Examination of Witnesses (Questions 1-19)
MR IVAN
LEWIS MP, MR
TONY ORHNIAL
AND MR
MIKE WELLS
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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