the amount of payments which have actually been made compared with what a reasonable forecast of the numbers would be that there was a gap there. We have got to the bottom of part of that problem, so we can make the payments where we have worked out what the IT problem actually is. We have been working with the contractor, who has accepted responsibility. This is a technical issue. I just did not want to be accused of not telling you, if you see what I mean, and we will make sure that they are compensated.
Q45 John Thurso: Just so that I get this straight, somebody has put their voucher in, they have started up their account, or thought they had, but the actual payment has not arrived and it has come 18 months late?
Kitty Ussher: The additional payment by the Government. If they put their voucher in, their £250 -
Q46 John Thurso: So everybody's £250 has gone in on time?
Kitty Ussher: Yes, exactly.
Q47 John Thurso: But it is the people who were due to get an additional £250, and those payments have been up to 18 months late?
Kitty Ussher: That is correct. Not all of them, but some of them. This is what I have been advised.
Q48 John Thurso: There is a slight audit problem there, I would suggest?
Kitty Ussher: Well, we picked it up just after the year that has ended. As I say, the IT contractor has accepted responsibility, has apologised to me, and will be paying an appropriate level of recompense.
Q49 John Thurso: On that, what rate will people be recompensed at? Will it be the cash rate, or an equity return rate?
Kitty Ussher: What I have decided to do - because actually in that period these minority of people who invested in share Child Trust Fund, the actual value in that period of time has not grown particularly, but I am sure it will over the 18 years as the economy flourishes in the future - is to look at the most generous cash interest rate on offer, which is nudging 8%, which leads to a recompense figure of around £20, which will be paid into the accounts affected. So as far as the child and the parent are concerned, they do not need to do anything, they do not need to worry about it, and at the end of the time they end up with the best rate on the market.
Q50 John Thurso: Thank you very much for that. Just on the returns - and I know that you cannot make a precise figure, but have you got an estimate of what £250 might be in 18 years' time? In other words, what is the total return on the fund that you might hope for?
Kitty Ussher: It depends obviously how much top-ups are made. I can get the figure on £250, but I have got the figure in front of me for £500. So this is a low income child who has got the voucher for £250, had it topped up pretty much at birth, and then had the additional payment at age seven as well but has had no additional contributions, so nothing made by family and friends, no additional payments whatsoever. That child should be expecting to receive on average around £2,000, somewhere between £1,600 and £2,600. That is for the least well-off child. At the other end of that, if you take a middle income family which does not receive an HMRC top-up, the child gets £250 twice from the Government, at birth and at age seven, and then has the maximum top-up from family and friends, so that is £1,200 per year for the entire 18 years, and will end up with a pot somewhere between, we reckon, £29,000 and £38,000. So everyone has an asset, but obviously this is where the point of additional contributions is absolutely crucial because it becomes a very serious asset if you do the additional top-ups.
Q51 John Thurso: One of your predecessors told the Committee that the Government was keen to see people basically going into equity-based funds for the very valid reason that over the long-term equities tend to do better than cash. Does the Government still believe it is important for the parents to choose a CTF with some equity component in it?
Kitty Ussher: I think the very fact that where accounts are not opened by parents we open a stakeholder account for them implies that we think that is a sensible thing to do. We are acting in the interests of the child in doing that, but ultimately it is up to the parents or guardians to decide what they want to do, and I am glad that there is a variety of products on the market. Obviously, with the stakeholder account we have ensured that there is something that we think can reasonably be expected to give a good rate of return at an acceptable level of risk to the child, which is why the investments become progressively less risky as time goes on. But if someone wants to have effectively a zero risk account by going to cash, which some people do, or want to do something alternative through an ethical fund or want to particularly invest in certain shares, that is obviously their right to do so.
Q52 John Thurso: Is it a matter of concern that so many vouchers are in fact invested in cash?
Kitty Ussher: Actually, 76% of all accounts are stakeholder accounts and it is 19% for cash accounts, and 5% when non-stakeholder share accounts, so that is a large number of parents choosing stakeholder accounts. So they share our view that it is a sensible thing to do.
Q53 John Thurso: Have you done any research on that as to why people make the choices? My concern is that, if you like, the least worst off are also the least likely to be highly financial literate and to be able to therefore make the choice and will tend to regard cash as king and therefore be more inclined to go into cash. They are obviously the people we would all most like to have benefits.
Kitty Ussher: I think that is the reason why we have done a stakeholder account. Whilst it is not explicit, there is a reason why the Government has set up a kind of standard thing. We think this is a safe way of taking a bit of risk, and I think the figures bear that out. Obviously, in all the literature we are explaining to people that you can invest in shares without, at the age of 18, the final pot being liable to go up and down in a very massive way depending on a volatile market at that time. So we will continue to do so, but I think it is important to give people the option of cash because some even well-off households may be quite risk-averse and that is what they want to do.
Q54 John Thurso: I just do not know the answer to this question, but do people have any ability to manage the fund? Can they swap from cash to equities at different points?
Kitty Ussher: You can change provider, you can change the fund at any time, and if you have one of the non-stakeholder share accounts you can actually choose the actual investments. There are loads of products available on the market.
Q55 John Thurso: So it would be quite normal to see quite a lot of people going into cash at the moment, for the next six months or so?
Kitty Ussher: If they think the current situation will last for 18 years they may want to, but I am not sure I share that view. There are alternative investments as well. There are some Sharia-compliant CTF products. There is one, I think, and a few other alternative investments.
Q56 John Thurso: That is interesting. I was looking at that. Do you think there is enough in the way of Sharia-compliant and other special kinds available to people?
Kitty Ussher: I think this is an issue for the market.
Q57 John Thurso: I think only five of the providers actually do Sharia-compliant investments?
Kitty Ussher: I think it is one Sharia-compliant Child Trust Fund that is available, which is one of the market-leading companies, and I think five self-branded ethical funds are available. In a sense it is a private market. There are all sorts of savings and investment vehicles out there and the Child Trust Fund is only part of that, so I do not really have a view one way or the other. I guess I am glad that for people for whom Sharia principles are so important that they would not do a Child Trust Fund, there is something available in the market.
Q58 John Thurso: Given the ethnic mix in the UK, it would be nice to have a few more to give a bit of consumer choice.
Kitty Ussher: Consumer choice is always good. I would say that the number of people for whom this is crucially important is very much smaller than the number of people who are actually Muslim and who call themselves Muslim in the economy. We have seen that throughout a number of different types of Islamic banking issues. I am simply glad that there is one. It seems a reasonable rate of return. If there was another one, I would be equally as glad.
Q59 John Thurso: Generally, regarding a number of providers, are you happy with the numbers? Some of the input we have had, some of the briefings we have had give a feel that there is almost too many out there. Others seem to say that it would be nice if there were more. How do you feel about the number of providers and distributors in the market?
Kitty Ussher: I am not concerned one way or the other. It seems to be a vibrant market. It is ultimately up to the private sector to decide whether it wants to offer these products or not. I do not have a considered view.
Q60 John Thurso: In one of the briefs we had, I think it was the Aspen Institute from memory, took a view that the large number of providers and distributors in the market added to the complexity for parents and in the Family Investment Centres' memorandum, which is generally extremely supportive of the concept and made many good points, from the work they have done their evidence suggests that the problem comes down to confusion and a lack of motivation and that also went into the confusion of what is out there, which goes back to some of the things Sally Keeble was saying. I wonder if this complexity is actually an issue, and if it is what, if anything, you can do about it?
Kitty Ussher: I do not think it is any more an issue than what the average consumer faces when they are making all sorts of different choices about what bank account they want, or even at the sort of facile end how they do their weekly shopping. I think competition is good because it will bring down costs and improve rates of return. As I said before, I am not particularly worried one way or the other. I think there are several ways you could argue this. I suspect not all parents will shop around all 49 providers and 74 distributors, but I am reassured that the fact that there are 49 means that whichever one they choose is likely to be competitive.
John Thurso: Thank you.
Q61 Mr Love: According to the figures we have received, if you do not make any additional savings on the basis of a 4.5% real return, which means that you would have to have a stakeholder pension over 18 years, at the end of those 18 years you get £456. It is not very inviting, is it?
Kitty Ussher: Which is why we are encouraging people to make additional payments and why the Government will double the amount which goes into low income families.
Q62 Mr Love: What is your view on the fact that only one in four of Child Trust Funds have received additional private contributions? You are talking about putting extra money in, but how can we inspire people, especially the less well-off, to really engage with this product and do something which will benefit their children?
Kitty Ussher: I think you have asked the crucial question. I would turn it back on you the other way. Whilst I want the number to rise much higher than one in four, 15% of people on the lowest incomes in this country are actually making the additional top-up contributions, which means that when it comes to 2020, when the initial cohorts get to the age of 18, they will have savings products available to them which would not have been available if we had not introduced this policy. Of course, it would be lovely if it was not 15% but a much higher amount, but I am actually very proud of the fact that those children will have something that their previous generations never had as a result of the policy we introduced. But of course it must rise, and we are doing various things. We have talked about some of the things we are doing already. I think there is a real opportunity through the education system. The first cohort of children is now coming into primary school who actually have a Child Trust Fund. They probably do not realise it and their parents may not have necessarily contributed, but I went to a great school on a difficult estate in North London with the Secretary of State for Schools, Ed Balls (who of course is my predecessor so he knows all about this policy area), where we talked to the parents of these children just coming into primary school and asked them their views on the Child Trust Fund and what they were going to do, and did they realise what their children potentially had and that they were going to get an additional contribution in a few years' time as well. We talked to some of the teachers, who are now developing curriculum products at a young age and at an older age in order to use the fact that these kids have got their own personal little pot to devise financial capability work and talk about how it should be invested and how it would be used, and the rates of return, in a way which would not be able to capture their imagination if it was not actually theirs. So I feel that, obviously, if you invest £1 when the child is born, it is going to give you much more in 18 years than if you invest it when they are 7, 9, 12 or 13. There is still opportunity during that time to engage people with this because it is theirs. If you tell a child they are going to have a certain amount of money later, they are going to get very interested and in a way this is the hook in order to actually change the curriculum and really try and maximise the engagement throughout the lives of these funds.
Q63 Mr Love: I understand what you say and I certainly am very supportive of that, but of course we cannot get around every school and our ability to be able to get these messages across is somewhat limited. You indicated earlier on that you were relaxed about the number of providers in the marketplace and the way they were providing them, but is there a role for the sector in actually sponsoring not just a product but additional contributions from their customers in order that they will get the real benefits? If there is, how can we get them to do more?
Kitty Ussher: I think it is in the commercial interests of the providers, obviously, to try and encourage additional contributions, just as any bank or building society trying to encourage people to save through them has an incentive to do so. So I am aware that some private sector companies are actually doing this anyway. In terms of actually sponsoring awareness, that is not something I have actually given consideration to, but I am sure you will be pleased to know that the Government is putting money behind this. Yes, I cannot personally go to every school, but there is £11.5 million allocated in this CSR period to make sure that teachers are getting around every school, because that is where they work, and making sure that additional capability work is conducted around the Child Trust Funds.
Q64 Mr Love: When we did our investigation into vulnerable consumers we discovered that almost all financial institutions provided basic bank accounts but quite a lot of them, after providing them, did absolutely nothing else with them, but some really went out there and tried to engage their customers. A similar thing is happening with the Child Trust Fund. I understand that Children's Mutual has a fairly large percentage of Child Trust Funds. Is there some benefit from trying to get those who simply provide them but do not actually do anything to market them, to doing more, and how could we get them to do that?
Kitty Ussher: I am very happy to take those conversations forward, and indeed I meet these guys all the time, as you would expect, and I like the ones that have been pro-active. I will say no more, but I agree with the general point. Of course, we would like that, but I think it is in the companies' interests as well. It is not for the Government to tell them what to do.
Q65 Mr Love: We could inspire them with our enthusiasm for the product! Let me ask you finally, you mentioned top-ups and of course the Government is now coming forward finally with its Gateway proposal. How will those interact with each other and has any thought been given to trying to put some incentives through a Gateway-type product which might help in this regard?
Kitty Ussher: In a sense the rationale behind the two policies is the same in that both rely on the Government working with the individual contributors' saving schemes. The Child Trust Fund came first, but the Savings Gateway (which is now wonderfully being rolled out, and I am very pleased about that) encourages savings by matching. I am not sure we should seek to match every pound which goes into a Child Trust Fund. I am not sure that is the most effective use of Government money, particularly since we know that more matching occurs for the middle classes, let us be honest about it. The general principle is the same, "We have done our bit, now you do your bit, and it is in your self-interest to do so." In terms of the interrelationship, they of course apply to different age groups because the Savings Gateway is for adults.
Q66 Mr Todd: The FSA has a duty to promote financial education. Is the £11.5 million you have provided going to be managed through that process or separately?
Kitty Ussher: My understanding is that it is being spent directly for the Department for Schools and Children.
Q67 Mr Todd: How?
Kitty Ussher: It is going to teaching materials. It is going to training teachers. At the same time, there are changes to the curriculum. I apologies that I am not the world expert on these departmental issues, but I am assured by my colleagues there is going to be a specific economic wellbeing and financial capability strand at key stages 3 and 4 as part of a revised curriculum for personal, social, health and economic (PSHE) education. The £11.5 million is to develop the capacity within the system both in materials and in training so that this can be delivered through schools.
Q68 Mr Todd: Does it sound logical to have these ventures managed separately?
Kitty Ussher: I think it is entirely logical, because the Child Trust Fund is dealing with children and young people through the education system. The responsibility which the FSA has of course includes that, and we will give advice to parents in that regard, but it is far, far broader.
Q69 Mr Todd: I am not saying they duplicate each other, but I would have thought that the FSA does commission materials for schools for financial education. I recognise, of course, the community to be addressed for Child Trust Funds is rather different, because of course not all of those in schools now actually have Child Trust Funds because of the age at which they became entitled to it. So it requires some deft touches, but I am a little surprised to find that the ventures are entirely dislocated and there is no relationship between them at all, or at least that is what you are implying.
Kitty Ussher: They will obviously be aware of each other, but I think it is quite a different delivery method, actually. What the Secretary of State for Schools is doing is actually embedding it within the teaching system, whereas the FSA has a slightly softer promotional approach. So it is not that the Department for Schools -
Q70 Mr Todd: I am certainly not doubting the need to embed it within the educational system, because on the evidence we received in over 70% of schools personal financial education is only provided in the form of occasional lessons happening once or twice a term, or less, which presumably is not what you are seeking?
Kitty Ussher: That is changing as a result of this commitment in the Spending Review Period. I am just not sure that the FSA is the right body -
Q71 Mr Todd: No, I have to say I have been critical of their approach, so I am not speaking up for them, I am merely wondering how joined-up we are attempting to be here. There may well be a good reason to cut them out of the process and not involve them, but I am slightly surprised at the lack of evidence of any attempt to look across at what they may be doing or not. I sense the need for perhaps a little bit more information to be provided by your officials on what is being done here, possibly drawn from the Department which has actually been given the money to do this, may be a part of what can be done perhaps?
Kitty Ussher: I do not think so. It seems to me entirely clear that it should be the Department for Schools and Education, which is actually training teachers, providing teaching materials and talking to young people. The Financial Services Authority has a very important role -
Q72 Mr Todd: No, you have misunderstood. I am meaning, for us to consume some greater information about this it might be helpful if we had a paper which explained how this is being delivered. That is what I was after. You said - and it sounds as if you may not be able to answer this either - that the materials were being commissioned for teachers to be trained in this area. I would be interested, if we do get a paper of that kind, in a definition of how that is being procured.
Kitty Ussher: The procurement process is currently underway and I think we will shortly be in a position to announce the actual contractor.
Q73 Mr Todd: Because I have to say I have seen materials in this area produced on behalf of Government which - and part of my background is in educational publishing - would not be particularly useful in many school environments, so I would be intrigued as to what process of procurement has been done. There are some quite expensive consultants who can readily consume a lot of that money for relatively little value.
Kitty Ussher: We hope to be working with somebody who is very well placed to do this.
Q74 Mr Todd: Okay. Do tell us more.
Kitty Ussher: I will tell you more as soon as I am able to make that announcement. It should be soon.
Q75 Chairman: If no colleagues have any further questions, just a couple of final ones from me. The £250 you kicked off with, because the scheme was backdated, was enhanced, I think, up to £276 for those children who were born from September 2002 onwards. Then those from 2005 got £250, and so on, but the value of that £250 of course has now gone down with inflation. Have you given any consideration to the point at which you might consider up-rating it, if you like?
Kitty Ussher: This is an issue which we keep under review. At the moment, we do not think the additional expenditure required from the Exchequer would lead to a sufficient difference in behaviour to justify it, but obviously this is something we will keep under review.
Q76 Chairman: Because presumably you must have established some principle of equity when you decided that because the £250 was being introduced late for those born in September 2002 you therefore decided to enhance it? So you must have had some principle of equity when you began the scheme. That presumably needs to be restored to the scheme as the £250 diminishes in value, does it not?
Kitty Ussher: Our policy was stated very clearly that children should expect to receive £250 at birth, so if that payment is delayed they have obviously lost some interest. That is the point.
Q77 Chairman: That was the reason. But ten years on, or whatever, the £250 will not be the same, will it?
Kitty Ussher: As I said, we will keep it under review and at the point where we think it is having a deleterious effect on the incentives, then that is the point at which to consider it. We do not think that is the case now.
Q78 Chairman: Finally, just coming back to this discrepancy issue, the compensation, the £20, or whatever, all that will be paid by the contractor? That is not going to come out of the scheme money, is it?
Kitty Ussher: It will not affect children in any way. We are currently talking to the contractors, who accept that they will be making financial recompense for the error they have caused and apologised for.
Q79 Chairman: So all the compensation will come from them?
Kitty Ussher: We are currently in the middle of those negotiations.
Chairman: I see, so we do not want to discuss it any further! All right, Economic Secretary, we are going to leave it there, but we would like the further information you have promised us, and indeed to be kept up to date on the discrepancy issue. Because we produced a report on this when the legislation was going through, we do take a rather proprietorial interest in this particular scheme, so we will have probably every so often a follow-up session just to see how you are getting on, but in the meantime thank you very much for your attendance today.