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House of Commons
Session 2008 - 09
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Public Bill Committee Debates

The Committee consisted of the following Members:

Chairman: Bob Russell
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 Government’s 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 Majesty’s Revenue and Customs will open an account on the child’s 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 children’s 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 child’s family is entitled to the maximum award for the child tax credit during the tax year in which the child’s 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 child’s 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 Pensions—my 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 child’s 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 Chairmen’s 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 welfare—an 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 introduced—2009-10—the 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 fund—in other words, invested in equities—or 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 consensus—this is my substantive point—between 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 employers—they might have left school two years earlier with no, or insufficient, meaningful qualifications—that 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 out—from documents not before the Committee—there 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 cost—how 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’ time—or in a reasonable number of years—but 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.
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Prepared 10 February 2009