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Mr. Cameron: The point that I was trying to make is that a trust fund would make it easier for other people to help a family with a disabled child. Often, friends, families and charities want to help, and a trust for the child, which could go on to be their trust after age 18, would provide an easy and neat way for people to contribute. Of course it would not help everyone straight away, but it would help many people and that must be a good thing.
Mr. Weir: I do not dispute that point, but I repeat that it is those with the family and friends who have the money to contribute who would benefit most. I have been involved with a trust in a professional capacity which was set up to help people with disabilities, and we were able to help the poorest, who needed that help, not those who were able to set up their own trust funds. The idea has merit and I do not write it off, but it faces the same problem as all trust funds. How do we ensure that those most in need are the ones who are helped most? There is no easy answer.
The interaction of the child trust fund with the welfare system could also cause a problem. If no further funds are contributed other than the initial payments, that will not be a great problem when the person reaches 18. Similarly if the person goes on to full time education after 18, there will not be a great problem. However, a problem will arise—as the Minister admitted—if someone has had money paid into their fund but unfortunately has to claim benefits when they reach 18. The Treasury anticipates that a payment of £10 a month could build up a fund just short of £4,000. That is more than the disregard figure for benefits at present, although I appreciate that the Minister has said that the disregard will rise to £6,000. That is welcome, but I do not know what it will mean over an 18-year period. Will it be uprated with inflation every year to ensure that the full value of the uprating still applies when a child with a trust fund begun in 2005 receives the benefit of it 18 years later? Otherwise, payments made to the fund could reduce or wipe out any benefit entitlement. It may be impossible to get round that problem entirely, because the trust funds are bound to create some unfairness in the benefit system and the Government will have to address that fact.
Many of the other points that I would have made have been covered by other hon. Members. I may have given the impression of being completely negative about the Bill, but that was not my intention. The idea has merit but it needs to be tweaked. More thought needs to be given to how we can help the poorer sections of society more. The fight against poverty should be the principle
behind this. In their present form, the trust funds will not help, but there may be a way to start making progress.7.7pm
Bob Spink (Castle Point): The hon. Member for Angus (Mr. Weir) spoke well and made some good points. It is always a pleasure to follow him, but I wish to refer in particular to the speech made by my hon. Friend the Member for Witney (Mr. Cameron), who made an interesting and original contribution to the debate. I am sure that his cry from the heart for disabled children will have been heard by the House and will be considered carefully.
I approach the Bill with four key points in mind. The first is the principle; the second is the objectives; the third is the detail, including how the fund will work throughout its life and how we can help those born before the start date of 1 September 2002; and the fourth is the outcome, if the measure passes into law. The principle is good, but only in part. The objectives are sound and I congratulate the Government on them. The details are well thought out, as far as they go, but it will still take a lot of effort to make the system work and to ensure that the objectives are secured and the money not wasted. The outcome, of course, remains to be seen. I hope for the best, but I fear the worst, given the Government's track record on delivery. At this stage of the Bill's life, therefore, I would award the Government two out of four on those key considerations. Fortunately, that enables me to support the Bill, but I want to improve it, to ensure that the objectives are secured and that the outcomes are positive.
The child trust fund may help to encourage people to adopt a savings habit. As the savings ratio has fallen to disastrous levels we certainly need to do something to encourage people to rediscover Britain's savings culture and to make provision for a rainy day. Indeed, the Government's disastrous performance on the savings ratio is storing up a major problem for our future. The proportion of household resources in savings has fallen from 10 per cent. in the second quarter of 1997, when Labour formed their Government, to less than 5 per cent. in the second quarter of this year. As the Government claim that everyone is now much better off, how could they have got savings so badly wrong? They are driving down the savings of ordinary households to less than half what they were when the Conservatives handed over to Labour in 1997.
The principle behind the Bill is questionable, at least in part. It is a typical nanny-state, patronising, Government-knows-best measure, as the Liberal Democrats have rightly pointed out. It takes some people's hard-earned money and gives it to others, with no control over how that money will eventually be spent. The Government may of course have their eye on the election, another point on which we might question the principle. That may also be one of the reasons why they want to rush the Bill through.
The objectives of the Bill are not ignoble, however, so I shall make some positive points. The measure will help people to understand the benefits of saving and investing and building up funds for their future. Starting from the cradle, it gives encouragement to children and
a mechanism to parents and grandparents to invest in their children's future. That is entirely helpful and laudable. In essence, the Bill is designed to change people's saving behaviour—it is social engineering, and I accept it. It will also help to engage more families and younger people with our great financial institutions. We hope that those institutions will not go the same way as blue-chip organisations such as Equitable Life; nevertheless, encouraging such engagement is probably a good thing.The measure will ensure that all children have a financial asset at the start of their adult life. I cannot fault that, although I hope that, as there will be no control whatever over how the money is spent, it will be spent wisely. That will not always be the case of course, but the objectives are praiseworthy and I welcome them.
The Bill will help to develop financial awareness so that people make better financial choices throughout their lives. It will create habits and understanding that will be helpful for the long-term stability of society, and I welcome that, too. However, will the detailed scheme actually deliver those objectives? As always, the devil is in the detail.
The proposals are extremely complicated and extend the socialist principle of means-testing. Those factors may act as a major disincentive to save, thereby frustrating the Bill's objectives. I seriously question whether we need more means-testing, especially bearing it in mind that, as a result of Government policy, it will be extended to about 75 per cent. of retired people.
Labour's 1997 manifesto promised tax reform to promote savings—very laudable; yet the Chancellor, in his first Budget, levied a £5 billion a year stealth tax on pensions by abolishing the dividend tax credit payable to pension funds. At a stroke, the Government made a major tax reform, not to promote saving but to discourage it, hence the disastrous fall in the savings ratio.
Much work will need to be undertaken to ensure that CTF accounts will be available on time, in 2005. The Government need to ensure that the various products are safe and that the money will be underwritten so that people are not robbed of their assets, which is exactly what has happened to many of my constituents—and probably to many of yours, Madam Deputy Speaker—who took Government advice and put their savings into pension funds. They have been deserted by the Government.
Hon. Members may call me cynical, but I remain deeply sceptical about the fact that £250 per child is to be paid out only two months before the likely date of the next general election. As borrowing is rising to £37 billion, way above the 3 per cent. good governance rate that the Government told us about, and as the overall cost of the CTF will be about £4 billion, and there will be a significant advertising campaign, one must be cynical about the Government's motives, especially as they are rushing the measure through.
We do not yet have clear details about how the child trust funds can be held. Much work needs to be done on administrative matters. We have insufficient information about the impact of those resources on people's entitlement to means-tested benefits. Will 18-year-olds be encouraged to blow their windfall? I realise
that the disregard will be increased to £6,000, but I agree with the hon. Member for Angus that the figure must be watched carefully and indexed.The scheme adds to the complications relating to various savings products. If the Government really want to promote a savings culture and improve the savings ratio—as they should—they should simplify the range of savings products available, rather than making the system more complicated. A simple system with a single tax relief on an indexed amount invested each year would be far better than the multi-level ISA and other systems that currently exist—but I digress.
I am deeply concerned about the flexibility of the scheme. What will happen to funds if, tragically, a child does not live until the age of 18? Such points need careful consideration.
I agree with the line taken by the Liberal Democrats: they say that the scheme is painfully thin on details and that its benefits to children are unclear. They make a lot of sense when they say that the Government should be using any available cash to help children get the best start in life. It is undeniable that getting a child's early development right is the best way to use the money that is available. They make a sound point, but we should implement both that early years investment and the Bill, to encourage a savings culture. The Liberal Democrat view does not address the difficulty of encouraging a savings culture and restoring the savings ratio to what it was in 1997 when the Conservatives handed over the economy to Labour. I hope that the Liberals will continue to push for more spending on early years, as that is certainly the more important of the two factors, but I believe that we can have both.
The outcomes of the Bill remain to be seen, and although I hope for the best, I fear for the worst. As the Government cannot even organise a simple system to distribute passports on time, and given their record on tax credits earlier this year, I am deeply concerned about their ability to deliver the long-running and complicated CTF system, especially as there is such a tight time scale.
In any event, young men and women of the future will need the endowment to pay for their education, if the Government get their way on tuition fees—although I hope that they do not. The bottom line is that the Government will give those young people someone else's hard-earned money and then take it back again through tuition fees.
Given that the pot of cash will be available to youngsters at 18, and given the scare stories that we will undoubtedly read about in years to come, with some youngsters blowing their money on holidays, fast cars or even drugs and booze, I can envisage the Government seeking in future to control the way in which the money is spent, perhaps indirectly by forcing up education fees or some other mechanism, so that the choice over the use of funds will be removed or constrained by this control-freakish Labour Government.
Like the majority of people in this country, I simply do not trust the Government. I remain deeply sceptical about the two-level payments. The initial endowment will be £250 for most children, but children from low-income families who also qualify for the full child tax credit will receive the higher payment of £500. The Treasury states that around a third of children will be entitled to the higher sum, although, again, I do not
trust the Treasury forecast on that. Family fortunes can go up and down—year to year, decade to decade—so youngsters who receive the higher level of public money, when they are born or when they are seven, may end up being better off than those who receive the lower amount of public money. That will not be perceived as fair or appropriate by anyone.Of course, many issues need to be ironed out in Committee. For example, can we ensure that children born before 1 September 2002 will be able to benefit from the tax exemptions in a parallel fund, even though they will miss out on the lump sum payments? Other issues include children in care, and I am very grateful to the Financial Secretary for her earlier comments, so I will not pursue that issue. Of course, children who live overseas will need to be dealt with. We must consider the charging levels for administration—the charge cap—and the fact that marketing strategies may well be focused on the middle classes and higher income groups, rather than lower income groups. We will have to ensure that that is tightly controlled. We must also consider the scheme's impact on the take-up of child tax credit, since any household on an income below CTC threshold—currently, £13,230—will need to claim CTC before becoming eligible for the additional £250 CTF. The operation of the age-related endowments—the further payments into the CTF on the seventh birthday—also needs to be carefully designed.
Again, additional payments will be made to children in families with lower incomes, presumably at or before the seventh birthday. I should very much like the Treasury to provide evidence about how many children whose households fall into certain wealth categories when they are born or when they are seven years old will still fall into those wealth categories, rather than moving into a higher wealth category, by the time they are 18—and, of course, vice versa. There will be a very weak correlation between household wealth category at birth and the wealth category at 18—that is certainly my experience in my family and in my community—so the benefit received at 18 may be unrelated to financial circumstances when the benefit is paid. That would be seen as an inequitable use of public funds.
There is also an additional election bribe—I am sorry, rather than election bribe, I intended to say problem. Although accounts will not be available until 2005, children born from 1 September 2002 will be eligible for CTF accounts. Since CTC was not available before 6 April 2003, it cannot be used to identify entitlement to the additional endowment. Clearly, some fancy footwork will be needed during the Bill's detailed consideration in Committee.
Moving on to the accounts themselves, there are many questions. Providers will need to make a profit on the accounts, and the 1 per cent. charge cap should be very carefully considered. I am not convinced that that is the right level. Various types of account will be available, and some will be more successful than others. The CTF will be a wrapper in a similar way to ISAs, but we all know that the complication of the multi-layered ISA—with cash, equities and insurance—has led to a fall in the savings ratio.
Some of my constituents are not familiar with the financial wrapper philosophies. Of course the Treasury Committee has reviewed that matter, and it was told that a low-income family investing £500 in a safe account but making no extra contributions might see their bond increase to only £911 in 18 years. A more financially aware family could invest only £250 in a more sophisticated way, contribute £40 a month and see their investment increase to £14,000 in 18 years. However, a family with sufficient disposable income and financial nous could invest the maximum of £100 a month in the stock market and in bonds and build up a fund worth about £35,000 to £40,000 in 18 years. That will not narrow but widen the unequal distribution of wealth in the country. Of course, many of the investment funds will involve displacement, rather than additional investment—as the hon. Member for Hastings and Rye (Mr. Foster) confirmed in his reply to my earlier intervention—so the savings ratio will not be improved.
Moreover, some of my constituents do not trust financial products, following the Equitable Life debacle and many of the problems in pension schemes whereby people could lose much of their life savings, especially given the Government's refusal to address those problems and rescue those people who have already suffered from the collapse of some private pension schemes. Clearly, as with any financial product invested over a long time, there will be an exposure to risk. We all thought that risk was very low in the major blue-chip companies, such as Equitable Life—the House has probably got my drift.
My bottom line is that the Bill has some merit but needs detailed work to make it sound. In any case, the principle of taking someone's hard-earned money, giving it to someone else in a lump sum when they reach 18 years of age to spend as they wish, with the Government adjusting education fees to ensure that they take back the money where they possibly can, represents yet another nanny-state, patronising, socialist intervention that may end in tears, so very careful work needs to be done in Committee.
We have had three such consultation exercises in the past two years. We have had announcements and re-announcements, and I suspect that the Government are proceeding with the scheme because it is superficially attractive, and they hope that it will help to secure the middle England socialist vote that they have destroyed by introducing tuition fees. The proposals are over-complicated and therefore may be a net disincentive, rather than an incentive, to saving.
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