Select Committee on Treasury Minutes of Evidence

Examination of Witnesses (Questions 40-59)


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 illustration.

  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 products?

  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 needs.

  Q47  Kerry McCarthy: You mentioned TV advertising earlier, how much has the Government spent on TV advertising?

  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 suppose—and everyone will make their own subjective judgments—will 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 powerful.

  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 groups?

  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 that?

  Mr Lewis: I think it is a matter for their board. I do not think it is a matter for me to interfere with.

  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 can participate?

  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 evidence—no targets, no hard data—that 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 place?

  Mr Lewis: Anecdotal from providers.

  Q56  Susan Kramer: Do you have any sense out of that anecdotal evidence who is topping up and who is not?

  Mr Lewis: No.

  Q57  Susan Kramer: Because you will be conscious that—and 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' time—the 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 pursuing—the 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 regeneration—so 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.

previous page contents next page

House of Commons home page Parliament home page House of Lords home page search page enquiries index

© Parliamentary copyright 2006
Prepared 23 January 2006