Examination of Witnesses (Questions 40-59)|
LEWIS MP, MR
30 NOVEMBER 2005
Q40 Peter Viggers: And you are satisfied
that the parents properly understand the inflation and value erosion
risks that are associated with their choice?
Mr Lewis: How can I be satisfied
that every conceivable parent fully understands everything in
the decisions they are making? I cannot. I hope that the vast
majority of parents who make these choices make them on an informed
basis. There are times when everyone in this room will have made
choices about their own personal finances which when they look
back may regret some of the choices they make.
Q41 Jim Cousins: Chairman, I have
an insurance ISA, just by way of illustration!
Mr Lewis: Guilty as charged!
Chairman: It sounds like a very good
Q42 Kerry McCarthy: Following on
from what we have just been discussing, at the moment 16 out of
63 building societies are unable to offer the CTF product because
they are not currently authorised by the FSA to offer stakeholder
products. The figures of the Building Society Association say
that 70% of parents have opted for the cash product. Do you not
think that limits parents' freedom of choice if they cannot go
to building societies just because they cannot offer stakeholder
Mr Lewis: Two things. First of
all, a number of providers have said they are not getting involved
in all this because it is not economically viable. My answer to
that is how come we have got very, very significant big players
who are participating and are doing that in a helpful and constructive
way? So I do not accept that argument about viability. The other
argument is about FSA requirements or FSA rules. I do not accept
that. I think if these building societies which are saying that
look properly at the requirements that are placed on them, they
will find that it is not true to say that FSA rules prevent them
from participating. As a result of this evidence hearing they
may want to contact the Treasury directly and discuss why they
believe that to be the case. We certainly are willing to have
that discussion and we do not believe they are right when they
say FSA rules prevent them from participating.
Q43 Kerry McCarthy: Are you saying
they are using it as excuse because they do not think it is an
economically viable proposition?
Mr Lewis: No, I do not want to
say that because I do not know whether that is true. Building
societies are making this point. I am saying there are some, in
another list and there may be crossovers, who have said, "We
are not able to participate in this because of the cost."
All I am saying is that if you look at what has happened as the
child trust fund has developed many providers have demonstrated
that is simply not the case. That is a separate issue from the
question of whether FSA rules prevent it.
Q44 Kerry McCarthy: For those who
fall into the refusenik category, the ones that are saying
it is not economically viable, is the Government planning to do
anything along the lines of the steps they are taking to encourage
all banks to provide basic bank accounts? Is there some programme
along those lines planned?
Mr Lewis: Yes, we all the time
try to encourage the maximum number of providers so we can incentivise
choice. Choice is a word I know Mr Mudie is very keen on in public
services, but we are very, very keen to maximise the right of
people to choose basically.
Q45 Kerry McCarthy: At the moment
only three CTF providers provide ethical investment products and
only two offer shari'a options. Again, do you think that
offers sufficient choice to parents?
Mr Lewis: Good point and I think
you are right to raise it. I think we can be pleased at the fact
we have got to the stage where parents who feel strongly about
those issues now has access to a sensitive account, but does that
mean that we are satisfied that they have the same range of choices
as others? Well, obviously they do not. The reality is that it
is probably not going to be the case they are going to have the
same range of choice because by their strong views and principles
on certain issues there are a number of options that will be ruled
out. In a sense, we are only starting with this and if we can
encourage more to offer accounts which are sensitive to particular
concerns and particular beliefs, then that is something we should
be willing to do.
Q46 Kerry McCarthy: You say it is
something you should be willing to do. Have you got any proposals
in motion to encourage more people to do that?
Mr Lewis: Yes, we are constantly
trying to make the case for saying we want as wide a range of
products which are sensitive to markets as possible for different
people and different issues such as the shari'a, as you
have said, and there are other ethical-type issues so, yes, we
are constantly in dialogue with providers about meeting people's
Q47 Kerry McCarthy: You mentioned
TV advertising earlier, how much has the Government spent on TV
Mr Lewis: On TV advertising specifically?
£7.5 million is planned to be spent during the course of
this year on all advertising. Do you know about TV advertising?
Mr Wells: Round about £2.5
million specifically on television.
Q48 Kerry McCarthy: £7.5 million
overall on advertising. Do you think this represents value for
money for the taxpayer? Do you think it works?
Mr Lewis: I think the best time
to judge that I supposeand everyone will make their own
subjective judgmentswill be when we have got the final
statistics for the period for which advertising spend applies.
Do I think at the moment it is delivering value for money? I hope
so. I think the surveys again will help us because they will say
what was the trigger that made you go from having a voucher to
opening an account, and some of the information we get back from
the surveys will help determine what was the point that influenced
people to open accounts.
Q49 Kerry McCarthy: So you will be
able to do a comparative cost benefit analysis of TV advertising
as opposed to other advertising?
Mr Wells: I am sorry, I think
I said £2.5 million, it should have been £3.5 million
for television advertising.
Mr Lewis: Less value for money
than 2.5. It is one of the things that is very, very important
that we evaluate in that. Some figures have just been passed to
me which are interesting. 97% of CTF eligible parents and 89%
of expectant parents were aware of CTF and 94% of eligible parents
had seen or heard at least one recent CTF advertising. It is pretty
Q50 Kerry McCarthy: Will you also
when you are carrying out that assessment be able to judge what
form of advertising has the most impact on the hardest to reach
Mr Lewis: Yes I hope so. The survey
is designed to tease out relevant issues linked to socio-economic
circumstances so one of those issues will be looking for those
people in that category what was the thing that most influenced
them to open that account.
Chairman: I cannot believe, Minister,
you set an advertising budget without a target that you expect
the advertising to produce. You said you did not so I must take
your word for this. Susan Kramer?
Q51 Susan Kramer: Can I just pick
up on a point that was made a moment or two ago, this issue of
being keen to maximise the right of people to choose. Obviously
the greatest concern must be amongst people who traditionally
have been financially excluded and yet the one institution that
has almost the best track record of trying to deal with that particular
excluded group and is most trusted by it, National Savings and
Investments (NS&I), cannot participate at present in child
trust funds because under its remit and in the way that it works
it is not able to offer, as it were, an at-risk option, one of
these unprotected exposure-to-equities options. Is that not inadvisable
and should it not be possible for the NS&I to make an offer?
Mr Lewis: It is not for me to
tell them what to do. You are absolutely right in terms of how
you describe the situation, but it is not strictly true. If they
decided as an organisation that they wanted to do this they could
partner other providers to deliver it. They, at the moment, do
not want to do that and that is entirely within their right to
make that judgment.
Q52 Susan Kramer: But they would
have to change their way of working in a sense in that they would
be associated with and in some way become the gateway for an at-risk
product when the whole ethos of the organisation and part of the
trust relationship it has with the public is to stay away from
the at-risk sector.
Mr Lewis: But that is a judgment
they make. In a sense the board of that organisation do have delegated
authority to make these calls. All I am saying is that your description
of their limitations is right but also if they did want to enter
into partnerships with other partners they do have that option.
It is not legislatively impossible for them to do so.
Q53 Chairman: Would you like to see
Mr Lewis: I think it is a matter
for their board. I do not think it is a matter for me to interfere
Q54 Susan Kramer: Can I just make
the point and ask you a question. Would you accept that many of
the institutions which have now come into the child trust fund
territory are not particularly interested in a further product
relationship with the financially excluded group because they
do not have the kind of resource to be of interest for many of
their other activities. Here is the NS&I which is interested
in developing that relationship in depth and further. On that
basis would you be willing to create a structure in which they
Mr Lewis: As I said to you, they
have the option; it is a matter for them as to whether or not
they choose to do so. I also agree with your comment about the
linkage for some providers to forming a quality relationship with
financially excluded people and not seeing the long-term potential
benefits of that if they did it properly or understanding that
by forming such relationships, helping people to move on and move
up, that is in their long-term interests as well rather than simply
being presented as doing us a favour, which is often the way it
is presented in terms of working with financially excluded groups
in our society. The same applies to the child trust fund. In my
view, one of the main objectives both for the young people and
their families is to get them to think this is for them, not for
other people, not for somebody else, that they can be ambitious,
that they can be aspirational. We have anecdotal evidenceno
targets, no hard datathat a surprising proportion of these
families are, in some form or other, choosing to top up the state's
contribution. That has got to be very, very good news in terms
of changing culture amongst parents. Equally, to give all young
people at the age of 16 control of their own account and then
at 18 the capacity to use it in whichever way they see fit and
to link that, I hope, in due course to financial education within
the schools system should be a very, very important long-term
contribution to changing the culture around savings and investment.
Q55 Susan Kramer: What information
do you have at the moment on the amount of top-up that is taking
Mr Lewis: Anecdotal from providers.
Q56 Susan Kramer: Do you have any
sense out of that anecdotal evidence who is topping up and who
Mr Lewis: No.
Q57 Susan Kramer: Because you will
be conscious thatand one of my staff members very kindly
looked at the web site and used your own calculator to forecast
what £500 that is put in today would generate in 18 years'
timethe worst case off the web site is £900, with
no adjustment for inflation, and the best case £1,700. We
took a look in Loot and that would just about purchase
a second-hand moped. It is not a life-changing amount of money.
However, if you were able to regularly top up the maximum of £1,200
a year on a tax-free basis, which may be very attractive to many
well-to-do parents you would end up, according to the Nationwide,
with something closer to £40,000. Is this not turning into
a programme that has great opportunities for those who have resources,
basically for the middle classes, but offers very little to someone
who must only look to the state contribution because they do not
have the resources to invest?
Mr Lewis: First of all, there
is a recognition of that in the fact that depending on your income
you get more than the basic amount. £1,500, frankly, for
some people is life-changing in terms of them never having had
anything in their lives whatsoever and who will never have any
hope of having anything. Also I believe, let us be honest, there
are some people in this place and beyond who do not agree with
the child trust fund and they want it to fail and it would be
better if they were honest about that really.
Q58 Susan Kramer: Does that answer
the question about the difference between the impact of £40,000?
Mr Lewis: Yes it does because
first of all you cannot look at the child trust fund in isolation
of other policies the Government is pursuingthe childcare
tax credit, the child tax credit, universal nursery provision
for the first time, children's centres in every community, advance
replacing inter-generational under-performance, the emphasis on
schools standards in our poorest communities, the support for
parenting skills, regeneration of communities, both in terms of
physical regeneration and people regenerationso it is completely
bogus to simply look at the child trust fund in isolation and
talk about the Government's ambitions for generational change.
This is a very, very integral part of a much bigger picture and
a much more ambitious programme which is about transforming our
society. That is why we are in government.
Q59 Susan Kramer: Can you tell us
anything more about plans to make additional contributions at
the ages of seven and 11, and whether or not these will be in
some way index-linked to make sure there is no erosion by inflation?
Mr Lewis: No, as I said, we are
consulting on seven at the moment and in due course we will make
our decision and obviously having concluded the consultation we
will let people know what we intend to do.