My hon. Friend is right. He has clearly read the submission from the Institute for Fiscal Studies, in particular paragraph 12, which states that the issue in relation to the child trust fund
"becomes even more fraught since it is quite possible that the immediate beneficiaries of the child trust fund will be richer families who can substitute the endowment payment for saving that they would have made for their children, and so increase their current consumption."
Will the hon. Gentleman give way?
I must make a little progress. I shall give way later.
In her evidence to the Select Committee on 3 December, the Financial Secretary shed some interesting light on the question whether individuals are likely to save more. She said:
"It is a fact that each child has a tax free allowance each year of, I think, £4,600 that very few people currently take advantage of, and they could in children's savings accounts, so quite why, if they do not take advantage of it at the moment, they would choose to take advantage of it through the Child Trust Fund, I do not know."
That makes the point effectively. It suggests that even the Financial Secretary is sceptical about whether many people, especially those in low income groups, who are currently not saving and not taking up opportunities, will do so.
On the specific question whether there should be additional Government contributions while the child is aged between 0 and 18, the Financial Secretary went on to comment that
"when you ask parents, the largest group of parents who come back with an answer say that they like the idea of there being additional top-ups rather than there being a one-off lump sum at the beginning, and that the account may not be reactivated, as it were, by the Government for 18 years."
In other words, many of the people making representations on the matter to the Government fear that, if the Government do not reactivate the account by paying money into it, nobody else will.
The general conclusion that we will end up with little additional saving is underpinned by the Financial Secretary's estimate to the Select Committee that the extra tax relief on the child trust fund would have a
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negligible cost. The IFS pointed out, as my hon. Friend the Member for North Norfolk (Norman Lamb) made clear, that
"Families looking for tax efficient savings vehicles would be well advised to exhaust their ISA contribution limits before using Child Trust Fund Contributions. . . ISA funds can be accessed at a time of unforeseen need."
There is serious concern that the Government's proposal, however well intentioned, will advantage some higher income groups, not the groups that many Labour Members have in mind. Those upper income groups will be the only people who gain anything in terms of tax advantage from the child trust fund. Nobody else in societynone of the low income groupswill get a bean from the Government in terms of tax advantage to encourage them to save. The Government are relying not only on the savings that people will make in the child trust fund, but on the fact that, once people open such an account, they will be inclined to saveeven though they will have no more financial incentive to do so than they had before.
The House will understand the importance of inculcating the savings habit and the need to make up the £27 billion lacking in savings for our retirement, as well as the importance of financial education. All the studies show that that would do most to inculcate the savings habit. If the hon. Gentleman does not accept the Government's proposal as a way forward, does not he consider the matter important enough to propose some alternative?
I shall deal in a moment with the Government's role in encouraging saving. I hope that the hon. Gentleman will have picked up from my comments that encouraging savings is not always a good thing for low income groups, who could end up having to borrow at high interest rates and save at low interest rates. For all those reasons, we share the scepticism of the Institute for Fiscal Studies about whether a great deal of Government expenditure in this area will result in a tangible return, when an expenditure of £3 billion in other areas could result in a real return. That may be why the IFS stated, in relation to the Government's consultation:
"Prior to considering design issues, it would have been useful to have had a stage of the consultation process that invited comments on whether the new policy direction that is asset-based welfare is a good one to take."
The Government have many questions to answer with regard to these proposals. They must decide to what extent they should be nannying citizens in relation to savings. On the subject of how the money should be spent at the end of the period of 18 years, the Chairman of the Treasury Sub-Committee asked the Financial Secretary whether children should be free at the age of 18 to spend the proceeds of the fund in any way they wished. The hon. Lady answered robustly:
"I think the question for the Government is who is best placed to make those choices. Is it really up to us to decide what is in the best interests of a young adult at the age of 18? . . . Far be it . . . from me to tell a young person that they should not use this asset to buy, for example, a computer . . . or perhaps to invest in a van".
In that respect, the Financial Secretary is making herself the enemy of the nanny state, but I ask her to consider other aspects of the child trust fund, such as the
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limitation on the way in which the money can be used. Perhaps it could be far better used by parents making decisions for their own families, rather than the money being locked up by the Government. Is that nanny state attitude justified? I ask the hon. Lady to consider whether it makes sense to encourage some families to have very small financial assets to invest in equitiesassets that are essentially risky. I understand the arguments for that, but that is not the behaviour that lower income groups would normally demonstrate with their own money. I ask her to consider also whether it makes sense that some parents aged 17 in England, Wales and Northern Ireland will not be able to take many decisions themselvesthey will be able to do so in Scotlandbecause the Government will insist on managing their fund and that of their child.
Those are some of the fundamental objections to the scheme. It is clear that a series of amendments will need to be tabled in Committee, not least on whether there should be an allowance for draw-down either before 16 or, at least, for 16-year-olds who are going into the labour market. There seems no obvious reason why they should have to wait two more years before getting their hands on a financial asset that might help them in their job.
Another issue is whether the Government's insistence on the managed accounts being invested in equities, at least in part, makes sense. Some hon. Members have alluded to the interaction between the child trust fund and the benefits system, not only in relation to jobseeker's allowance but in relation to the issue, raised by the Select Committee, of the deprivation of capital for family members, a question that was not fully answered by the Financial Secretary at the time.
There are many reasons to object to the Bill and there are many better uses for the money that the Government will spend. There is inadequate justification that this expenditure of money will lead to the results that the Government claim it will. Even at this late stage, I hope that the Government will think again about using the money for a purpose that is so unclear.
Mr. Michael Jabez Foster (Hastings and Rye):
It is unusual for the Liberal Democrats to be against some kind of public spending; their usual position is to demand a doubling of the contribution. More important than that is the mean-spiritedness shown by the hon. Member for Yeovil (Mr. Laws)who represents a town that is not one of the poorest in Britainto my constituents in Hastings and Rye, the 27th poorest town in Britain. We have the highest levels of child poverty in the country, although we have benefited from children's centres and other measures introduced by the Government. I find it difficult to understand the idea that it is not beneficial for an individual to be a stakeholder from the very beginning. I suspect that the
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length of the hon. Gentleman's speech was indicative of the difficulty of his task of opposing something that is so obviously sensible and right for people on low incomes.
If the hon. Gentleman had the choice in his constituency, as I might have in mine, between having a children's centre or the expenditure on the trust fund, which would be choose?
That is an unreal choice, because the Government are investing in children's services at a level way beyond anything for which the Liberal Democrats have ever asked. It is not a real choice to say that a children's centreimportant as it isshould be "instead" of this once-in-a-lifetime opportunity for young people from modest backgrounds or poverty to receive something that is theirs and to which they can look forward for the future.
Middle-class families will provide for their children anyway, and I do not begrudge them the opportunity of doing so in a tax-efficient way. That is the proper thing to do, but the scheme will give poorer children an opportunity that the Liberal Democrats would deny them.