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Ruth Kelly: The hon. Gentleman misses the fact that I reported to the House that we have increased the £3,000 threshold above which savings reduce eligibility for means-tested benefits.
Ruth Kelly: To £6,000, in line with pension credit.
Mr. Osborne: Of course, simply increasing the disregard does not solve the problems. The Government hope that people will put more than that sum into trust funds, so that they can use the money when they turn 18, but the problems will remain, and I have quoted what the Treasury officials said.
What about a young student thinking about going to university? The Government's top-up fees will be means-tested, as far as we are aware, so hanging on to a child trust fund might involve paying the full whack of top-up fees the moment that students leave college. We will not know about that until the top-up fees Bill is published, whenever that may be, but we could find that the smartest thing that young students could do is spend the trust fund on drinks in the college bar. What sort of message would that send about saving?
My hon. Friend the Member for Witney highlighted the ultimate irony that although child trust funds are supposed to encourage saving, they are themselves an extension of the means test. All children will be means-tested at birth to determine whether they qualify for the £500 voucher, so the Chancellor will achieve his ambition of a cradle to grave means-tested welfare system.
We have many questions about the Bill. We want to know about means-testing and the scheme's key details, which remain a mystery. We have questions about whether trust funds will encourage people to save and how they will reach low-income families. We have questions about the tight timetable that the Government have imposed on themselves and the industry, and above all, questions about how the scheme fits in with an overall approach from the Chancellor that discourages saving. It is a shame that the scheme is over-complex and that it will extend means-testing because it is precisely those vices that have caused the current crisis in savings, which the Bill cannot address by itself. A far more radical lifetime approach to savings is required to deal with that crisis, but that will have to wait until the next Conservative Government are in power—owing to recent developments, that might be just around the corner.
The Bill demonstrates the Labour party's recognition—at last—that promoting savings is important. It is long overdue, and although it might be a third way within the third way, it is none the less welcome. On the basis of the Government's important change of heart, and despite our many reservations about the specifics of the scheme, we shall not oppose the principle underlying child trust funds or vote against the Bill tonight.
5.21 pm
Mr. John McFall (Dumbarton) (Lab/Co-op): I am grateful for the opportunity to speak to the Child Trust Funds Bill. I am delighted to note that there is already one enthusiastic supporter of child trust funds in the form of the hon. Member for Tatton (Mr. Osborne). He said that one of his two children will receive a trust fund while the other will not. It will be his job to explain to them why one will receive a huge amount and the other will not, so the fact that he is signed up to, and enthusiastic about, child trust funds must warm the cockles of the Minister's heart. The hon. Gentleman came to a sitting of the Treasury Committee for a tutorial. I was going to give him a bare pass, but given the way in which his speech went on and descended into ideology and partisanship, I shall have to reappraise that. However, at least he came along to listen.
The Treasury Committee has undertaken an examination of this important Bill and I commend the work of my colleague, the hon. Member for Sevenoaks
(Mr. Fallon), and other Committee members to ensure that we got the report out in time for Second Reading. That is an example of Parliament working at its best.I am pleased to note that under the proposals, all children born from 1 September 2002 will be eligible for a child trust fund. The Government will provide children with an endowment of £250 and the children of families who receive full child tax credit will receive a further £250. It is good to note that the Government will make further payments when children are aged seven, and that they will encourage families to provide £1,200 every year with a tax break. The objectives of the trust funds are those to which the Treasury Committee has signed up: first, to help people to understand the benefits of saving and investment; secondly, to encourage parents and children to develop the savings habit and engage with financial institutions; thirdly, to ensure that in future all children will have a financial asset at the start of their adult lives to invest in the future; and fourthly, to build on financial education to help people to make better financial choices throughout their lives.
Hon. Members have asked whether the Bill will promote a savings culture. The Treasury Committee asked for submissions from many potential providers and took evidence from them. The Association of British Insurers viewed the Bill
- "as offering the possibility of creating a savings culture among the next generation and, in so doing, building a mass market for financial services."
- "wholeheartedly supports the creation of the Child Trust Fund",
- "offers the prospect of a new 'asset-based' approach to welfare that could be extremely beneficial to many young people who might otherwise start adult life without any assets and consequently suffer from poorer life chances."
- "a strong supporter of the Child Trust Fund",
- "it is an excellent far-sighted policy, of particular benefit to low-income families
- "will eventually extend access to an accumulated asset to all young adults
- "may trigger additional individual private savings by parents."
The point was made in the evidence sessions that a small amount of assets can have a big impact. Research by Mintel has shown that 35 per cent. of parents with children under 15 are not saving anything for their children's future, and that 26 per cent. of parents save only rarely or occasionally—so more than 50 per cent. of parents in this country do not save at all or save only a small amount intermittently. We need to ensure that young people develop a savings culture. Given the problems that the Treasury Committee has considered with pensions, long-term savings, split capital investments and endowment mortgages, good consumer education and a savings culture has emerged as the
important theme if we are to expand financial education. There is no better opportunity than the Bill to ensure that young people have that education.
Mr. Robathan: We all agree about the savings culture, but what does the Bill do to encourage the more than 50 per cent. of parents who do not save substantial amounts for their children to do that? Nothing in the Bill will achieve that.
Mr. McFall: I have a quote on that subject, which I shall come to later.
The Financial Secretary told the Treasury Committee:
- "if you look at figures on savings of young people under the age of 25 which is the best proxy we have for 18-year-olds, the British Household Panel survey suggests that the average young person has zero financial assets. Now that is across income groups."
Research based on the national child development survey 2001 suggested that holding assets has a positive impact on health, the labour market and educational attainment. The amount of assets needed to achieve those outcomes was low, in the region of £300 to £600. The experience of individual development accounts in the United States, where about 20,000 people have the opportunity to benefit from matching schemes, is that assets accumulate over a certain period. The evidence is that incentives are beneficial in encouraging even poor people to put money away. That research makes it clear that even a small amount can induce a savings culture.
The middle-class subsidy has been mentioned. What amazes me is that such criticism largely comes from the official Opposition, who on this subject argue against the middle class.
Mr. George Osborne: Perhaps I did not make myself clear. If the objective is to reduce wealth inequality in our society, which is what the Minister claims, I cannot understand how the policy will achieve that. I am not against the policy or against the middle class, or any other class, receiving savings tax breaks, but the child trust fund will not achieve what the Minister sets out to achieve.
Mr. McFall: So I can take it from the hon. Gentleman that he is in favour of middle-class people getting child trust funds, and he is also in favour of low-income families getting them. What is the problem? There is no problem. He agrees that everybody should enjoy the provisions of the Bill. If there is evidence to show that even small sums generate and inculcate a savings habit, that can only augur well for the future.
We took evidence in our inquiry from Caroline Rookes, the business director of the pension and share schemes at the Treasury. She referred to the research that was being undertaken at the savings gateway. It was only at an early stage, but it was found that two thirds of those involved claimed that they would continue saving. Those are people on low incomes. Surely everyone on
both sides of the Chamber should encourage those on low incomes to participate in such schemes to ensure that they develop a savings habit. That can only be good.
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