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Mr. Cameron: Will my hon. Friend consider the specific case of children in care? The Financial Secretary has confirmed that they will receive child trust funds, but they will not have anyone to put in contributions on their behalf. Given that the state is effectively in loco parentis and that those children do not receive child benefit, is not there a case for at least a portion of the child benefit that they do not receive going into their trust fund, so that they will benefit from the policy like everyone else?
Mr. Osborne: My hon. Friend has anticipated how I intended to spend a couple of hours in Committee. That possibility is worth exploring. In response to the good point made by my hon. Friend the Member for Castle Point (Bob Spink), the Financial Secretary said that local authorities might contribute, but no one receives child benefit on behalf of children in care, and we should at least consider whether some of the money saved in that respect by the Treasury could be paid into the child trust funds of children in care.
Mr. Weir: I am interested in the hon. Gentleman's argument and the figures that he has cited. However, the position is worse than he suggests. His figures assume that only one child in a family obtains a trust fund. A low-income family with three or four children will find it much more difficult to put extra funds in and the situation will be much worse in such circumstances.
Mr. Osborne: The hon. Gentleman makes a good point. I do not suggest that the objective of the policy should be to reduce the current unequal distribution of wealth, but that is the Financial Secretary's objective. It is difficult to see how the policy will do that. I understand that she will wind up the debate, so she can address some of those points then.
The great disparity in the potential value of the trust funds is one of the great concerns of the Child Poverty Action Group, and I am sure that it has made its points forcefully to the Financial Secretary. To address those fears—at least in part—will require a big effort from the Government and from the financial providers themselves to encourage low-income families to save. It will not be enough for the Government simply to open a child trust fund account for every baby, give them a voucher and hope that a thousand savers will bloom. People will have to be marketed to, targeted, coaxed and enticed by the financial institutions, and that will cost money. Putting it bluntly, those institutions will spend that money only if there is something in it for them.
That brings me to the charge cap, which is the single most important unresolved issue in the Bill. In other words, how much will the financial provider be allowed to take out of a trust fund? Clause 3, which deals with that point, could not be more vague. Like so much of the rest of the Bill, it will be left to regulations to determine.
Given the amount of time that the Treasury has had to prepare the policy, it is extraordinary that we still have not been told what the charge will be.In the Government's consultation paper, published two months ago, they said that there
- "is a high threshold of persuasion for any move from a 1 per cent. charge cap".
That is not just my judgment; it is also that of the Association of British Insurers, the Association of Friendly Societies, the PEP and ISA Managers Association, the Building Societies Association and the British Bankers Association—I have been busily engaged in the Pugin Room during the past couple of weeks giving tea to all those people. It is also the judgment of Norwich Union, the biggest long-term savings provider in the country and one of the biggest in the stakeholder pension market. The company said that if the charge cap is set at 1 per cent. it will not offer child trust funds. It is also the judgment of David White, chief executive of the Children's Mutual—someone whom the Financial Secretary knows well, as he has been intimately involved with the Treasury from the start in helping to draw up the policy. He told the Select Committee:
- "If the charge cap on the Child Trust Funds were reduced as low as 1 per cent . . . I am not sure, in our view, that there would be any providers in the market at all. I think the danger would be, at best, that you would force people to cherry pick at the rich end of the market . . . and the lower income groups would be left out."
The consultation paper stated that
- "the Government will issue a report detailing the charge cap for the CTF . . . later this year."
Dr. Tonge: I was interested to hear how many teas the hon. Gentleman had had to give for the providers of trust funds. Does he agree that if the Government had not allowed most of our post offices to close, they could have undertaken functions under the Bill, which would have been much more convenient for people who wanted to invest?
Mr. Osborne: The hon. Lady makes a good point: many of the people to be targeted by the policy have no experience of dealing with companies such as Norwich Union or the Children's Mutual, or indeed with high street banks. Probably, their only contact with a financial institution—if we can call it that—is the post office counter.
On the charge cap, I suggest that it is time for the Financial Secretary to swallow her pride and back off the 1 per cent. charge that the Government announced at the time of the Sandler report. Alternatively, she should radically simplify the way in which child trust funds are operated and sold, so that financial providers can make a return and it is worth their entering the market and trying to sell those products to low-income households.
That brings me to my third question, whether the child trust funds will be ready on time. Everyone in the industry agrees that the timetable is getting very tight indeed. The Government hope to start sending out the initial letters to parents later this year, and the first 1.8 million vouchers and information packs will go out in 12 months' time. Furthermore, the Inland Revenue must have ready a system for redeeming the vouchers, opening the accounts where parents fail to do so and policing the annual limits. That is a major administrative task. We all remember the hash that the Inland Revenue made earlier this year when the new tax credits were launched. The task is made much greater by the news that the Revenue has just sacked its IT provider, EDS. We must all hope that lessons have been learned from that fiasco earlier this year and that the Inland Revenue can cope, but that is not a hope born of experience.
The timetable is an even greater challenge for the financial industry. It is no good sending parents a voucher if there is no company around for them to open a child trust fund with. The financial institutions have only 12 months to design their products, set up their administrative systems, prepare their marketing strategy, train their work force and check that the whole thing works, yet they cannot even start that process until the Government decide what the charge cap will be and what the sales regime will look like, which may not be until early spring.
Again, every financial organisation and company that I have spoken to says that the Government are leaving it dangerously late. The Financial Secretary could make things a lot easier for the companies at a stroke: she could set the charge cap now, set out the simple sales regime now and abandon the ludicrously bureaucratic and outdated voucher system, which is set out in clause 5.
By all means, send parents—such as the Financial Secretary and myself—a nice certificate telling them that they can open a child trust fund, but why not let them do so by telephone or the internet? Why require parents physically to take or send the voucher to their chosen provider and then require that provider to store the voucher in its vaults for ever? This is not the 19th century; many financial transactions take place over the phone or online these days. The Government refer to fraud, but we are dealing with low-risk products, as their own money-laundering regulations make clear. No one in the industry understands why the Financial Secretary insists on this costly, complicated, bureaucratic and prehistoric paper trail that will make it even more difficult to get the systems ready on time—so much for e-Government.
By the way, while we are on the subject—I address the point made by my hon. Friend the Member for Blaby (Mr. Robathan)—why not let parents open child trust funds for children born before 1 September 2002,
without the initial Treasury voucher, of course? Treasury officials have already confirmed to the Select Committee that the cost, in terms of extra tax relief, would be negligible, and it would help encourage savings for all children, not just newborn babies. Like the Financial Secretary, I have a child who will qualify and a child who will not, and explaining why one will get a huge lump sum at 18 and the other will not is going to be tricky.The fourth and final question was whether child trust funds will help develop a lifelong savings habit. That is what we all want to happen, but we would have a far greater chance of developing that savings habit if child trust funds sat alongside other policies that encouraged lifetime savings. Sadly, they do not. What might 18-year-olds do when they have been given the keys to their trust fund? Of course some, perhaps many—we will not know for 18 years—will blow the whole lot on a trip to Ibiza or a new hi-fi.
As the Financial Secretary said, and as the Select Committee accepts, it would be impossible to legislate to try to stop that happening, but the Government could make it a lot less likely by removing the positive disincentives to keep the savings—disincentives that have caused the savings ratio to halve in the past six years. Of course those disincentives have been created by the spread of the Chancellor's means test. The political debate in the House has tended to focus on the way that the pension credit discourages people from saving for their retirement, but the means test ensnares younger people too.
What is the Financial Secretary's advice to young people who qualify for income support or jobseeker's allowance? What are they to do with their child trust fund? If they keep it and it is above the modest £3,000 disregard allowed, their fund will quickly vanish as their benefits are reduced. The best thing those young people could do in those circumstances is to spend the trust fund immediately. What sort of message does that send about saving? Treasury officials told the Select Committee:
- "We are aware of the implication and we cannot say at the moment what exactly we plan to do about it".
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