Examination of Witnesses (Questions 100-119)
MR IVAN
LEWIS MP, MR
TONY ORHNIAL
AND MR
MIKE WELLS
30 NOVEMBER 2005
Q100 Mr Mudie: I am not the Minister.
I am asking you the basis on which you took this slightly bizarre
decision. The evidence we have got as to why do not we give them
proportionately, but I did not think that was sensible either.
I thought there must be some record to performance. If I am handling
somebody else's money and I am just saying, "You can have
a third, you can have a third, you can have a third", and
they are all different performers, somebody who gets the rotten
performance is going to turn round and say, "You did not
exercise due care with regard to my investment." It just
seems self-evident to me.
Mr Lewis: The risk is greater
if you ended up having such an arrangement with one provider.
Q101 Mr Mudie: Minister, you have
decided and I am just asking you a question and there is the first
test. Goodness gracious me, in this Committee we have had poor
insurance people pulled in in terms of mis-selling, et cetera.
You are mis-investing and you are not even bothering about investment
but you are just closing your eyes and allocating, which seems
to me a very dangerous policy, but it is for you. One of the questions
that was raised that we worried about was the fact that the decision
on a top-up is linked to tax credits. Talk about linking yourself
to success. You are in even deeper water here. Are you happy with
linking the top-up to this policy that has a fair number of critics,
with a fair number of good reasons for having critics?
Mr Lewis: I think most of the
criticism is about the administration of the policy not necessarily
the principles that underpin the policy or the policy itself.
Q102 Mr Mudie: I will not argue with
that but the outcome is?
Mr Lewis: I think in terms of
the decision that has been made, if you are going to recognise
that some people ought to be getting a higher amount than others
you have got to determine the most appropriate and effective way
of reaching that decision and the criteria that you apply, I think
the decision that has been made on balance is right. I think I
would struggle to find another proxy we could use that would be
more satisfactory.
Mr Orhnial: In terms of the tax
credit it is a completely separate means test.
Q103 Mr Mudie: You are linked to
the Inland Revenue, are you not, you have that data so why did
you link it to one part of the tax credit rather than the income
part which is a bit more stable and bit more clear to you?
Mr Orhnial: Because it is only
the tax credit system that will take account of the income of
the whole household rather than individuals, which is what the
income tax system does.
Q104 Mr Mudie: You have no doubt
about this policy? You are very, very happy with it? Remember,
you are going to come back in a year.
Mr Orhnial: The linkage is after
the end of the year, it is after reconciliation at the point we
know what people's income has been, so, yes, it is the best available.
Q105 Mr Mudie: One of the things
that is raised is that—for the poorer families you might
say this is not of interest to them—for other families there
is a £1,200 upper limit. Is the whole vehicle going to be
index-linked? Is the £250 to start with going to be £250
for five years or is it going to be index-linked so it keeps its
true value? Is the top-up going to be index-linked? Is this limit
on the amount going to remain the same? It has always seemed strange
to me that, for example, National Savings you could only buy £1,000
worth of children's bonds. Have you taken a decision on index-linking?
Mr Orhnial: What we are doing—
Mr Mudie: You clearly take the decisions.
Everybody is looking at you.
Q106 Chairman: George, let's have
the answer.
Mr Orhnial: Sorry, you were looking
directly at me. What we are doing at the moment is consulting
on the amount of the payment at age seven and that will then determine
what the amount is. When the Government decides it will determine
what that amount is. Certainly there are no plans to index link.
Q107 Mr Mudie: A youngster getting
£250 now rather than two years ago is 5% or 6% less in real
value which, when we are talking in terms of investment over 18
years, has lost 6% already, two years' inflation, so why are you
not index linking it? If the principle is that £250 is a
good figure, a sound figure, a well thought out figure then why
on earth are you not index-linking it?
Mr Lewis: That seems to be a proposal
and criticism of the policy rather than a question.
Q108 Mr Mudie: It is not a criticism.
Mr Lewis: At the moment that is
the basis on which the scheme has been established but having
looked at the question of payments to seven year olds and any
payments we would decide to make in secondary then maybe this
kind of issue can be looked at again.
Q109 Mr Mudie: When are you going
to look at it. A kid in 2003 got £250 quid. A kid this year
has got less.
Mr Lewis: We are not looking at
it at the moment.
Mr Mudie: So they have got less every
year.
Chairman: George, you have got your answer.
Q110 Mr Mudie: The evidence we have
got suggests that with topping up, et cetera, et cetera,
a youngster could end up with £22,000. That is not what is
going to happen but you could see that they could end up with
more than £9,000 in the account, perhaps £10,000 or
£12,000. You close their account at 18 and this sum is in
a tax protected account. You are on record as saying you have
got to move it to a tax efficient. What does "tax efficient"
mean and what do you see a youngster with £10,000 tax free
(almost like an ISA account not paying any capital gains, not
paying any income tax) at 18 doing with them? Have you thought
it out?
Mr Lewis: No, at the moment the
sort of situation would be that you would be able to put up to
£7,000 in a share ISA but there would not be an equivalent
tax efficient for the amount that you have described, £20,000
to £21,000.
Q111 Mr Mudie: So you will have to
give it some thought before these youngsters reach 18?
Mr Lewis: You are asking us to.
There is not at the moment.
Q112 Peter Viggers: Will there be
a cut-off point? Will there be an age at which children will no
longer be eligible for a payment if they have not been allocated
a payment in April 2006?
Mr Lewis: Sorry?
Q113 Peter Viggers: Will there be
a cut-off point? You are going to start the process of allocating
stakeholder accounts for children whose parents have not done
anything about it in April 2006. Will there be a cut-off point.
Will you in 2007 or 2009 or 2012 say no claim has been made for
the child, we were not been able to trace the child, but the child
comes forward, and it could be five, it could be seven or it could
be 12 years old and say, "Where is my money?" Is there
going to be a cut-off point?
Mr Lewis: No, I think it is evident
that if somebody can demonstrate that we have failed to open an
account when we should have done, and there is clear evidence
to support the fact that the child simply got missed in the system
or something, I think we have to put that right.
Q114 Peter Viggers: The child may
have drifted in and out of care and may be eligible for the higher
rate rather than the lower rate at different times. How much is
it going to cost for all this tracing?
Mr Lewis: I think you are talking
about the exception in terms of the overall cohort rather than
the rule so I do not think you are talking about excessive administrative
cost, but there has got to be equity and fairness and transparency,
and if a child or young person is entitled to the amount and they
are not receiving it we have to put that right.
Q115 Peter Viggers: I am concerned
about administrative cost and I would be grateful if I could ask
through you, Chairman, whether we could have a note on that.
Mr Lewis: Yes.[6]
Chairman: We are virtually at the end.
I just want to pick up on one point but Jim has a question?
Q116 Jim Cousins: My colleague Mr
Mudie asked you about the situation at 18 and obviously it is
not reasonable to ask you now to talk about what products might
exist or what wrappers might exist in 18 years' time, but at the
same time are you not a bit concerned that we now have a growing
collection of tax protected or tax protection wrappers round different
things like the child trust fund, ISAs, some of the national savings
products, all of which have different architectures, different
methods of contribution, different total sums of money that can
be contributed. Would it not be right to actually look at this
collection of tax protection wrappers and try to see how there
can be a gradual integration of these schemes into something with
architectures that are less individual and idiosyncratic?
Mr Lewis: We are committed to
a review of ISAs in 2006, as you know, and that might be an opportunity
to look at some of those issues, but in principle trying to create
a more cohesive, coherent system I think will be a good thing,
yes.
Q117 Jim Cousins: But are you saying
that at the time of the review of ISAs, and let's face it the
review of ISAs on the last occasion was simply a little announcement
saying they were going to run on longer and insurance ISAs were
going to be consigned—
Mr Lewis: —Which you have
personally.
Q118 Jim Cousins: Never mind about
that. That was not very much of a review whereas this really would
require a proper review of these tax protection wrappers and the
various bits of product architecture that go with them. Are you
saying that the review of ISAs will be like that?
Mr Lewis: That has not been decided
yet but I will say I need to reflect again on the question of
the positive proposal, if you like.
Q119 Chairman: Alright we will leave
that there now. Just two final points from me. Just going back
to the National Savings issue, Minister, could you just confirm
that if National Savings asked you to be allowed to offer a cash-based
product that you could change the rules if you wanted to? Is that
the position?
Mr Lewis: The position at the
moment is they cannot offer a pure equity product because of their
remit, but they could partner other organisations to enable them
to do that.
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