Examination of Witnesses (Questions 20-39)|
12 NOVEMBER 2003
Q20 Mr Plaskitt: Are you telling
us that incentives within this scheme which would encourage its
use for that purpose are being ruled out?
Mr Holgate: I would not rule them
out 100%, and I will offer you an example. It is not inconceivable,
depending on how the scheme progresses, depending on people's
contributions into the Child Trust Fund and the quantum of money
available there, that the private sector might say something to
18-year-olds along the lines of, "We know you have this money
available. Here is something which we think is a very good investment
for young people, or at some later age, and we are going to give
you a discount if you buy". They may see that the economics
of it might work out for them. So it would not surprise me if
providers of goods and services did not see some gain to trying
to latch onto the emergence of fully-fledged Child Trust Funds,
when the first cohorts or later cohorts reach 18. It is possible
that some such linkage would be made. However, I think that it
is much more likely to be either one of private sector initiative
or one of an incentive of some kind. What we are very adamantly
against, for the reasons I set out earlier, is a prohibition on
this or that kind of spending.
Q21 Mr Plaskitt: But you have not
ruled out an incentive?
Mr Holgate: We have not ruled
out some kind of benign encouragementyes.
Chairman: That would turn it into a Child
Tuition Fund, would it not?
Q22 Mr Ruffley: Mr Holgate, obviously
your figures show that those children who have parents and relatives
who want to kick in money and make regular contributions will
be better off. Is it not the case that these proposals benefit
proportionately the financially literate middle-class children?
Mr Holgate: I think I probably
Q23 Mr Ruffley: Why?
Mr Holgate: Because if you wish
to save on behalf of your children, you can do so anyway and you
can do so to the extent that you can put aside money, such that
if you do not achieve more than £100 income a year then that
is fine. At current interest rates I suppose that is of the order
Q24 Mr Ruffley: Everything over that
is taxable, is it not, and this is not?
Mr Holgate: That is right.
Q25 Mr Ruffley: So this is a tax
break that is not otherwise available.
Mr Holgate: That is true, but
you have to
Q26 Mr Ruffley: For financially literate
middle-class parents who are not getting that tax break at the
moment. Is that not the case?
Mr Holgate: Only if you are prepared
to put aside something of the order of £4,200 a year to make
that use of it.
Q27 Mr Ruffley: Exactly. You make
my point rather well. I think that we are in agreement so far.
You have answered the question in the affirmative that financially
literate middle-class people, making contributions of that magnitude,
will be getting a tax break under these proposals that they do
not currently enjoy. That is correct, is it not?
Mr Holgate: Yes, I think that
Q28 Mr Ruffley: What is the deadweight
cost of these proposals?
Mr Holgate: I think that it is
Q29 Mr Ruffley: Why is it extremely
Mr Holgate: Because if you go
back to the table to which I was referring earlier when I said
that the median savings of someone aged 25 or below were zero,
you find that at the 75th percentile their savings are a princely
£400. It is extremely unlikely that you will find anyoneapart
from inheritances where other forms of tax avoidance or tax management
come into playyou will find a remarkably small number of
people who will make any significant tax saving out of this.
Q30 Mr Ruffley: Could the Revenue
speak to that, because if the £1,200, the full amount, is
kicked in by a lot of rather wealthy people you are actually giving
a tax break to people who do not need it? Is that not the case?
Ms Rookes: You may well be to
start with, but I think
Q31 Mr Ruffley: You might well be
to start with?
Ms Rookes: I would come back to
what I said earlier. We want to put these children who are in
low-income families, who do not have as much to start life with,
in a better position. We want to educate them
Q32 Mr Ruffley: I am not talking
about those people. I am talking about, for want of a better term,
the middle-class families getting a tax break. It is the case,
is it not, that it will help people who do not really need it?
This is not targeted in favour of those
Ms Rookes: It is not targeted
Q33 Mr Ruffley: You said "it
is not targeted"?
Mr Holgate: It is targeted. It
Q34 Mr Ruffley: No, with respect,
Mr Holgate, I asked the question. You said, "it is not targeted"?
Ms Rookes: The Child Trust Fund
Mr Ruffley: Can you please answer the
questions? Not the ones you want to answer: the ones I am asking.
Chairman: Let her answer.
Q35 Mr Ruffley: Did you say "it
is not targeted"?
Ms Rookes: The £1,200 limit
is not targeted
Q36 Mr Ruffley: I want to clarify
on the record just what you said a few minutes ago. Did you say,
"it is not targeted"?
Ms Rookes: I said the £1,200
was not targeted.
Q37 Mr Ruffley: It is quite easy.
If you just listen to the questions, you can answer them.
Mr Holgate: There are two bits
which are not targeted. There is the £250 for all children
and there is the £1,200. There is one bit which is targeted,
which is the additional £250. I think that where you are
at risk of painting an unfair picture is when you say that this
is a tax break for the middle classes. If you allow for the fact
that the 75th percentile of those aged under 25 have all of £400
savings by then, you are well into any definition of middle-class
territory. You are nowhere near the sums of money that you need
to be contributing in order to make any significant inroad into
tax payments under this scheme. It is a hypothetical example.
There will, I am sure, be a few specific individuals, but it is
a very small minority.
Q38 Mr Ruffley: Can you put a figure
for the deadweight cost? In other words, the cost of the tax break
you are giving to people. They would otherwise have saved anyway.
This is a tax break you are giving them for something they would
have done anyway. In other words, the deadweight cost. What is
the figure in millions for that? Your best estimate, Mr Holgate?
Mr Holgate: We have a convention
in the Budget document and others called "negligible"
Q39 Mr Ruffley: It would be that,
Mr Holgate: My starting bid to
you would be "negligible".