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Baroness Noakes: My Lords, I was extremely interested to hear the views of my honourable friend in another place. If one takes out the slip of the tongue—I believe that it was a slip of the tongue—which resulted in "stakeholder", I could not possibly disagree with my honourable friend. From what he said, I do not think that he therefore supported the compulsion for every provider to offer a stakeholder product. He was merely saying that equity investments are a good thing and that is certainly a proposition that I find little difficulty in signing up to.
The Minister explained that the draft regulations have been published. However, I am still puzzled as to their effect, which is merely to state that there are stakeholder accounts and non-stakeholder accounts. My question to the Minister was what is the genuine effect of requiring a provider to offer stakeholder accounts if he can keep them as a marginal product in the suite of products which is there just to receive a tick from the Inland Revenue that a stakeholder product is available? So, my problem is first that I do not think that providers should be obliged to do this and secondly, I cannot see that requiring minimal compliance will achieve the Government's objectives. We will probably end up with providers, in effect, doing their own thing.
If my interpretation of that is correct, I should have nothing to fear from the compulsion for stakeholder products because they will be marginal products promoted only if the providers choose to see that as a major plank of their marketing stance. If that is what the Government wish to achieve, I suppose I have to leave them to it. On that basis I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
7.30 p.m.
Baroness Noakes moved Amendment No. 4:
- Page 2, line 41, at end insert—
The noble Baroness said: My Lords, Amendment No. 4 amends subsection (4) of Clause 3 by adding a requirement that the terms of child trust funds should
We had a useful discussion on the matter in Grand Committee in the context of a similar amendment. Since then, the Minister has written to me. I thank him for his comprehensive letter. It covered the impact of the human rights convention. As I understand it, it would not be possible to pass secondary legislation to deprive a person of his property in a child trust fund because the effect of Clause 3(4)(a) is that the child trust fund is the child's property and a restriction on that would deprive the child of his or her human rights.
My amendment is inserted before Clause 3(4)(a). It is designed to ensure that the Government would have the power to create rules about how the funds should be used. I hope that it would be clear that the creation of a property right in paragraph (a) is subject to the rights that exist for the Government to determine how the money is used.
I do not want today to rehearse the arguments for restrictions because I am not arguing for particular restrictions. I am arguing that the Government should not throw away the opportunity to ensure that child trust funds are spent on proper purposes. The Minister said that power could not be taken at a later stage without infringing the child's human rights. That makes it imperative for a power to be taken in the Bill.
I remind the House that we are talking about significant sums of money in aggregate. With £250 million or so going into the scheme annually there will, once compound returns have been taken into account, be around £500 million in real terms maturing each year in 16 or so years' time. That assumes that the Government make no further top-ups and that no additional savings are made on behalf of the child. Taxpayers are funding this bounty and are entitled to know that the money will by and large be spent on purposes of which society approves.
Many noble Lords have concerns that the maturing funds will be used for what were described in Grand Committee as "trust fund raves"; that is, they will pay for a party, alcohol, drugs or all three. The danger is greater when the trust fund has not been topped up by additional contributions from parents or others because the amount at maturity will not look particularly significant to the individual. On the Government's own figures, £250 invested in a child's trust fund at a nominal yield of 7 per cent will produce £456 in real terms after 18 years. That is party-sized money.
The noble Lord, Lord Newby, in Grand Committee questioned the practicalities of policing a system that monitored how money should be spent. Clearly, there would be a trade-off between simplicity and practicality; too many potential uses and too much subjectivity would raise issues of practicality and cost. But we have seen from the US that practical schemes can be defined and operated. I am sure that we could devise a proper scheme if we were clear about what we wanted to do. Indeed, I think if we were trying to get
I hope that the Government will not turn their face against this. The child trust fund is based on little hard evidence. Evidence may well start to accumulate that the original faith in the power of financial education is misplaced. If the legal niceties are such that no later action can be taken, whatever evidence has emerged, the only action that will be available to a future government of whichever party would be to conclude that the risks of abuse of public money were too great to allow the experiment to continue. So, if the Government want the experiment to run its course, surely they want to ensure that they have the power to step in to provide for responsible uses of the money when it matures. I beg to move.
Lord MacGregor of Pulham Market: My Lords, again I do not want to go over all the arguments that we had in Grand Committee. However, I think that some of the reservations about dissipation of the funds on raves or a quick holiday and so on—and I seem to recall other noble Lords, including the current Deputy Speaker, raised these points in Grand Committee—continue. It is interesting that the similar United States's scheme has some conditions on the use to which the money can be put because the recipients are of course gaining not only from taxpayers' grants, as in this case, but also from tax relief.
I do not want to go over those arguments, although I still think they are strong. I want to ask the Minister about one point referred to in his letter of 6 April 2004 to my noble friend Lady Noakes which he very kindly sent to all noble Lords. In it he stated:
I regard that as a very important point because all the others are arguments in which one can take one side or the other. But if that were true, it is clearly a clincher against moving forward on this; indeed, it is a stopper to the whole argument. I notice that the words used were "serious risk". I do not know whether that is just a threat or if it is thought that the risk is very serious. That is why I ask the Minister to spell out exactly why it is incompatible with Article 1. We are asking that certain conditions should be applied to the scheme in return for taxpayers' grants and tax benefits.
I make a similar analogy with another savings scheme: personal pensions. Personal pensions are the pensioner's property, just as here child trust funds would be the child's property. Personal pensions have certain tax advantages and in return for those tax advantages restrictions are imposed on them; namely, that by the age of 75 those pension funds have to be invested in an annuity. Does that
Lord Monson: My Lords, the noble Baroness, Lady Noakes, rightly pointed out that £456 in real terms is party-sized money. I should also like to suggest that it is dangerous old banger or dangerous old motorbike-sized money.
Lord Newby: My Lords, we make clear from these Benches that in principle we support the idea of the use of child trust funds being constrained so that they are put to purposes which we would all feel were positive. At the moment, that cannot be guaranteed by any means.
I agree with the noble Baroness, Lady Noakes, that if the funds were so constrained, there would be a greater likelihood of parents and probably even more grandparents putting funding into child trust funds.
The problem is that no one has come up with a workable alternative constraint scheme, leaving aside the human rights' point. From what little I know about the American system, it is a very different product from the proposal being made here. One could not insert that kind of constraint just through regulation; it would require root and branch recasting of the whole scheme.
While I have a lot of sympathy with the purpose of the amendment, in the absence of any suggestion of how such a scheme might work, it is rather difficult to support it.
"( ) secure that when the child reaches the age of 18 it is used only for purposes specified in regulations,"
"Even if there were the necessary vires"—
by which I assume he means granting the powers to impose conditions at the age of 18 on the use to which the money can be put—
"I am also advised that if any such restriction were imposed, it would be regarded as a deprivation of the child's property, engaging its human rights under Article 1 of the First Protocol, and that there would be a serious risk of incompatibility with those rights".
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