The
Committee consisted of the following
Members:
Barlow,
Ms Celia
(Hove)
(Lab)
Bayley,
Hugh
(City of York)
(Lab)
Blizzard,
Mr. Bob
(Lord Commissioner of Her Majesty's
Treasury)
Borrow,
Mr. David S.
(South Ribble)
(Lab)
Browne,
Mr. Jeremy
(Taunton)
(LD)
Cable,
Dr. Vincent
(Twickenham)
(LD)
Crausby,
Mr. David
(Bolton, North-East)
(Lab)
Dobbin,
Jim
(Heywood and Middleton)
(Lab/Co-op)
Dorrell,
Mr. Stephen
(Charnwood)
(Con)
Duddridge,
James
(Rochford and Southend, East)
(Con)
Gibson,
Dr. Ian
(Norwich, North)
(Lab)
Hoban,
Mr. Mark
(Fareham)
(Con)
Jenkin,
Mr. Bernard
(North Essex)
(Con)
Pearson,
Ian
(Economic Secretary to the
Treasury)
Redwood,
Mr. John
(Wokingham)
(Con)
Southworth,
Helen
(Warrington, South)
(Lab)
Mick Hillyard, Committee
Clerk
attended the
Committee
The following also attended,
pursuant to Standing Order No.
118(2):
Streeter,
Mr. Gary
(South-West Devon)
(Con)
First
Delegated Legislation
Committee
Monday 9
February
2009
[Bob
Russell in the
Chair]
Draft Child
Trust Funds (Amendment) Regulations
2009
4.30
pm
The
Economic Secretary to the Treasury (Ian Pearson): I beg to
move,
That
the Committee has considered the draft Child Trust Funds (Amendment)
Regulations
2009.
I
welcome you, Mr. Russell, to your first Delegated
Legislation Committee as Chairman. I am sure that the proceedings will
run smoothly under your wise chairmanship. This will undoubtedly be the
first of many such
occasions.
The
draft regulations will introduce a Government payment to the child
trust fund accounts of all eligible children when they reach their
seventh birthday. They will also extend the eligibility criteria for
the additional Government payment that goes to the child trust fund
accounts of children in lower-income
families.
The
child trust fund is a long-term savings and investment account for
children born on or after 1 September 2002. Children are eligible if
they live in the UK, child benefit has been awarded for them and they
are not subject to immigration restrictions. The fund is an integral
part of the Governments savings strategy. It is an ambitious
initiative that will ensure that every child, regardless of their
background, has a financial asset at the age of 18. It promotes
positive attitudes towards saving and will help to strengthen the
financial education of both children and adults, bringing financial
education to
life.
Parents
are sent a child trust fund voucher automatically once they have been
awarded child benefit, and they use the voucher to open the account of
their choice. To date, three quarters of parents have opened accounts
on behalf of their child. No eligible child will miss out, because if
parents do not use the voucher, Her Majestys Revenue and
Customs will open an account on the childs behalf. Eligible
children receive a starting contribution of £250 to their child
trust fund account, with children from lower-income families receiving
a further £250. Special arrangements are in place to ensure that
children in care, in respect of whom there may not be a child benefit
award, do not miss out on an
account.
The
Child Trust Funds Act 2004 allows the Treasury to make regulations that
provide for further Government payments to be made to the accounts of
eligible children. Following extensive consultation, the Government
published their detailed proposals for the child trust fund in October
2003. That included an announcement that the Government would make a
top-up payment to every child trust fund account when the child reached
the age of seven. The top-up was designed with two main purposes in
mind: to increase the value of all childrens
accounts, leaving them with a more substantial asset when they are 18,
and to emphasise the child trust fund as a live and relevant example of
saving and investment. The fund will bring to life the financial
education that children will be receiving in schools as part of the My
Money
programme.
In
2004 and 2005, the Government consulted on the detail of the further
payments at the age of seven. Following that consultation, the
Government announced in the 2006 Budget that the age-seven payments
would be £250 for every child, with a further £250 for
children from lower-income families and children who were in care on
their seventh birthday. Eligibility for the age-seven payments will
follow criteria similar to those for the initial contribution to the
account. The universal payment will go to children in respect of whom
there is a child benefit award on their seventh birthday, who live in
the UK and who are not subject to immigration controls. The additional
payment for children from lower-income families will be made if the
childs family is entitled to the maximum award for the child
tax credit during the tax year in which the childs seventh
birthday falls. All children in care on their seventh birthday will
receive the universal payment, plus an extra £250. The age-seven
payments will be paid directly into the childs account, and
HMRC will write to families to let them know when the money has been
paid.
The
draft regulations will amend the eligibility criteria for the
additional Government payment for children born in lower-income
families, so that children do not miss out because a tax credit claim
is not made within three months of their birth. Representations were
made on that matter last summer, when my predecessor currently
the Under-Secretary of State for Work and Pensionsmy hon.
Friend the Member for Burnley (Kitty Ussher), gave evidence on the
child trust fund to the Treasury Committee. The concern was that some
people might be missing out on the additional payment, because
eligibility was based on eligibility for the child tax credit and the
rules required families to claim the child tax credit within, broadly,
three months of the childs birth. Those with, for example,
post-natal depression might not get round to that in
time.
We
listened to the concerns and decided to change the regulations to give
individuals more time. Under the new rules, the additional payment will
be due as long as a child tax credit claim is made before the child
trust fund voucher expires, which would usually be just under a year
after the child is born. The change will apply to children in respect
of whom child benefit commenced on or after 6 April
2008.
In
summary, the regulations will extend the period of eligibility for
lower-income families to receive the additional payment and provide for
Government payments to be made into the child trust fund accounts of
all eligible children when they reach the age of seven. There will be a
higher payment for children from lower-income families and children in
care on their seventh birthday. That will help to ensure that every
young person has a significant financial asset when they reach the age
of 18. The age-seven payments are designed to coincide with the
roll-out of new financial education resources for schools, as part of
the new My Money programme, which will draw on the child trust fund as
a live example. I commend the regulations to the
Committee.
4.36
pm
Mr.
Mark Hoban (Fareham) (Con): I, too, welcome you to the
chairmanship of the Committee this afternoon, Mr. Russell,
and congratulate you on joining the Chairmens Panel. The debate
on the regulations is perhaps one of the least controversial over which
you will preside in your role, but perhaps it counts as a gentle
introduction.
As
the Minister made clear, there are two purposes behind the regulations.
He will know that my hon. Friend the Member for Tatton (Mr.
Osborne) led for the Opposition during the passage of the Child Trust
Funds Act 2004. We supported that measure, partly because of the
contribution that it makes to asset-based welfarean item of
social policy that has bipartisan support in many respects. I do not
intend to press the regulations to a Division, but I should like to ask
a couple of questions about the way in which the additional
contribution will be put into practice.
The Minister
differentiated the automatic payment at seven years of £250 and
the additional payments of £500 that will be made to children
who are looked after. Clearly, in the latter situation, the state is
acting as a proxy or replacement for a parent who would add to the
child trust fund by making a contribution. Will he outline what
proportion of parents make contributions in addition to the
contribution that the Government make when the child is born? What is
the average top-up to the child trust fund? I am seeking to understand
whether the £250 is in line with parents
behaviour.
Will the
Minister clarify the cost of the enhancement? The explanatory notes
direct us to the Child Trust Fund Annual Statistical Report
2008, table 9 of which sets out the cost between 2007-08 and
2012-13. In the first year that the changes are
introduced2009-10the report says that costs will rise
by about £100 million. In the subsequent year, the additional
costs will be £210 million, and they rise thereafter.
Is the increase solely attributable to the additional payment, or does
it partly arise from a change in the birth rate in the
period?
Will the
Minister also clarify what happens when parents have opted not to open
an account, but HMRC has done so on their behalf? Will the additional
amount at the age of seven be paid automatically into the accounts that
HMRC has opened, or will parents be required to claim it on behalf of
their children?
The Minister
said that the regulations could support financial literacy. Children
who are precocious enough to monitor the value of their child trust
fund will note that the value of shares in the stakeholder child trust
fund has fallen during the past year, because of the fall in share
prices. Will the default setting for payments made at the age of seven
be into a stakeholder child trust fundin other words, invested
in equitiesor into a cash stakeholder fund?
Finally, I
have a question about liberalisation and the change to the eligibility
criteria for people claiming child tax credits. The period of
eligibility will be lengthened from three to 12 months. Will the
additional payment be made automatically, or will the parent have to
make a claim?
4.41
pm
Mr.
Jeremy Browne (Taunton) (LD): I add my congratulations,
Mr. Russell, to those expressed by the previous two
contributors.
I shall begin
by framing a couple of questions to the Minister; he might wish to
intervene now or deal with them when he responds to the debate. It
would be very helpful to have a precise figure for the annual cost of
the child trust fund now and what it will be once the regulations come
into effect, especially given the additional contributions at the age
of seven. That is clearly a fairly substantial financial commitment,
and I am unclear on how many extra millions of pounds the regulations
will cost the taxpayer.
I do not share
the consensusthis is my substantive pointbetween the
Conservative and Labour Front-Bench Members. This country has some
serious issues to address: educational underachievement and children,
particularly those from less advantaged backgrounds, failing to
maximise their potential in the school system. About one in five
children leave school with no grade A-to-C GCSEs; fewer than half of
children achieve five grades A to C, including English and maths; and
about a quarter of children choose not to stay in any further formal
education beyond the age of 16. Given that money is limited and that
the Government are having to borrow far more money than they
anticipated, is the proposal the most efficient and cost-effective way
in which to give to young people opportunities that they would not
otherwise enjoy?
It seems to me
and my party that the question is what can we do to assist children
from very low-income households. Is the money best spent by storing up
a cash bonus for them at the age of 18? Clearly, that would be welcome
to those people, but the course of events will have been set for many
of them already. If a young person reaches the age of 18 having failed
to garner sufficient qualifications to make themselves an attractive
proposition to employersthey might have left school two years
earlier with no, or insufficient, meaningful qualificationsthat
money will be of far less use to them than if they had had the
advantages of smaller class sizes and greater rigour and attention in
being taught to read and right when they were five, six or seven years
old.
I
dispute whether the money is being spent to the greatest benefit of
people on low incomes, which presumably is the main purpose of the
scheme, because, typically, those on high incomes are less likely to
feel the benefit of the money. Twenty years ago, I was in the middle of
my gap year, and I would have appreciated having to work fewer double
shifts at the restaurant where I worked to fund my travels in the
second half of the year. Realistically, however, I would have spent
most of the child trust fund money on the fantastic educational
experience that was travelling to lots of places where I otherwise
would not have travelled to, and I would still have had to work many
extra shifts to fund the initiative. However, I dispute whether today
that is a greater priority for the Government than having higher
educational attainment in schools.
There are
tough choices to be made, and the question is whether the proposal is
in the interests of our children, compared with other spending
commitments. Our answer to that question is no, but it would be
particularly helpful if the Minister could shed light on how much money
Labour and the Conservatives are committed to spending annually on the
scheme, compared with the Liberal Democrat priority for improved
schooling.
4.45
pm
Mr.
John Redwood (Wokingham) (Con): I, too, rise on the issue
of cost, as in the papers before the Committee there is an absence of
any information on it. The explanatory memorandum
says:
The
impact on the public sector is
nil.
That
must be very narrowly defined, because as my hon. Friend the Member for
Fareham, who has eloquently supported the measure, pointed
outfrom documents not before the Committeethere will be
an extra £100 million of public borrowing in 2009-10,
and an extra £210 million of public borrowing in 2010-11 to meet
the plan. It would have been more up front of the Minister to have put
those figures before the Committee so that we knew the cost of the
measure.
I hope that
when the Minister responds, he will tell us about the total
costhow much of it is administrative and how much will actually
get through to the trust funds, which is where people want it to go.
What sum does he think an individual might be in receipt of when they
reach the age of 18 and are eligible for the full amount under the
proposals? It would be interesting to know what sort of sum he thinks
would be available, so that we can form a better judgment of how useful
it might be in meeting the higher education costs and other aspirations
that we hope might be a claim on or use of these funds in due
course.
It
would also be good to know more about how administration of the funds
will take place. Does it make sense to do it in the form of these
specific payments at these specific ages, rather than giving people a
credit when they turn 18, when we will know exactly what the state can
afford at that point? Why is it being done through this particular
method and how will we make sure that we get value for the investment
made in the funds over the ensuing period? In my opening remarks, I
stressed that the proposals meant £100 million and £210
million of extra borrowing, because at present anything extra we do
means borrowing. The paradox of the proposal is that we are borrowing
money today to help young people in 18 years timeor in
a reasonable number of yearsbut as soon as they go to work,
they will be in the business of paying off the debt that we have taken
out to put those sums of money by for them.