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Mr. Laws: I want the Financial Secretary to confirm what assurances she is giving to me. Is the first assurance that the child trust fund will not be advertised during the pre-election period? Can she give me a second reassurance that any material at all that is issued to promote the child trust fund account during that period will be considered very carefully indeed, to ensure that it is not outside the spirit of the existing Cabinet Office guidelines?
Ruth Kelly: The hon. Gentleman makes his point, but he is deliberately misinterpreting the nature of my comments. Of course all advertising would cease. Of course there would be no generic marketing of the new policy during any general election campaign. Cabinet Office guidelines, from which he quotes, set out precisely
the rules that we would follow during a general election campaign, and we would follow them. I can give him that assurance. He asks for that commitment; I give him that commitment.The proposal to remove the provision that allows the child trust fund to be phased in would not be helpful for parents, providers or the Revenue, as allowing parents of children born before April 2005 to set up child trust fund accounts before the launch date will allow people to manage what would otherwise be a pronounced peak of work at launch. Providers have welcomed the proposal to phase in the launch.
The Government amendments are technical, so I do not intend to speak to them unless hon. Members wish me to do so. I hope that the arguments that I have set out and the assurances that I have given will allow the hon. Gentleman to withdraw the motion.
Mr. Laws: I am not sure whether I am fully reassured by the Financial Secretary, not least because she appears to continue to contradict herself. At times she indicates that there will be no advertising in the pre-election period, but the fact remains that in Committee, she resisted an amendment that asked for precisely that and no more than that. She criticises the Opposition amendments as "cynicism writ large". As the hon. Member for Tatton (Mr. Osborne) said, we are trying to protect her from the cynicism of others in the Government. She ought to welcome the measures that we are taking to try to protect her integrity.
The Financial Secretary went on to say that we were somehow suggesting that the general election date had been fixed to match the launch of the child trust fund. That is not what we are suggesting at all; we are saying that it is fortuitous that the launch of the child trust fund and the payments under it seem to be matching the most likely date of a general election. That is our concern.
We have made a little bit of progress today in getting the Financial Secretary to confirm that the child trust fund account will not be advertised during the general election campaign. I wish she was a little clearer in recognising that, as is indicated in the Cabinet Office paper on advertising information during an election period, there will still be tension between the Government's understandable desire to give information about the child trust fund to people during its launch and the possibility that that information could be given during a pre-election period, when people are bound to be looking carefully at what any information on the child trust fund says and the way in which that might seek to promote the Government. Obviously, the comments from various IPPR seminars cited by the hon. Gentleman are relevant. I note that he may wish to press one of his amendments to a Division.
Mr. Osborne: I am told that apparently, I should indicate—now is a good time to do so—that we shall seek a Division, probably on amendment No. 81 if an earlier Government amendment is accepted.
Mr. Laws: After that indication, I beg to ask leave to withdraw the motion.
Motion and clause, by leave, withdrawn.
Clause 2
Ruth Kelly: I beg to move amendment No. 31, in page 2, line 4 [Clause 2], leave out
'by a directly applicable Community provision'
'because of a directly applicable Community provision or an international agreement'.
Mr. Deputy Speaker: With this it will be convenient to discuss Government amendments Nos. 32, 46 to 48, 50 and 53 to 55.
Ruth Kelly: Unless the House wishes me to discuss these purely technical, drafting and minor amendments further, I am happy to ask the House to accept them.
Amendment made: No. 32, in page 2, line 8 [Clause 2], after 'provision' insert 'or an international agreement'.—[Ruth Kelly.]
5 pm
Mr. Laws: I beg to move amendment No. 56, in page 2, line 31, at end insert—
'(1A) Regulations shall not require account providers to provide equity-based accounts, and shall make provision for cash deposit accounts, including provision for such accounts provided by building societies.'.
Mr. Deputy Speaker: With this it will be convenient to discuss the following: Amendment No. 82, in page 2, line 31 [Clause 3], at end insert—
'(1A) Regulations under subsection (1) may not impose a requirement that the charge levied by the account provider must be set at less than 1.5 per cent. of the total value of the relevant funds under management by the account provider, divided by the number of child trust funds held with the account provider.'.
Amendment No. 57, in page 2, line 33 [Clause 3], at end insert—
'(2A) An account is not a child trust fund account unless it permits subscriptions of amounts of no more than £5.
(2B) The minimum amount in subsection (2A) may be increased by regulations if the Treasury is satisfied that the increase is no greater than is required to maintain the value of the amount in real terms.'.
Government amendments Nos. 36 to 39 and 41.
Amendment No. 59, in page 4, line 5 [Clause 6], at end insert—
'(1A) An account may only be selected in accordance with subsection (1) if it is an account of a description which has been designated by the Financial Services Authority in a manner prescribed by regulations as a low risk account.'.
Amendment No. 60, in page 4, line 20 [Clause 6], at end insert—
'(6) Regulations shall designate a person to act generally in the stead of a responsible person in the management and oversight of provider risk and investment risk for child trust funds opened by the Inland Revenue under this section.'.
Amendment No. 78, in page 4, line 27 [Clause 7], at end insert—
'(2) No charge may be levied in respect of a transfer undertaken in accordance with the provisions of regulations under this section.'.
Mr. Laws: The group of amendments deals with a whole series of issues relevant to the supervision of account providers and the selection and opening of accounts. I shall speak especially to amendments Nos. 56, 57, 59, 60 and 78. I am afraid that I shall cover some ground that we covered in Committee in the hope that we will receive assurances from the Financial Secretary.
Amendment No. 57 addresses whether stakeholder and child trust fund accounts could be cash-based accounts rather than being required to be equity-based accounts. We have two worries about that aspect of the Bill, the first of which relates to choice and an issue raised by the Building Societies Association. Is it appropriate for the Government to rule out providers that could offer only cash-based accounts and thus perhaps rule out several building societies that might find it expensive to make provision for equity accounts? Associated with that is a concern that we expressed in Committee about whether the stakeholder accounts should all have an equity component, and whether that would be appropriate for many people who would end up with such accounts, especially if the Inland Revenue made a decision about the selection of them.
Amendment No. 57 deals with the minimum subscription amount, and I certainly hope that the Financial Secretary will address our worry today. In Committee, we referred several times to the illustrative projections of the final proceeds of child trust fund accounts that were put out by the Government and referred to by her in the House and in front of the Treasury Sub-Committee. It was clear at that stage that the Government envisaged that the minimum subscription amount would be as low as possible, thus allowing people on low incomes to contribute easily to child trust fund accounts. Many examples cited by the Financial Secretary involved a minimum subscription of £5.
We debated in Committee an article in the Financial Times that indicated that the Government had changed their mind about the £5 minimum subscription, and we became more concerned about that as our discussions evolved due to the Financial Secretary's unwillingness to confirm that £5 was still the Government's target. We now discover from the regulations that the Government have decided to plump for a minimum subscription of £10, although it will obviously be left open to account providers to choose a lower figure if they wish.
I understand the difficult balancing act that the Government must execute in balancing account providers' desire for a reasonable return on their commitments with the Government's desire to ensure that child trust fund accounts are as accessible as possible for those on low incomes who are saving for children. I am worried that it has been necessary for the Government to move away from the £5 minimum subscription. Although many people may believe that the £10 figure is pitched at a low level, one must put that in the context of a situation in which a huge proportion of our population save little or nothing, as the Government have indicated. A huge proportion of people—even those in employment—have low incomes. Saving £10
regularly, particularly for families with two, three or even four children, could be an onerous financial responsibility. I would have preferred the Government to maintain their apparent commitment to the £5 minimum subscription. Has the Financial Secretary had any indication that any providers might be willing to accept regular subscriptions of less than the £10 minimum set down by regulation?We had prolonged debate in Committee about the stakeholder accounts, and in particular those where the Inland Revenue and the Government would be acting in loco parentis—for example, for children in care. I had a particular concern that the Government's eagerness to ensure that everybody should be able to benefit from the potential returns in the equity market might lead to that particularly vulnerable group of young people automatically having to have equity accounts.
Last weekend, I received a letter from a company of investment managers and tax and trust consultants based in my constituency. In the penultimate paragraph, it reminded me of the quarterly performance of the funds managed by the group and stated:
- "Stock market investing is risky. Please remember that the value of investments and the income from them may fall as well as rise and there is no guarantee that you will get back the amount of your original investment. Past performance is not a reliable guide to future performance."
We also have the uncertainty about the potential yield on cash-based accounts. When interest rates are rising, the responsible individuals might well put the child trust fund assets into longer-maturity deposits, where there could be a significant pick-up along the yield curve. In other words, the yields that the Government seem to think are achievable only in the stock market could be achievable by putting money into longer-term deposits for periods of years.
I am not yet convinced that the Government have put in place adequate safeguards for prolonged periods when the returns from the equity market may be negative. Short periods are allowed for to some extent in the Government's provisions for dealing with these accounts as they approach maturity, but equity market returns have been negative for a prolonged period in some foreign markets over the last 20 years.
The Government need to consider safeguards to be put into place where equity markets are in long-term decline. They should also bear in mind something that the Financial Secretary acknowledged on Second Reading: there is often a relationship between the amount of individuals' financial assets and the extent of the risk that they are willing to take. Individuals with large child trust fund accounts—where, for example,
parents and relatives are making large payments into the accounts or there is an affluent family background—may well be willing to accept more risk for the accounts. They know that if they endure large losses in parts of those accounts they will still have other financial assets, either in the child trust fund account or outside it.Individuals in a weaker financial position, particularly some of those for whom the Government are acting in loco parentis, might well have a much higher risk aversion. If they had had the opportunity, they might far rather have taken guaranteed returns of 5 or 6 per cent. in a cash-based account or an account linked to Government stocks than have taken a potentially much larger risk in an equity-based account, for a return that, over a significant period of time, might not be significantly higher. I am sure that all hon. Members can understand that. When we have fewer financial assets, we are all generally less inclined to take high risks with those assets than when we have a lot of money to play with.
No doubt the Minister is motivated by legitimate concerns and a desire to make sure that people whose child trust fund accounts are managed by the Government should do as well as possible, but she needs to put in place adequate safeguards for those individuals. Some of those people, particularly if the accounts do badly, may not appreciate her taking larger risks with that money in terms of equity investment than they would have chosen to take, given that the money in their child trust fund accounts could represent a large proportion of their financial assets.
That is why we tabled amendments Nos. 59 and 60, which seek more advice and information from the Government about the safeguards that they envisage putting in place for child trust find accounts, particularly stakeholder accounts, into which the Government may put money in loco parentis. Will there be a more explicit role for the Financial Services Authority in examining the risk characteristics of those accounts? In particular, where vulnerable individuals will not be taking decisions about the equity allocation themselves, or where their parents are not taking such decisions, but the Government are doing so instead, will the FSA have any role in ensuring that the risks are reasonable, and in policing those risks over time?
In Committee, we had a not entirely enlightening debate about the individual who would act on behalf of children in care, for example, in respect of child trust fund accounts. Our discussion was predicated on the basis that the Solicitor-General would have a large role in that, but I think that the Government had in mind the Official Solicitor. The Financial Secretary has since confirmed that. In her comments to the Committee and to me subsequently, I believe that she was indicating that the Official Solicitor might play some role on behalf of children in care in respect of provider risk and investment risk, but I am not sure how far she will be able to ask the Official Solicitor to go down that route, especially as I assume that the Official Solicitor does not have the expertise to make judgments about provider and market risk.
Will the Financial Secretary clarify the responsibilities that the Official Solicitor will have in respect of accounts where the Government are acting in
loco parentis? Will there be any attempt to ensure that the Official Solicitor or any other agent of the Government will manage and keep an eye on the provider risk and the investment risk inherent in the child trust fund accounts?Our final amendment in this group, amendment No. 78, deals with the absence of charging in respect of transfers from one child trust fund account to another or one class of account managed by a single provider. That point has been addressed by the Financial Secretary in Government amendments. I am pleased that the clarification that she provided in Committee has been backed up by those amendments.
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