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Mr. Adrian Bailey (West Bromwich, West) (Lab/Co-op): I shall explore some of the issues raised by the hon. Member for Yeovil (Mr. Laws) and, somewhat tangentially, by the hon. Member for Angus (Mr. Weir). First, I should declare an interest. I am chair of the all-party group on building societies and financial mutuals, and in another capacity, I am chair of the Labour and Co-operative group of Members of Parliament, so I have a specific interest in mutuality in the provision of financial services.
This is a very good and well-intentioned Bill that has the long-term potential to transform the prospects of people who have hitherto been unable to access the personal wealth-creating processes that are available. I want to make a few comments about how we can maximise that potential.
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In the long term, the Bill's success will depend on its ability to attract low-income families into the habit of saving for their children. There is little point in the Government merely introducing yet another savings plan for middle-class children, because there are already plenty of those. Traditionally, because of their strong community roots and perceived safety, building societies have been the main source of savings products for low-income, working-class people—particularly in the context of children's savings, where they have played a pioneering role. The movement is concerned about the fact that the regulations stipulate that any provider must be able to offer both savings and equity-based products, which means that some 17 of the 63 building societies will be excluded because they cannot offer the latter.
There are two possible responses. The first would be that those building societies should look to make the necessary arrangements to offer equity-based products. However, to secure the necessary compliance from the Financial Services Authority, they would have to enter into arrangements that would cost them considerable sums, making the whole process economically unfeasible. That most affects smaller building societies with the closest roots in particular communities, which means that those communities could be disadvantaged.
The other response would be to ensure that financial providers that can offer equity-based products can move into the market. One potential obstacle to their doing so was removed by today's announcement of the cap in the regulations allowing them to charge up to 1.5 per cent. in management charges. If that had been set at a lower rate, they would have found it financially uncompetitive to offer such products.
Even in this context, low-income people have natural reservations about entering into equity-based savings schemes, because they tend to put a premium on safety and perceive mutuals to be more likely to deliver that. I am seriously worried that if equity-based providers do not want to target low-income people in certain areas, and no mutual is capable of delivering a savings product there, we could end up with deserts without provision. I hope that the Minister will monitor that position carefully.
I am worried about other issues. First, as things stand, credit unions will also be excluded from the provisions, because they cannot provide equity-based products. There is a certain irony in savings institutions that have pioneered the savings habit among the lowest-income people, and in some cases with children, being excluded. For example, the Glasgow credit union, with 17,500 members and £40 million of assets, is very keen to launch a deposit-only child trust fund. The Leeds City credit union, with 14,000 members, £11.5 million of assets and, above all, a schools programme with 2,000 young savers, would also be potentially excluded. I hope that the Financial Secretary will examine how the scheme works with a view to trying to bring on board those institutions that have developed that savings ethic among low-income, working-class children.
Secondly, under the default provisions, people who do not take up the provisions will almost certainly have their accounts put with an equity provider by the Inland Revenue. Those will tend to be people on lower incomes who will be even less confident about dealing with an equity provider. As a result, I do not believe that the potential of such a role will be fulfilled. Thirdly, the minimum £10 monthly requirement to save, which has been mentioned previously, could be a deterrent to people on very low incomes, who would not be able to fulfil their full savings potential.
In total, the Bill is excellent. However, certain areas need to be monitored closely to ensure that the policy is reaching those people whom we most want to help and whom we feel will most benefit. I am reassured first by the Financial Secretary's history of support for mutuality—her contribution in relation to Private Members' Bills is recognised and acknowledged—and by her comments today and in Committee that the Government will review and monitor the working of the legislation to ensure that it achieves the objectives that have been set out. If the concerns that I have raised appear to be materialising, I hope that she will take steps to ensure that the Bill's full potential is fulfilled.
Mr. Weir : I am pleased to follow the hon. Member for West Bromwich, West (Mr. Bailey) and I agree almost entirely with his comments.
I raised this matter both on Second Reading and in Committee, because I am concerned that many small building societies will not be able to offer child trust funds. We have seen almost a flight from mutuality over the past few years, and the main Scottish mutual life insurer, Standard Life, is now seriously considering going down the plc route, too, which will remove most mutuality from the life assurance business, at least in the Scottish context.
In Scotland, only two building societies remain: the Dunfermline building society and the smaller Scottish building society. Under the Bill, the Scottish building
society will not be able to offer a child trust fund. That is a shame, because over the past few years it has opened agencies in many small towns from which many of the bigger building societies have pulled out, with some following plc status and some closing agency networks. I am not sure whether it is common in England, but in many small Scottish towns it is common for a solicitor, accountant or other professional to have an agency from a smaller building society.There is a bigger issue, however. As I have said previously, many people consider the traditional building society account to be a safe investment. The Financial Secretary said in Committee that the provider's main mechanism for selling funds was a direct offer, with little or no face-to-face advice. That concerns me greatly, as I suspect that many people who receive such an offer will not read all the small print and all the documents that come with it. That strengthens the case for allowing people to invest in something with which they feel comfortable—an ordinary deposit-based building society. I understand the Financial Secretary's argument—we have been through it several times—about equity-based investment working over a longer period, but it will not necessarily persuade many people who view the money as a significant sum that they would not otherwise get.
I understood that one of the objects of the child trust fund was to encourage people to save more for the future and to encourage financial acumen. I have a horrible fear that, if we do not give people the option of saving in a way with which they are comfortable, the object will fail. If people are forced by circumstance to have an equity-based investment that they do not understand, they are unlikely to put more funds into it. The problem would be compounded for those on lower incomes by the nature of most of the equity-based funds.
We have heard today that, according to the regulations, a minimum investment is expected to be £10 a month—a substantial commitment for anyone who has more than one child and exists on a low income. The beauty of an ordinary deposit based account is that one can put in money when one can afford it. Families on lower incomes thus have the option of investing for their children's future when they can do so, without committing themselves to the regular investment that equity-based accounts require. We therefore exclude people from what I accept, as a supporter of the Bill, to be a good system.
For many people, equity-based funds will be fine, but others will be excluded—the very people whom we need to reach to improve their financial acumen and get them to save for the future. That is a serious defect in the Bill, and I ask the Financial Secretary to reconsider yet again, but I am not confident that she will do so.
Mr. George Osborne: I shall speak about my remarkably prescient amendment No. 82. Before I do that, I want to point out that one of the most serious handicaps that hon. Members experienced in scrutinising the Bill is the absence of the detailed regulations on which most legislation greatly depends. Indeed, the success of child trust funds will depend on regulations. It is worth remembering that at the beginning of the process, the Treasury Sub-Committee stated:
- "The Child Trust Funds Bill was introduced into the House without the relevant regulations covering important aspects including the proposed sales regime. We consider that these must be produced in time for the standing committee to consider them thoroughly."
However, I struck gold because I tabled amendment No. 82, which suggested that the charge cap should be 1.5 per cent. Yesterday, the Government announced their decision to abandon the 1 per cent. charge cap, which they set out in their response to the Sandler review and in the White Paper. They decided instead to set a charge cap of 1.5 per cent. That is a U-turn, albeit not as dramatic as the Prime Minister's U-turn on an inquiry into weapons of mass destruction. However, most of the press comments on it today.
It would be churlish not to welcome the decision, not least because I predicted it and tabled amendments to that effect in Committee. I have also tabled a similar amendment on Report. I propose a charge cap of 1.5 per cent. on, as I conceded in Committee, a remarkably unscientific basis. I took the 1 per cent., to which the Government appeared to be sticking, and the 2 per cent., for which most of the industry were calling, and suggested that we split the difference. Although unscientific, it was considerably cheaper than commissioning Deloitte and Touche to devise the same answer. Nevertheless, the Government and I reached the same conclusion by different routes.
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