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Dr. Tonge: I am glad that my hon. Friend is addressing this issue, and that he has congratulated the Government on what they have done on Sure Start, on nurseries and on early years education. That work is admirable and it is to be supported. He is right, however, in what he says about the children's centres. By 2006, they are expected to be serving about 650,000 children, which represents only 20 per cent. of the children in the most deprived wards. Would it not be much better to spend the money that the Government expect to spend on baby bonds on expanding those children's centres much more quickly, thus benefiting children here and now, rather than in 18 years' time?

Mr. Laws: My hon. Friend is right. I seem to recall that the Minister's own Parliamentary Private Secretary made a similar point in an article in the Financial Times only a few months ago, implicitly criticising the Government for their slowness in rolling out children's centres and Sure Start schemes to all the population. I was in a primary school in Yeovil on Friday, and the crying need for early years intervention was only too apparent. We need to tackle problems that arise when young people start at infant and primary schools without adequate educational support and other problems in society in terms of child poverty and poor parenting.

It was notable in that school that, in a cohort of seven-year-olds, about 60 per cent. came from single parent families or from families in which one of the two adults was not the original parent. That shows the extent of the problems of inequality that need to be challenged in society today. I give great credit to the Government for taking on the challenge of addressing inequality, but it is far more important to finish that job before rolling out a large amount of expenditure into a project whose social and economic returns are extremely dubious, as I shall go on to demonstrate.

Mr. Dawson : The hon. Gentleman is dramatically understating the significance of the Government's approach to children's centres, and he would benefit from looking again at the Green Paper on children. Crucially, he is missing the fact that young adults, including those from socially deprived backgrounds, have enormous energy, vitality and purpose, which would be greatly assisted if they had their own assets behind them. Is this not an exciting opportunity that entirely complements the rest of the Government's programme?

Mr. Laws: I agree with the hon. Gentleman's first point, but not with his second. The issue that we are trying to address is that there is a widespread need for

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children's centres and Sure Start schemes throughout the country, and that they are probably the single most important thing that the Government are doing to challenge inequality of opportunity and to give children a real chance in life. That is far more important than giving money to people when they are born and locking it away in an account, creating a barren investment that can do nothing to tackle the sources of inequality.

Mr. McFall rose—

Mr. Laws: I shall give way to my previous boss on the Select Committee, then I must make some progress.

Mr. McFall: I am grateful to the hon. Gentleman for giving way. I would like to examine the Liberal Democrats' policy on this issue. Is he against the principle of the child trust fund, or against the fact that the Government are spending money on it now, when he thinks that they should spend it where it can have an immediate effect, such as in children's centres?

Mr. Laws: We believe that the overwhelming priority should be children's centres and Sure Start programmes, not child trust funds. I want to go on to explain our serious concerns about the detail of the child trust fund proposals. We share the view of the Institute for Fiscal Studies, which does not believe that the evidence behind the proposals so far supports the amount of money that the Government are going to put into the scheme. We do not believe that the amount of money going in will create an adequate return.

I want to consider briefly the four points that the Government have made in justifying the rolling out of the child trust fund. They state that the fund should

"ensure that in future all children have a financial asset at the start of adult life".

However, it is not clear from the background documents why it is so important to give people a financial asset at the age of 18—as the hon. Member for Tatton pointed out, the Government are about to persuade about 50 per cent. of our young people that, at that time, they should not only have a financial asset but take on a very large financial liability. The Government seem to be sending out a muddled message, saying that it is tremendously important for young people to have a significant financial asset while telling them that they should be extremely relaxed about getting into serious amounts of debt that they can pay back from their income in later life. That raises a fundamental question about whether savings at particular points in people's lives or careers make any economic sense, and whether the Government have any business interfering with the decisions that people make about their own priorities.

What will the students do with this financial asset when they get it at the age of 18? It will be obvious to many of them that they should use it to help to fund their university careers and to offset the debts that the Government are happy to encourage them to incur. Some students will no doubt use the money to fund leisure activities—a party, perhaps, on their 18th birthday, or a holiday—which seems to be of dubious value in terms of public policy rationale. The Minister

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said that some young people may choose to use the money to establish a small business, but, as the Institute for Fiscal Studies has pointed out, if that is the primary policy aim, we should consider what alternatives are available. Most assuredly, a tiny minority of young people will use the money for that purpose.

I shall fold the next two points together to make sure that I do not eat up too much of other hon. Members' time. They are the first two points that the Government make in justifying their policy. Their objectives are

"to build on financial education to help people make better financial choices throughout their lives"

and, linked to that,

"to help people understand the benefits of saving and investing".

The Institute for Fiscal Studies has made the point not only in the initial consultation but in its paper to the Treasury Committee that it is not at all obvious that the best way to educate young people on financial literacy is to set up an account and pay Government money into it—indeed, it is not obvious why the young people who do not operate their account would achieve greater financial literacy.

That takes us back to the point about priorities that my hon. Friends and I have made. It is far more important to ensure that every individual in society has the basic numeracy and literacy skills to manage their own career and to make their way in the world, than to establish accounts such as these and to deliver financial education in a dubious way—it could be delivered far more effectively through the education system.

It is also unclear what kind of signal the Government are trying to send on what they call the benefits of saving and investing. One of the issues that the Select Committee dealt with was the fact that, for many families, particularly those in lower income groups, it will not make any sense to put money in a child trust fund and to lock it up for 18 years. Many of those people end up having to borrow large sums, often for short-term purposes, at extortionate rates of interest. It is not at all obvious why it would be sensible for those people to pick up the savings habit through the child trust fund, rather than through one of the other vehicles for savings.

That brings us to the most serious argument that the Government have advanced in relation to the child trust fund—that it should encourage parents and children to develop the savings habit and engage with financial institutions. The key question, which the Government seem unable to answer, is whether, as a consequence of being encouraged to develop the savings habit, parents and children will save more.

That was a point that several members of the Select Committee explored robustly with the Minister, perhaps wrongly, on the issue of targets, which the Financial Secretary shied away from. Perhaps I can direct her instead towards estimates, as I tried to do in my intervention, and encourage her to let us know whether there is any assessment of the effect that the measures could have on total saving. It is possible that all we will succeed in doing is make the Government save for people, rather than people themselves saving. That will hardly encourage people into the savings habit.

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In addition—the point was made effectively by the Institute for Fiscal Studies—it is unclear why many people, particularly those in lower income groups, should save in a child trust fund, when they can enjoy the same tax breaks through an individual savings account, with all the flexibility that that implies.

Norman Lamb (North Norfolk) (LD): Is my hon. Friend aware that the Treasury official's evidence to the Select Committee was that, unless habits change, it is likely that middle income families, rather than low income families, would take advantage of the tax-free savings vehicle? The advice to low income families is, first, to pay off debt and, secondly, if they have money to spare, to save it in such a way that it would be available for a rainy day, and only after that to put money into a vehicle such as the child trust fund. Every indication is that low income families will not use it.

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