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Mr. Michael Weir (Angus) (SNP): I came across recent cases involving the Child Support Agency where

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the parents were splitting the child benefit entitlement. Would both be entitled to a voucher? Might that lead to two small funds, rather than one large one, which might be disadvantageous to the child? How would that be dealt with?

Ruth Kelly: It is not the intention of the policy to have two separate child trust funds running concurrently for the same child. In fact, that will be prohibited; there will be a unique reference number for each child. The parent with responsibility will be provided with a voucher and can take that voucher to the provider of their choice.

The financial institutions that want to offer child trust fund accounts will need to be approved by the Inland Revenue. The details will be set out in regulations, but this is a straightforward process and one with which providers are familiar, as it will be based on the approval process for individual savings accounts. I am pleased to say that many providers have expressed enthusiastic support for the child trust fund and a number of organisations have expressed themselves delighted with the proposals.

Providers will be able to offer a variety of different accounts to suit the different preferences of parents. Their child's trust fund will be a wrapper, in the same way as an ISA can be wrapped around a variety of products such as cash, unit trusts or life insurance products. That will give parents choice and allow providers to offer a full range of accounts to suit the market.

The child trust fund is a long-term savings and investment policy. Historically, investments in equities have been shown to provide a better return than cash deposits. Over the last 18 years, for instance, £100 invested in the stock market would have yielded £321, whereas the same £100 deposited in a building society account would have produced £171. We want all children to have the opportunity to benefit from the generally higher returns on equities over the longer term. That is why offering the stakeholder child trust fund account will be a prerequisite for all financial providers that want to offer accounts.

The stakeholder account will follow the principles outlined by Ron Sandler in his July 2002 report, "Medium and long-term retail savings in the UK." He proposed that stakeholder investment products should be simple, low cost, accessible and risk-controlled. Stakeholder accounts will be equity based. To balance risk and return, providers who offer stakeholder accounts will be required to diversify investments so that investors are not unduly exposed to a narrow range of equities. Providers will be required also to apply lifestyling to the accounts, moving investments to less risky assets as the account nears maturity. Further details will be set out in the regulations.

Once the account has been opened, the financial provider will claim the amount and the initial Government payment—£250—from the Inland Revenue. Children in families on new tax credits whose income is below the income threshold will have a second payment of £250 paid directly into their account as soon as the tax credit claim for the year in question has been finalised. A further payment will be made when the child reaches seven. Again, a second payment will be made to families on low incomes. By making a payment when the

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child is seven, we can demonstrate the benefit of saving, as children and parents will be able to see accounts growing more quickly after receiving this Government contribution.

Mr. David Cameron (Witney) (Con): In effect, the Financial Secretary is saying that if a family are earning £13,230, they will get £500 for a child, but if they are earning £13,231, they will get only £250 for a child. Does that not send the message that saving is bad for people?

Ruth Kelly: I do not follow the logic of the hon. Gentleman's position. The fact is that there has to be a cut-off point if payment is to be split into two elements. We have chosen full entitlement to the child trust fund and the income threshold of £13,230 to ensure that up to 40 per cent. of children will be in receipt of the £500 entitlement, and of the means-tested top-up at the age of seven.

Inevitably, some people will not get round to opening accounts for their children. There could be a number of reasons why, but we do not want those children to miss out, so if an account has not been opened 12 months after the voucher has been issued, the Inland Revenue will open one on their behalf and tell the parent or guardian that that has been done, and that they can now take over managing it. These accounts will always be risk-controlled, child trust fund stakeholder accounts, as those are likely to give the best return; and of course, they will be with an approved provider. The Inland Revenue will not be responsible for managing such accounts once they are opened. Parents will be told that they are free to move the account to a different provider, or to move to a different type of account, if they wish. We hope that the Inland Revenue will need to open only a small number of accounts, and that the number will diminish over time. We will monitor the situation carefully.

The Inland Revenue will also open stakeholder accounts for children in care. As such children will be in care when the account is opened, they will not be able to qualify for the additional Government payment by virtue of living in a family in receipt of full child tax credit. Nevertheless, they will automatically receive an amount equal to the initial and additional Government payments.

The child trust fund is not, however, just about Government payments. We hope that such payments will kick-start a savings habit, and that parents and other family members will also make their own savings. We want to see a change in attitude to saving for the long term, and we have decided that child trust fund accounts should have certain advantages to encourage this.

Mr. David Laws (Yeovil) (LD): Can the Financial Secretary tell us what research the Treasury has done into how much additional saving the child trust fund will generate? What is her latest estimate?

Ruth Kelly: As I said at the beginning of my speech, the child trust fund has a number of objectives, one of which is encouraging the saving habit. Increasing the long-term level of savings in the economy through this

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vehicle is not one of those objectives. In fact, small additional contributions, from time to time, from a family member on a lower income could be a remarkably good result. On the other hand, if, on receiving the information in the child trust fund package, someone decides—because they have greater financial understanding and awareness—that they would be better off paying off a credit card debt with that money, that would also be a result. But the hon. Gentleman will see that in such scenarios, it is not possible to set meaningful targets for increasing the level of savings through this vehicle.

We would like to see a change in attitude to saving for the long term, so we have awarded certain tax advantages to these accounts. Parents, grandparents, friends and other relatives will be able to add up to £1,200 to the accounts each year, and all the proceeds will be free of tax. As a further incentive, income tax settlements legislation will not apply to child trust fund accounts. Given that such an account will run for 18 years, the settlements legislation could have caught large numbers of people in the later years of the account. Furthermore, the Government acknowledge that people on low and moderate incomes may be concerned that any saving may affect their entitlement to benefits.

The Government will keep under review the treatment of capital in income-related benefits, so that a sensible balance is struck between providing targeted state support and not unfairly penalising those who have acted responsibly by saving. I can announce to the House that from 6 April 2006, as a first step, we will increase the £3,000 threshold above which savings reduces eligibility to income support, jobseeker's allowance, housing benefit and council tax benefit to £6,000, in line with pension credit.

Before closing, I would like to say something about the charge account, which interests many Members. The Government want to ensure that charges are set at levels that are good value for savers, while also allowing efficient providers to make adequate returns. The independent research that we commissioned Deloitte to undertake, and the evidence that we received from the industry and consumer groups, will enable us to take a final decision on the charge cap early next year. Further details will be set out in regulations.

In conclusion, the child trust fund is a bold and ambitious policy. We hope that it will fundamentally change attitudes to savings, improve financial capability and extend opportunities across income groups by providing all children with an asset when they reach the age of 18. We all have an interest in creating a society that understands the benefits of saving. The child trust fund will help us to achieve that, so I commend the Bill to the House.

4.56 pm

Mr. George Osborne (Tatton) (Con): I suppose I should begin by taking part in this Dutch auction of interests. In common with the Financial Secretary, I have a daughter who will qualify for the child trust fund. I hope that I am not betraying any confidences in saying that my hon. Friend the Member for Wycombe (Mr. Goodman), who will be winding up for the Opposition, is hoping to receive a voucher next year, as is my hon. Friend the Member for Witney (Mr. Cameron). Indeed,

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it is a strange quirk of fate that the Minister who is introducing the Bill, the two Opposition spokesmen shadowing it, the Chancellor who dreamt it up, and apparently half the hon. Members in their places today, will benefit from it. The Parliamentary Commissioner for Standards would probably have a fit if he knew.

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