Clause 14: Insurance companies and friendly societies

54.     This clause is required to allow the income and gains made on investments held in CTF accounts provided in the form of life insurance policies by insurance companies and friendly societies to be exempt from corporation tax. But this does not prevent the profits made by the companies on such business from being taxed. Subsection (1) does this by applying the relevant subsections of section 333B of the Income and Corporation Taxes Act 1988 as it relates to the Individual Savings Account (ISA) business of insurance companies and friendly societies to their business in providing CTF accounts. ISA and CTF business will be treated for tax purposes as a single category of business with ISA losses being offset against CTF profits and vice versa.

Clause 15: Information from account providers etc

55.     This clause gives the Treasury power to make regulations under which information can be required from account providers and others. Under subsection (1) the regulations may require or authorise officers of the Inland Revenue to require account providers and other relevant persons to provide documents for inspection or to provide information about CTF accounts.

56.     Subsection (2) defines relevant persons as the current or previous provider of the CTF account; the person who owns, or owned, the CTF account; the person to whom a CTF voucher was issued; the person who applied to open the CTF account; anyone who gave instructions about the management of the account; and anyone entitled to child benefit in respect of the child.

57.     Subsection (3) provides for the regulations to specify how, where and when information should be provided.

Clause 16: Information about children in care of authority

58.     The child benefit legislation does not allow child benefit to be claimed for children in care (see paragraph 13) but the Government wants to ensure that these children do not miss out on the CTF. Subsection (1) gives the Treasury power to make regulations requiring authorities to provide both the information necessary to arrange for CTF accounts to be opened for children in the care of a local authority and any other information required for the administration of accounts, for example, for further Government contributions to be made.

59.     Subsection (2) identifies the relevant information. Subsection (3) provides for the regulations to specify how, where and when information should be provided.

Clause 17: Use of information

60.     This clause allows information to be shared within Government and between Government departments and contractors such as the Inland Revenue's IT provider. In the clause such contractors are described as " persons providing services to the Inland Revenue". Under subsection (1) information about the CTF can be used in connection with the CTF. Under subsection (2) information about the CTF can be used for other functions carried out by the Inland Revenue. This would allow the Inland Revenue to use information about the CTF for statistical purposes in assessing the success of savings policies. Under subsection (3) information held for functions not connected with the CTF can be used in connection with the CTF. This would allow the Revenue to use information about households' claims for child tax credit to assess a child's eligibility for the supplementary contribution.

61.     Subsection (4) allows other government departments to provide information to the Inland Revenue or one of its contractors for purposes connected with the CTF. The Inland Revenue will need to use information provided by the Department for Work and Pensions (DWP) or the Northern Irish equivalent to assess the eligibility for supplementary contribution of children born after 31 August 2002 but before the launch of CTF accounts. This group will include children in households unable to claim child tax credit as this was not introduced until April 2003 and children whose parents are receiving other benefits and will only transfer to child tax credit in the tax year 2004-05. For households in these circumstances, DWP will provide the Inland Revenue with information about other benefits that were claimed at the relevant time (see paragraph 41).

Clause 18: Disclosure of information

62.     This clause deals with the disclosure of information relating to a CTF account held by an identifiable person by Government officials to people outside Government. It brings the CTF within the existing statutory provisions providing for Revenue confidentiality, and the exceptions to those rules on confidentiality.

Clause 19: Payments after death of child

63.     Under subsections (1) and (2) the Inland Revenue will have the power to make payments to the personal representatives of a child born after 31 August 2002 who has died before payments to which the child was entitled have been credited to a CTF account.

64.     Subsection (3) sets out the conditions that will have to be met for a payment to be made. These are that no initial contribution was paid under clause 8, or if one was paid, it had not been credited to the child's CTF account; that the child was entitled to a supplementary contribution under clause 9 but this had not been credited to the child's CTF account; or that a further contribution under clause 10 was payable but had not been credited to the child's CTF account.

Clause 20: Penalties

65.     Under subsection (1) the Inland Revenue has power to impose a penalty of £300 on anyone who fraudulently applies to open, makes a withdrawal from or secures the opening by the Inland Revenue of a child trust fund.

66.     Subsection (2) allows the Inland Revenue to impose a penalty not greater than £3,000 on an account provider who makes a fraudulent or negligent claim under clauses 8 or 9 or in connection with regulations under clauses 10 or 13 and on any person who fraudulently or negligently provides incorrect information under clause 15.

67.     Under subsection (3) penalties can be imposed on account providers who do not make a claim under clauses 8, 9 or 10 within the time set out in regulations and on any person who does not provide a document or information within the time set out in regulations under clause 15. Subsection (4) sets this penalty at no more than £300 and no more than £60 for each day that the failure continues after the first penalty is imposed. Subsection (5) ensures that no penalty will be charged under subsection (3) once the failure has been remedied. Subsection (6) ensures that a person will not be considered to have failed to make a timely claim or failed to provide or make information available on time if they have made the claim etc. within any additional time offered by the Inland Revenue, if they had a reasonable excuse for the delay, and if they made the claim etc. without delay once the excuse no longer applied.

68. Under subsection (7) penalties can be imposed on account providers in respect of:

a) a failure to comply with clauses 3(2) and 3(4) on the terms of the fund or with clauses 8(2) and 9(3) on crediting accounts with the initial and supplementary Government contributions;

b) a failure to comply with regulations under clauses 3(4) or (5) on the terms of the fund, under clause 5(4) on the opening of accounts by providers, under clause 6(2) on providers opening accounts at the request of the Inland Revenue, under clause 7 on transfers and under clause 10(3) on crediting accounts with further Government contributions; and

c) a breach of clause 12(1) allowing only monetary contributions to CTF accounts or regulations on subscription limits under clause 12(2).

69.     Subsection (8) sets the penalty under subsection (7) as the greater of £300 or £1 in respect of each child trust fund for which a penalty is incurred.

Clause 21: Decisions, appeals, mitigation and recovery

70.     This clause sets out various procedural matters related to decisions, appeals and the mitigation and recovery of penalties. Under subsection (7) the Inland Revenue is given the power to mitigate penalties imposed under clause 20.

Clause 22: Rights of appeal

71.     This clause sets out the grounds under which account providers or responsible persons may appeal against decisions taken by the Inland Revenue. Subsection (1) states that account providers can appeal against the withholding or withdrawal of approval as a CTF account provider. Subsection (2) states that a relevant person can appeal against the Inland Revenue deciding not to issue a voucher or open an account or deciding not to make any of the Government contributions required under this Bill. Subsection (3) defines relevant person as the person entitled to child benefit, the person who applied to open a CTF account and anyone who has given instructions on the management of the CTF account. Subsection (4) entitles a person required to repay tax relief or a contribution to the Inland Revenue to appeal against that requirement. Subsection (5) allows a child's personal representatives to appeal against a decision not to make a payment in accordance with clause 19. Subsection (6) allows someone who is charged a penalty under clause 20 to appeal against the decision to impose that penalty.

Clause 23: Exercise of rights of appeal

     72.     This clause specifies the procedures for appeal, either to the General Commissioners or, if the appellant so chooses under the Taxes Management Act 1970, to the Special Commissioners. It should be read in conjunction with clause 24. Until a day appointed by the Treasury by order, the appeals procedures set out in clause 21 are modified by clause 24, so that appeals will be heard by the Appeals Service and Northern Irish equivalent and any appeal against any decision made by this service will be to the Social Security Commissioner.

Clause 24: Temporary modifications

     73.     In line with the current arrangements for appeals against decisions on tax credits, CTF appeals will be heard by the Appeals Service. See clause 23.

Clause 25: Northern Ireland

74.     This Bill will have effect throughout the United Kingdom. Under this clause the Northern Ireland Act 1998 is amended to place the Child Trust Fund in the Schedule of excepted matters. This will ensure that for Northern Ireland the Child Trust Fund will always be dealt with by way of a UK wide Act.

Clause 26: Money

75.     Subsection (1) provides that the expenditure made by the Inland Revenue under this Bill, including the Government contributions, will be met out of money provided by Parliament. Subsection (2) provides that any sums received by the Inland Revenue, such as recoveries of Government contributions incorrectly made, will be paid into the Consolidated Fund.

Clause 27: Commencement

76.     Subsection (1) provides for the main provisions of the Bill to come into force on a date fixed by a Treasury Commencement Order. Subsection (2) gives the Inland Revenue power to issue vouchers to children, who are likely to be eligible children on the appointed day, before the commencement date. This will allow the Inland Revenue to phase in the issuing of vouchers rather than issue vouchers for all children born between 31 August 2002 and the commencement date at one time. This is intended to make the introduction of CTF easier for all concerned.

Clause 28: Regulations and orders

77.     This clause sets out the power of the Treasury to make regulations under this Bill by statutory instrument.

FINANCIAL EFFECTS OF THE BILL

78.     The Child Trust Fund will involve significant public expenditure as the Government will be paying contributions to all children born from 1 September 2002 into the future. Initial contributions (£250 for all children and an additional £250 for children in families on lower incomes) will be met from Annually Managed Expenditure and have been estimated at around £235m per annum. These costs were included in Budget 2003 fiscal projections and will be updated (along with the Government's other fiscal projections) in Pre-Budget and Budget reports. The value of the additional endowments at age 7 has not been announced - this is an issue that will be determined in future Budgets.

EFFECTS OF THE BILL ON PUBLIC SERVICE MANPOWER

     79.     There will be significant new one-off setting up costs of implementing the CTF, mainly because of the need for new IT support, including both a new CTF IT system and the modernisation of the child benefit IT system; and modest new ongoing costs of administering the CTF. The staffing need should not be significant as the administrative link to CTF entitlement will be the claim to child benefit. Any additional staffing costs should be met from the staff cost savings realised from the modernisation of the child benefit computer system required to support the introduction of the CTF.

SUMMARY OF THE REGULATORY IMPACT APPRAISAL

80.     The CTF legislation will have most impact on financial services providers. Firms who offer CTF accounts will be required to offer the stakeholder CTF account and satisfy Inland Revenue reporting requirements. However, they will be free to decide whether or not they want to include CTF accounts in their product range. Other businesses, charities and the voluntary and community sector are unlikely to be affected by the introduction of the CTF. There are also potential benefits to the savings and investment industry from the introduction of the CTF. These include cross-selling opportunities to parents and relatives and the opportunity to gain lifelong customers. While some smaller providers may not be able to achieve economies of scale or access capital markets as readily as their larger competitors, this has not been raised as a concern in our consultations with financial services trade bodies.

EUROPEAN CONVENTION ON HUMAN RIGHTS

81.     Section 19 of the Human Rights Act 1998 requires the Minister in charge of a Bill in either House of Parliament to make a statement, before second reading, about the compatibility of the provisions of the Bill with the Convention rights (as defined by section 1 of that Act). The Chancellor of the Exchequer has made the following statement:

     "In my view the provisions of the Child Trust Funds Bill are compatible with the Convention rights."

COMMENCEMENT

82.     A Treasury order will be made setting out when this Bill will come into force.