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7.51 pm

Ruth Kelly: With the leave of the House, I shall reply to the debate.

I shall start with an apology. I should have welcomed the hon. Members for Wycombe (Mr. Goodman) and for Tatton (Mr. Osborne) to the Opposition Dispatch Box. I look forward to working with them during the passage of the Bill. I am sure that they will both make great contributions to our future proceedings. I was delighted that at the start of the debate they said that they would welcome it. I am slightly confused because the tune seems to have changed between the opening remarks of the hon. Member for Tatton and the closing remarks of the hon. Member for Wycombe.

David Taylor: Does my hon. Friend find it surprising, as I do, that the speeches I have heard in the Chamber and on the monitors from Conservative Members—[Interruption.] The monitors were invented in about 1932. Their speeches have consisted of carping and criticism, which seems inconsistent with their planned intention of studied indifference if there is a Division. Is not that surprising?

Ruth Kelly: I agree with my hon. Friend. I find it totally surprising. The only message that I gleaned from the winding-up speech of the hon. Member for Wycombe was that the Opposition are confused. Perhaps I can clarify a few points for them during my reply. Before doing so, perhaps I should say to the hon. Member for Yeovil (Mr. Laws) that I am delighted that the Liberal Democrats have forcefully started to welcome the idea of intervention in the early years to promote opportunity in later life. I am delighted also that they think that money should be earmarked for that purpose. Given their conversion to investment in the early years, perhaps that might be signalling also their conversion to top-up fees. I find it extraordinary that they say that the priority for taxpayers' money should be in the early years and yet they propose to raise taxes to fund higher education for those in their later years.

Mr. Laws: We find it extraordinary that the Financial Secretary is saying that it is vital that 18-year-olds should have an asset at that period in their lives when the Government are bringing in a huge liability in the form of top-up fees. How does that add up?

Ruth Kelly: I shall examine the objectives of the Bill as I progress.

There have been some excellent contributions to the debate from both sides of the Chamber. My hon. Friend the Member for Dumbarton (Mr. McFall), the Chairman of the Treasury Committee, made a powerful speech, as did my hon. Friend the Member for Hastings and Rye (Mr. Foster). I enjoyed several other

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contributions, and particularly that of the hon. Member for Witney (Mr. Cameron), who made a most thoughtful intervention.

I shall turn to the specific points that have been raised. The hon. Member for Tatton asked whether this policy will work. He continues to test just one of the policy's objectives, which is increasing the level of savings. The policy has four objectives: increasing the savings habit of parents as well as that of children; building assets so that every child at the age of 18 has the opportunities that only a few children now take for granted; encouraging the making of responsible choices; and increasing financial understanding and awareness, which applies to parents as well as children. The hon. Gentleman seems to recognise only the first point.

As my hon. Friend the Member for Dumbarton has said, evidence from the national child development survey suggests that an asset in the range of merely £300 to £600 could have a significant impact on future outcomes. Perhaps the policy could be justified merely by reference to only one of the objectives. If someone adds just £10 a month, he or she could accumulate, without any further Government endowments, £4,500. That is a significant asset at the age of 18.

There is the objective of promoting responsibility. Again, that is a difficult objective to judge. I would argue that if children, at the age of 18, have to deal with a sum of money that they, their parents and their grandparents have contributed to, it is much less likely that they would abuse that money than if they had not contributed to it. Research by Children's Mutual gathered over 2001–02 on its savings products suggests that most young adults have responsible plans for their savings. Indeed, 47 per cent. of young adults said that they would spend the money on education. Another 27 per cent. said that they would roll over the money into another savings account.

There must be a huge opportunity with this policy to increase understanding of the financial system, to build on financial education and to promote financial awareness. I was recently made a member of the Financial Services Authority steering group that examines financial capability. One of the issues raised several times at the group's first meeting was the opportunities afforded by child trust funds, a once-in-a-generation opportunity to increase financial education and awareness among children and, indeed, their parents. I cite evidence from the National Consumer Council that child trust funds provide an excellent opportunity to communicate risk issues to a whole generation of parents.

I return to the issue of savings. Let us consider the evidence that low income families will contribute to the fund. We have some direct evidence in the UK. Last week, the Treasury published an interim evaluation of the savings gateway, which afforded a Government match of £1 for every pound that was invested by a low income family. The earnings cap was set at £11,000. That would not be a wealthy person by any standards. The report's author, an independent researcher from Bristol university, concludes:

"One of the key aims of the savings gateway is to encourage more people on low incomes to save money. From the evidence to date it is certainly achieving this aim."

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She also points to further evidence from in-depth interviews, which showed that two thirds of people with incomes below £11,000 intended to continue saving regularly after the end of the Government match scheme now that they had developed the habit.

Mr. Laws: Does the Financial Secretary agree that there is a significant difference between the savings gateway, which she has just cited, and the child trust fund in terms of savings incentives? First, in the savings gateway there are matched savings for making savings. Secondly, it is possible to take the money out when someone wants to do so. Surely the child trust fund does not have those advantages.

Ruth Kelly: I shall come on to those points.

Survey evidence in the UK—for example, by the Homeowners Friendly Society—found that 62 per cent. of parents in the D and E socio-economic groups intended to make further contributions to the child trust fund. I shall cite again the National Consumer Council, which states:

"It appears that the prospect of a voucher with the child's name on it, provided by the Government, helps people feel they are being given a helping hand in meeting their personal financial needs. The child trust fund is regarded as providing a framework for giving their family a financial start in a way that they can see as beneficial to them."

I shall cite further evidence about the development of a savings habit. Research carried out by McKay and Kempson on the impact of a windfall receipt among young teachers found evidence that such a receipt could kick-start savings behaviour. A finding directly relevant to the child trust fund showed that young windfall recipients, especially in their teens, were much more likely to be saving than peers who had not received such a windfall. Indeed, McKay and Kempson found that even very small windfalls were sufficient to cause them to start saving, with the median amount being only £57.

Mr. Weir: I am interested in what the Minister is saying, but does she accept that there is vast difference between the intention to put money into a fund and the reality? Will she address the point that I made earlier about the structure of the funds, and whether that will deter poorer sections of the community from investing in them?

Ruth Kelly: I intend to move on to the charge cap, as it has been raised by several hon. Members. We have yet to make an announcement on the level of the charge cap. The hon. Member for Wycombe rightly pointed to the fact that in recent proposals we said that there was a high threshold of persuasion for moving from 1 per cent. for stakeholder products. However, the fact of the matter is that we will base our decision on evidence. It would not be right for me, following anecdote, lobbying and numerous cups of tea in the Pugin Room, as I know the hon. Gentleman has been enjoying, to make an announcement now about the level of the charge cap. It is important that we should set it on the basis of independent evidence, which is why we commissioned Deloitte and Touche to produce research.

Mr. George Osborne: The Minister said that it would be inappropriate to set a cap now. However, the White

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Paper to which she has referred said that the Government would issue a report detailing the charge cap for the child trust fund later this year. It is mid-December and there are two weeks to go before the year ends, so when will the Minister make the announcement?

Ruth Kelly: The hon. Gentleman may be aware that we commissioned a range of research on stakeholder products and the level at which the charge cap should be set. When we made those comments, the Financial Services Authority told us that it would be ready to make an announcement about the appropriate sales regime in December, although it now appears that that date has slipped to the new year. However, to benefit the Bill's parliamentary passage and ensure that Parliament is kept fully informed, I intend to make the announcement on the charge cap for the child trust fund during the passage of the Bill. It is important that Parliament is kept fully informed.

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