Mr.
Browne: Will the right hon. Gentleman clarify my
understanding that the sums he mentions are additional to the existing
costs of the scheme—those of putting in this extra help at age
seven?
Mr.
Redwood: I cannot be sure of that. My hon. Friend the
Member for Fareham has figures showing what the incremental cost will
be. The additional cost in 2009-10 over the previous year is
£100 million, and in 2010-11 the additional cost over the
preceding year is £210 million. That is why I said that it would
be helpful to know how the money is split. Some of it could be
administrative cost, so it would do no good at all to the children and
young people for whom the scheme is designed. It would be useful to
know how much of the amount is administrative cost and how much is
incremental for the specific purposes defined in the statutory
instrument.
There is a
paradox. We are borrowing extra money today to provide these funds for
children and young people in the future when they reach working, or
near-working, age, but it will be their generation that has to
shoulder much of the burden of all the huge extra debt that we are
building up. Presumably, the theory is that we are in the
redistribution business, so that the young people who would not
otherwise have had such a good start in life benefit and the whole
generation will have to repay the general debt. It is important that
the returns in the funds exceed the cost of the debt, otherwise we
shall be going backwards as a nation, if we are borrowing to put money
into funds that underperform on the cost of the debt. I hope,
therefore, that the Minister has done some sensible Treasury sums, or
that he knows someone who has, to make sure that during the 18 years he
can borrow money more cheaply and invest it more
successfully. Mr.
Bernard Jenkin (North Essex) (Con): I add my
congratulations to you, Mr. Russell. Your appointment to
your prestigious position was reported in our local paper and
congratulations have been echoing greatly in the town of Colchester as
a
result. Has
my right hon. Friend the Member for Wokingham calculated the possible
notional debt attributable to each child brought into the world at the
present time? What proportion of that debt will a child be able to pay
off as a result of the amount that the Treasury will put into the trust
fund?
Mr.
Redwood: I have not made that precise calculation, but I
think that well under 10 per cent. would be repayable by someone who
had the full proceeds of a trust fund. It could be a considerably
smaller proportion, given that if we miss a day’s news, we might
miss a trillion of extra commitment—with all the big banks we
are busy nationalising and whose gambling portfolios we are taking
on. My remarks are
designed to provoke a response from the Minister on the build-up of
cost in two ways. First, can we be guaranteed that most or all of the
money will get to the children and young people, and will not be
gobbled up in administrative costs and complexity under the
regulations? Secondly, can he be sure that we are running forwards by
borrowing the money for the scheme and that we will actually make more
on the money in the trust funds than we are having to pay to borrow
it? 4.52
pm
Ian
Pearson: Before I go into detail about the figures
requested by Members, let me first reply directly to the hon. Member
for Taunton who has problems with the policy—indeed, it is Lib
Dem policy to abolish child trust fund payments. At the moment, 4
million youngsters have received such payments. I shall explain how
much money he would be taking off young people under his policy, but
first I want to say that the measure is not an either/or calculation.
The 2007 comprehensive spending review allocated significant extra
funding for early years education. Over the spending review period, we
would be spending about £5 billion, including capital on Sure
Start, child care and early years provision. We are extending free
child care for those aged three and four years from 12.5 hours to 15
hours a week and introducing a range of measures to continue to provide
support to give people the very best start in life, which remains a
fundamental plank of the Government’s policy.
At the same
time, we want children not only to understand and get the savings
habit, but to build up assets so that they have the choices at the age
of 18 that others, in more fortunate circumstances, have always had in
the
past.
Mr.
Browne: On a point of clarification, it is not Liberal
Democrat policy to claw back money that has already been awarded by the
Government to children through child trust funds. Our argument is that
we would cease to award the money to subsequent children, born after
the policy was withdrawn. We would not be raiding the accounts. There
would be a seven-year tranche of people working through the system who
were beneficiaries of the scheme. However, beyond that point, as we can
spend a pound only once—despite what the Minister has
said—we believe the money would be better spent on the measures
that I outlined
earlier.
Ian
Pearson: I am glad to hear that clarification from the
hon. Gentleman, but—if the regulations are passed—it does
not disguise the fact that from September this year children reaching
the age of seven will receive an extra £250 or £500 in
their account, but they would not be receiving it if the policies the
hon. Gentleman is advocating are
supported. The
hon. Member for Fareham asked about contribution rates to child trust
fund accounts. In the last tax year 2007-08, 24 per cent. of accounts
received contributions, and the average contribution was £279,
which has increased from £258 in the previous year. Fourteen per
cent. of children in lower-income families received a contribution from
family or friends, and the average contribution was £172; 29 per
cent. of other children received contributions from family or friends,
with an average contribution of
£302. There
were questions about the cost of the child trust fund payments. The
Government currently make payments of around £270 million a
year. The cost of the age-seven payments will be about £240
million a year once they are fully on stream. The figures are different
for 2009-10 because of the September start. In specific response to the
question from the hon. Member for Fareham, HMRC takes birth rates into
account in its projections, and that will obviously influence the
£270 million figure. Total child trust fund expenditure will
therefore rise to £510 million by 2011-12. Those
spending figures are already taken into account in the public finances
and the costs are met from annually managed expenditure.
The right hon.
Member for Wokingham asked about administration costs. According to the
2008 statistical report, those costs were £11.7 million in
2007-08. In 2008-09, they are projected to be £7.9 million. The
figures for 2009-10, 2010-11 and 2011-12 are £7.2 million,
£7.2 million, and £7.2 million. That compares with the
overall cost of the scheme which, as I have said, is increasing to
£510
million.
Mr.
Jenkin: Can the Minister tell us the cost per
child?
Ian
Pearson: We currently have about 4 million child trust
fund accounts. They are growing daily, so the figures will change
daily, but the hon. Gentleman can do the maths and divide the 4
million. My advice from
officials is that on the current figures the cost works out at around
£1.80 per annum for every child who has an account
open. The
right hon. Member for Wokingham also asked why the costs, as explained
in the explanatory memorandum, were nil. It is because the age-seven
payments were included in the original impact assessment for the child
trust fund. I am sure the Committee will appreciate the information
that I have given today about the overall cost of the programme and the
administration cost
figures. As
I explained in my introductory remarks, the payments will be made
directly into the bank accounts that are already opened—they
will be made automatically. We believe that is very much the simplest
thing to do.
The hon.
Member for Fareham asked about defaults. The current default position
is that if somebody has not opened a stakeholder account on behalf of
their child, one will be opened for them, and the default account is a
stakeholder account. The defaults will remain the same with the child
trust fund age-seven payments. It is up to parents to decide whether
they want to change those accounts. They could change them to a
share-based scheme in addition to the stakeholder option, or they could
go to a cash child trust fund account as well. The existing flexibility
of the system will
remain.
Mr.
Browne: One question put by the right hon. Member for
Wokingham that I do not think the Minister has had an opportunity to
answer was what he anticipated the value of the fund being in 11
years’ time when the first funds reach
maturity.
Ian
Pearson: Obviously, the figures will depend on various
assumptions about the performance of the child trust fund accounts, but
for a child born in 2008 who receives nothing but the two Government
contributions of £500, the final value could be between
£1,600 and £2,600. For a child born in the same year who
receives the two Government contributions of £250 plus the
maximum third-party top-up, which is currently £100 a month, the
final value of the account could range from £29,000 to
£38,000. I stress that those figures are reasoned estimates
subject to
performance. The
Government would like more parents to put money into child trust funds
for their children’s future. It is encouraging to see how many
parents on relatively low incomes are already doing so. This is a
significant policy involving a Government commitment to make
contributions at age seven. It is right and important that we should
look not just to encourage and strengthen the saving habit for future
generations but to promote financial education and inclusion and ensure
that every child has access to a financial asset at the age of 18. Many
young people who reach 18 currently do so with no assets whatever. Over
time, as a result of this policy, that will become a thing of the past.
We welcome it, and I hope that others do
too. Question
put and agreed
to. Resolved,
That the
Committee has considered the draft Child Trust Funds (Amendment)
Regulations
2009. 5.2
pm Committee
rose.
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