Select Committee on Treasury Minutes of Evidence

Examination of Witnesses (Questions 1-19)


30 NOVEMBER 2005

  Q1 Chairman: Perhaps we can make a start. Minister, can I welcome you to the Sub-Committee. Could you formally introduce yourself and your officials please?

  Mr Lewis: Ivan Lewis, I am the Economic Secretary for the Treasury. Mike Wells, who is one of the leading officials on this policy, as is Tony Orhnial. Chairman, could I make some opening remarks to the Committee?

  Q2  Chairman: Are they brief remarks, otherwise the Committee has not had a chance to study them?

  Mr Lewis: Very brief. Can I begin by apologising for not being able to attend the session last week. I had to be in Brussels all week trying to negotiate the 2006 budget, which was almost as daunting an experience as my first appearance before this Sub-Committee of a Select Committee. Straight to business anyway. I am here to talk about the child trust fund obviously. I would like to put it in some sort of context of Government policy and give you a very, very brief progress report on how we are doing. We regard this as a groundbreaking initiative designed to deliberately strengthen the saving habits of future generations and ensure that at age 18, for the first time in our history, every child should have access to a financial asset. It is a vital element in the Government's savings strategy overall, to ensure that a range of savings products is available to suit people for all stages in their lives. It is also at the heart of the Government's asset based welfare agenda helping all families regardless of their background and ensuring that children get the best possible start in life. We want the CTF to build on financial education as well by providing a savings and investment account for children to engage with and by building their confidence as they use the account to deal with financial providers. In terms of progress so far, we have over 1.1 million accounts already opened, representing well over half the vouchers issued. We are very, very encouraged by what we regard as good progress. It is a huge achievement given the exceptionally busy lives of new parents. We should take that into account. Our indicative figures show that over half the accounts already opened have been stakeholder accounts, and to help parents choose the right account for them we have continued our advertising and direct mailing reminders to parents that it is in the interests of children that parents open a CTF account as soon as they feel ready to. We are also working very, very closely with the public sector and the voluntary sector because we need to get to every parent in society who is eligible for the child trust fund. I suppose one of the greatest challenges is getting to those parents who we would describe as hard to reach, financially excluded parents. Extra payments of course are due to families in receipt of full child tax credit, but because it is relatively early days for CTF we have not at this stage got any statistics about these payments and we need a fuller picture in order to get those. Early estimates were that around a third of all children receive the additional payment for lower income families but it is too early at this stage, Chairman, to judge the actual percentage of children eligible for low income payments because information is still feeding through from the tax credits and benefits system. We now have well over 110 official providers and distributors of the CTF, which is up from 75 when we first launched CTF in January. This number includes a wide range of institutions from across the financial services industry, from friendly societies to supermarkets, and some of the largest institutions across the United Kingdom. In conclusion, we believe that we have made an excellent start. This is groundbreaking public policy but we believe it is absolutely right in terms of the Government's social justice and economic agendas.

  Q3  Chairman: Thank you. You have attempted to get your defence in first there because your predecessor told the House on second reading that she expected the Inland Revenue to need to open only a small number of accounts. The position I think as of this morning is that you have issued 2.1 million vouchers but 45% of them, 970,000 have not been cashed. Are you not surprised at the low level of take-up?

  Mr Lewis: Not totally, no. The first point I would make to you is we are still in a position where having done a direct mailing only relatively recently the consequences of that reminder direct mailing have not yet fed through into the statistics. So that is the first point to make.

  Q4  Chairman: Okay, but when did you start issuing these vouchers?

  Mr Lewis: January.

  Q5  Chairman: From January to November only half have been cashed.

  Mr Lewis: That is factually correct although there may be a time lag, as I have said, because the statistics inevitably are slightly behind what is essentially people's behaviour. I also think we have to take account of the fact that parents are very, very busy with newborn children inevitably and, secondly—

  Q6  Chairman: Too busy to cash a voucher?

  Mr Lewis: They are making lots of very, very difficult decisions and choices. Secondly, there are parents who, frankly, have historically been totally financially excluded and would not regard themselves as having any role in this kind of opportunity, and therefore getting to those parents is going to be even more of a challenge, which is why we are trying to be imaginative and original in the way that we get to it. I am not complacent or smug about it. I simply reject the notion that this is in some way either a failure or an underperformance. This is the first time we have tried anything in public policy on this scale and we are learning from it all of the time. I hope that the evidence that we collect will inform the development of this policy on a long-term basis.

  Q7  Chairman: But the House was told the default procedure would only be needed in a small number of accounts. What is your target?

  Mr Lewis: We do not have a target.

  Q8  Chairman: You do not have a target?

  Mr Lewis: We have not set any targets for this area at all.

  Q9  Chairman: What proportion would you expect to be cashed over a year, say?

  Mr Lewis: I do not know. What I know is the figure that I have given you today, which is that roughly 55% have been cashed. Subsequent to that there has been a direct reminder mailing which has gone to every parent who has not thus far opened an account. I believe that will significantly increase that figure but I have no way of making some artificial guess or projection at this stage. I do not think that would be helpful.

  Q10  Chairman: The vouchers that have not been cashed, 970,000 of them, which have a value of over £240 million, are you benefitting from that at the moment? Where do you hold that money?

  Mr Lewis: Not as far as I am aware.

  Q11  Chairman: Well, is it earning you interest?

  Mr Orhnial: It is just part of the Government's finances. It is in the Exchequer coffers so, by definition—

  Q12  Chairman: So the children whose vouchers have not been cashed have lost the interest they would have had? That is around £7.6 million.

  Mr Orhnial: Yes.

  Q13  Chairman: So you have done a bit better than the children have?

  Mr Orhnial: It is a matter of parents choosing when they cash their vouchers and also remember that for the vouchers that were issued in respect of children who were born before April this year we have recognised that some extra money was due and the vouchers are for more than £250.

  Q14  Chairman: You have spoken about financial exclusion and one of the purposes of the scheme is to help, as you have said, to educate people financially and get them into the savings habit, but you have no target at all for the beginning of the default procedure as to the proportion of take-up which you would have to have to be sure that you were achieving your educational objective?

  Mr Lewis: No, because my view is what this entire project will do in many ways is help to inform the development of policy in terms of tackling financial inclusion and, equally, look at what we need to do further in terms of financial education because we have made it very, very clear that one of the things that is important about this is linking this opportunity for all children in our society with a greater emphasis on financial education and financial literacy within the educational system. What I think we will start to learn as a consequence when we get the final statistics together for the first year is exactly whether it is predominantly the financially excluded proportion of the cohort that are not taking this up, which reinforces the need for financial education and the focus that we have on financial capability, or whether we find there is no correlation and that the failure to convert vouchers into accounts is pretty standard across the board. There is no evidence that it is predominantly among financially excluded families, but we will find that out partially. I suppose we must not assume that low income families are all financially excluded because, of course, it is the low income that triggers the additional supplementary payment and we must not make assumptions that all of those low income families will necessarily be financially excluded, but it is fair to say that probably a greater proportion of them will be.

  Q15  Peter Viggers: The Government set no specific target for the take-up of the child trust fund?

  Mr Lewis: No.

  Q16  Peter Viggers: Why not?

  Mr Lewis: Because this is the first time that we have ever tried as a society this concept of universal accounts. This is a groundbreaking initiative, as I said in my opening remarks, it is innovative and also, frankly, we have built in, which is controversial and some would say radical, the default mode where if a parent fails for whatever reason to open that account for their child then we have decided that the child essentially should not lose out. It may lose out on a small amount of interest, I accept that, but essentially it would be wrong for that child because of their parents' failure to open an account to lose out, so by building in the default mode as well I do not see the clear benefit of having a target, other than for cynics and sceptics who want to rubbish the child trust fund, and I know there are many of those around.

  Q17  Peter Viggers: The Treasury are very scrupulous in accounting and looking after public money. Normally targets are set, are they not?

  Mr Lewis: Targets are set in appropriate circumstances, yes, but not always, no. Objectives and outcomes are nearly always set but targets are applied in appropriate, specific, particular circumstances.

  Q18  Peter Viggers: So what were the internal Treasury expectations of take-up?

  Mr Lewis: That we would maximise the number of people who could take up accounts without the state having to go to the default option. That was our objective.

  Q19  Peter Viggers: Can you name any other Government programmes where targets were neither set externally nor internally?

  Mr Lewis: I am sure I could name a number. Outcomes and objectives I would hope none but there would be plenty of Government programmes where there are not specific targets because targets would be inappropriate and potentially counter-productive.

  Chairman: Targets are a way of measuring progress but there we are. Sally Keeble?

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