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Mr. Hilton Dawson (Lancaster and Wyre) (Lab): In welcoming the Bill, which I think my hon. Friend has deduced is supported by right hon. and hon. Members on both sides of the House, does he agree that the most disadvantaged group of children and young people in the United Kingdom are those in local authority care? While the White Paper makes some positive references and expresses good intentions towards those children and young people, we need to see something that is more positive in the Bill about the Government's intention to include this group in the overall group of people who benefit from child trust funds.

Mr. McFall: I agree entirely with my hon. Friend, but not everyone in the House agrees with child trust funds. It is a centrepiece of the Liberal Democrat programme that they do not agree with them. There was not room, given the 2,556 commitments that the Liberal Democrats made, to include child trust funds. Given their flexibility in response to Queen's Speeches, perhaps they will include something about the trusts next year. Then, we will welcome everyone on board.

Dr. Tonge : I shall ignore that rather idiotic approach to debate.

The hon. Gentleman was talking earlier about child development and the evidence that he is producing that the idea set out in the Bill is a good one. Does he agree that in terms of child development, whether children are lower class, middle class, upper class, or whatever, all the evidence shows that early intervention in a child's life in the form of child care and good nursery education is what matters? It outweighs any other consideration. Therefore, should we not be spending the money that the Government intend to expend on baby bonds on expanding much more rapidly the early years centres and children's centres?

Mr. McFall: I do not follow the hon. Lady's logic. She talks about early intervention, and this is the earliest intervention that we can make. The Government are saying that they are expanding provision for health and education. I would not like—

Dr. Tonge rose—

Mr. McFall: I shall examine the hon. Lady's logic.

I would not like to recommend a child trust fund if the Government were cutting expenditure on health and education, and intervention in those areas. That is the key. I have personal professional experience as a teacher. I taught in areas that were very much middle class, and in other areas that have been described as ones of urban development. I know from that experience that if we inculcate a habit in children in poorer areas, it lives on. I taught in the south side of Glasgow, an area which is extremely poor. A gifted music teacher ensured that an orchestra was developed at the school. It was a joy to

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travel to the school each day and see the kids going to the school with their drums, guitars or whatever. Why did they do that? The answer is that it was inculcated in them at an early stage. I am at one with that philosophy.

The Children's Mutual is one of the possible providers. The result of its survey in 2003 was that 79 per cent. of parents with children eligible for child trust funds are likely to top-up Government moneys. It says that if there is a small amount they will top it up and they will save. I suggest that 79 per cent. is a good start.

Mr. Weir : I am interested in what the hon. Gentleman is saying, but how realistic is that prospect? The research in the Treasury White Paper that he cited also reports that a large number of parents, when asked why they do not save for their children's future, simply said that they could not afford to do so. That will not change. The fund relies on a top-up to be effective, so I wonder how many families on low incomes or benefits will be able to give any amount of money to bring the fund up to a realistic level.

Mr. McFall: When the Government introduced their proposals, the Financial Secretary said that it was an ambitious programme. The hon. Member for Tatton said that it had not been tried elsewhere. I agree that it is an ambitious programme, and it is difficult to ask parents to save. However, the Children's Mutual, a possible provider, says that 79 per cent. of parents surveyed said that they would top up the fund, which suggests that there is an opportunity to make a good start. It is extremely important to introduce a savings culture.

The Financial Secretary answered a number of questions on financial education when she appeared before the Select Committee. Caroline Rookes of the Treasury said:

"We are going to work with and have started talking to voluntary and community organisations. We are going to be looking at resources in schools. There is a whole effort going into creating a financial education initiative to run alongside the account so that, at the end, it is probably true that children from poorer families will have less money but we hope that they will be provided with financial education and a better understanding of how to interact with financial services".

A savings culture is therefore being developed, and I commend the Government on ensuring that financial education starts in schools. One theme that has emerged in the Treasury Committee in the past is that there is not enough consumer education in adult life, never mind for young people. It is therefore important to ensure that financial education is available in schools, which is why the Treasury Committee concluded:

"The child trust fund is an ambitious, pioneering programme which seeks, through a significant long term investment . . . to provide a financial asset . . . and to change people's behaviour towards saving."

The Treasury Committee therefore gave the recommendation a fair hearing.

I mentioned that I had five points to make, the second of which concerns the extension of the scheme, not with Government endowments, but by making tax breaks available. I should like the Minister to look at that again, because in our evidence sessions I put it to Treasury officials that it would be invidious for a parent to establish a child trust fund for one child, but not

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another. The Government should keep open the opportunity to open a child trust fund for children born before 1 September 2002. They should not give endowments, but offer the same tax breaks for such funds. The Minister told the Committee that the extra tax relief afforded by the child trust fund is negligible. If that is the case, why cannot the Government consider extending the provisions of the Bill to children born before 1 September 2002? That is a relevant point, and I urge the Financial Secretary to give it consideration.

Thirdly, advice to parents is crucial, particularly for those with no previous financial experience. The Committee strongly endorsed the hierarchy of savings that the Minister elucidated when she appeared before us. In other words, any moneys must be used first, to pay off debt, and secondly, to provide for a rainy day. Only after such provision should they be used to make contributions to the child trust fund. We agree entirely with that hierarchy, but the information and advice for parents must be clear and unambiguous. The Treasury is sending an information pack to all parents, but that message must be loud and clear.

My fourth point relates to what the hon. Member for Tatton said about the interaction between welfare and the Government's needs. An 18-year-old receiving jobseeker's allowance or income support will be in an invidious position if his benefit is disregarded because of the extra income provided by the allowance. The Financial Secretary has come up with one or two surprises already, and I hope that that point may be clarified today, but if that is not possible it must be clarified in Committee.

Pension credit has been mentioned. I am delighted to hear from the Financial Secretary that the disregard has been increased from £3,000 to £6,000, but it was pointed out that there is a barrier somewhere along the line. This scheme has the potential to have profound effects, but if the wrong message is given to those who will be adding to the savings—parents, grandparents and friends—that will do it no good.

The Financial Secretary told the Select Committee

"I do not think it would be appropriate for me outside the ordinary PBR/Budget timetable to make any further comment."

She needs to have a word with our right hon. Friend the Chancellor. I should be interested to know the result of that conversation.

The fifth issue that exercised the Committee was the achieving of a balance between the costs that can be charged by the providers and the regulatory regime—in other words, the effect of regulation on the cost. I know the Government are very determined. The Financial Secretary told the Committee that

"there is a high threshold of persuasion for any move from a 1 per cent. charge cap for stakeholder products."

I agree.

Like other Members, I have been lobbied on the 1 per cent. cap over the past year. In my capacity as Chairman of the Committee, I have taken a lot of evidence and spoken to a good many people. Moreover, as I said earlier, we have conducted inquiries about pensions mis-selling, split capital investment trusts and endowment mortgages. Here we have an industry that has not been doing too well in consumer terms, which is why the Treasury Committee has been considering how

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confidence in long-term savings can be restored. I think that the onus is on the industry to work with the 1 per cent. cap, and, if it cannot do so, to be entirely transparent about the reason. I have heard generalities so far, and it would take much more specific information to convince me that we should abandon the cap immediately—although I realise that some companies could experience problems.

The Association of British Insurers saw the possibility of the creation of a savings culture among the next generation, and hence the building of a mass market for financial services. That mass market is important in the context of the 1 per cent. cap. If the Government get it right and produce a Sandler-type product—a simple product—it will not require a huge amount of selling. Each year more than 700,000 vouchers worth £230 million will be made available to parents so that they can choose a child trust fund. This is a tremendous opening for the financial services industry.

As we stated in our evidence, given the low cost of demand generation and the certainty of high persistency rates, a cost-based price cap might be set at a lower level than for other stakeholder products. The Homeowners Friendly Society told us that it would be happy to meet the 1 per cent. price challenge, although it accepted that it could be difficult or impossible for some other providers. Some in the market are therefore already happy to accept that challenge.

I want to consider fortnightly reporting. The British Bankers Association noted that the fortnightly reporting requirements would

"place additional burdens and require changes to internal systems capable of accommodating both fortnightly and current quarterly returns for ISAs."

Fortnightly reporting appears a wee bit over the top. Perhaps the Financial Secretary could explain why the Treasury persists with it. If we want simpler products and to ensure that the price cap is sufficiently low, perhaps such regular reporting adds to administration. I hope that my hon. Friend will deal with that in her summing up.

The Treasury Committee considered the subject constructively. We applaud the Government for their ambitious initiative. We realise that by the time the young people who were born on 1 September 2002 are 18, the Government will have spent £4 billion on them. That is a great deal of public money, which has to be spent wisely and well. I am sure that the Government will do that, but they must provide the details of their scheme as the Bill progresses. Even more important, they must ensure that the implementation is right. With those cautionary words, I welcome the measure.

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