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Mr. Laws: I share the pleasure of the hon. Member for Tatton (Mr. Osborne) at getting back to the details of the Child Trust Funds Bill, which are almost fun in comparison with the Finance Bill that we are dealing with in Committee.
Of all the groups of amendments that we are debating today, this is the most important. I hope that you will therefore bear with me, Mr. Deputy Speaker, while I set out some of our concerns about the Government's amendments and their legislation in this area.
As the hon. Member for Tatton made clear, this was a major issue for debate in Committee. It was clear that the Government wanted, correctly and understandably, to ensure that children in care had access to child trust fund accounts and the Minister wanted to ensure that the accounts of children in care had as much upside potential in terms of asset growth as those of individuals not in care. However, we raised in Committee the question of what would happen if the moneys invested by the Government in the accounts of children in care were put into equity-based products, as appears to be their intention. What would happen if the equity market was performing extremely poorly, in a way to which parents might respond by withdrawing money from equity-based accounts and putting it into cash or bond accounts? Children who have their accounts managed by the Government acting in loco parentis might lose out and, in future, hold the Government to account for the poor performance of their investment.
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The hon. Member for Tatton mentioned what I thought was rather a concise summary that I gave in Committee of the experience in other countries, including Japan, that have had long-term bear markets. It may be difficult to anticipate that happening in the current circumstances in the United Kingdom, where we are used to the stock market and equity prices rising over a long time, but even several months after we debated this issue, the stock indices in Japan are still around the 10,000 mark—almost as little as 25 per cent. of what they were. In other words, there has been a 70 to 75 per cent. decline in the Japanese stock market since 1987–88, when I left university, and that could happen in the United Kingdom.
No doubt the Minister could not envisage that happening on her watch, or that of the Chancellor of the Exchequer, but I imagine that even she could envisage it happening if a Conservative Government came back to power. Perhaps she can imagine a long-term bear market at that stage that would raise exactly the concerns that the hon. Member for Tatton described, with the Government merrily putting money into equity-based child trust fund accounts on behalf of children in care, but then discovering that those accounts were going down dramatically in value.
Mr. Deputy Speaker: Order. The hon. Gentleman sought my indulgence while he sketched the background to his remarks, but I have to tell him that, based on what I am now hearing, my indulgence is beginning to drain away.
Mr. Laws: Then I have come to exactly the right point in my comments, Mr. Deputy Speaker, because I am now going to talk about the way in which the Government have sought to deal with the problem.
Initially, the Financial Secretary was unwilling to acknowledge that there was a problem. We had some fun in Committee, perhaps at my expense, with some of the points that I have just made. However, on 13 January she showed that she might be beginning to understand our concerns. She said:
"There are some quite difficult issues to resolve. We have been in consultation across Government about the best way to provide for children in care. I am determined to ensure that children in care have the maximum opportunity that we can offer them through this policy." —[Official Report, Standing Committee A, 13 January 2004; c. 100.]
She also undertook later in the debate to engage with the Official Solicitor and others to seek to clarify the Government's policy and deal with the risk of children in care being disadvantaged.
There was a further modest development of the policy on the Floor of the House on 3 February when the Financial Secretary said:
"We have not yet finalised the possible role of the Official Solicitor, with whom we are still negotiating, but I can confirm that we have discussed the need for the Official Solicitor to consider whether the account was performing poorly".
That was a major breakthrough in the Government's policy. She went on to say:
"The hon. Gentleman's concerns about an equity market slump or liquidity crisis that have driven him to make his many and varied comments would be the sorts of concerns that the Official Solicitor, if they were to accept that role, should consider".—[Official Report, 3 February 2004; Vol. 417, c. 713.]
The hon. Member for Tatton went on to refer to comments made in another place on 18 March, when Lord McIntosh spent what looks like less than a minute explaining the policy that led to the Lords amendments being tabled. He summed up by saying:
"I hope the Committee will feel that this is an uncontroversial addition to the existing provisions".—[Official Report, House of Lords, 18 March 2004; Vol. 659, c. GC176.]
There seemed to be no debate on the issue, which is a pity.
This may be an uncontroversial move by the Government in the sense that they are trying to deal with the problems that we discussed in Committee, but as the hon. Member for Tatton said, there are some major questions about whether their well-meaning intentions in tabling the amendments have been properly thought through. We need answers to a number of questions from the Financial Secretary and I hope that she will be able to give them today.
I shall run through some of the major questions that arise from the suggestion that the Official Solicitor—who, so far as I am aware, has no particular market expertise—will act as some kind of investment adviser, presumably unpaid, to children in care for whom the Government act in loco parentis.
First, will the Official Solicitor have the option of opening accounts that are not equity-based, such as cash-based accounts? The Minister has said in Committee and elsewhere that she wants all the accounts for children in care to be equity-based stakeholder accounts. I understand her desire to ensure that children in care can benefit from any buoyancy in the stock market compared with cash-based accounts or bond-based markets, but does she acknowledge that, in some circumstances, the Official Solicitor might not want to open equity-based stakeholder accounts, but cash or bond-based accounts instead? Will that be possible?
Secondly, will the Official Solicitor be able to move money out of equity-based accounts that have been opened for children and put it in cash accounts if he thinks that that would be sensible in the prevailing market conditions? Will he be able to do that the other way round and turn a cash-based account into an equity-based one?
How will the Official Solicitor make those judgments? In my earlier career, I worked in the financial markets for quite a long time. I can tell the Minister that, when markets go down a long way, it is easy for people to panic and, having believed that markets were about to reverse themselves, eventually change their minds—often at the lowest point of the market—and switch into other assets, only to discover that the market then goes back up.
How will the Official Solicitor make judgments about market conditions and investment rates and how will he assess the performance of the accounts that he is considering switching in and out of? Will he be advised by some other body within Government, the Financial Services Authority, the Treasury, or some other organisation, before making those important decisions?
What legal recourse will there be for children whose accounts are managed in that way if the Official Solicitor gets it wrong? What will happen at the age of 18, or even 16, when a child looks back on the experience of having
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his or her account managed by the Official Solicitor, only to discover that, every time the equity markets plunged, he had worried terribly that he would be criticised for inactivity and had switched all the money out of equity into bonds at the low point in the market, that the market had then rallied, the Official Solicitor had switched into gilts and that gilts then declined? The Official Solicitor is not necessarily financially trained and one can imagine that he could make an utter hash of the job. What would stop the children involved seeking legal recourse for the losses that they had sustained?
Will there be any restriction on the Official Solicitor's freedom to move money in and out of accounts, or will his powers be as strong or as weak as those of a parent managing their own children's trust fund accounts? In other words, will the Official Solicitor act fully in loco parentis or will he be restricted in comparison with parents? Is there a memorandum of understanding between the Official Solicitor and the Treasury, setting out the terms on which the Official Solicitor will take such difficult decisions? If so, will it be published so that we can see the terms and put pressure on the Government to change them if they are wrong?
Finally, as the hon. Member for Tatton asked, what are the implications of the fact that the Official Solicitor can, essentially, pull the plug on a financial provider that appears to be doing a bad job with its investment accounts? What are the implications of the Official Solicitor moving—presumably all—the accounts in the name of that financial provider out of the provider's name and into that of another? Presumably, if there were concerns about how a particular provider was managing such accounts, the Official Solicitor might move a whole swathe of accounts at the same time. What signal would that send to the financial markets about that provider's competence? In those circumstances, would it not be very difficult for the Official Solicitor to take such action? He or she would be regarded as almost censuring a financial market body as a consequence of its incompetence. Essentially, that would amount to a vote of no confidence in that provider.
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