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Lord Newby: My Lords, we accept the principle behind the amendments and, indeed, the amendments themselves. The friend mentioned by the noble Baroness, Lady Hayman, has summed up the argument exactly. Why should those reaching the age of 18 from well-to-do circumstances be able to enjoy the full benefit of the child trust fund while those who have fallen on hard times might not? That flies against the principles behind the whole child trust fund initiative. Therefore I hope that the Government have thought again about the matter.
Lord McIntosh of Haringey: My Lords, Amendment No. 7 would ensure that the child trust fund is not taken into account when entitlement to a range of benefits and tax credits is assessed. That is not spelt out in the amendment, but we have been over this ground sufficiently to know which benefits are means-tested and which are not. We need not go into the issue again. The House knows that the child trust fund does not affect entitlement to benefits such as incapacity benefit and disability living allowance, which are aimed at helping disabled people and those with long-term incapacity. They are not means-tested.
I have confirmed that child trust fund assets and the income and gains from those assets do not impact on family benefits and tax credits before the account reaches maturity when the child is 18 years old. I stated that in the letter quoted by the noble Baroness, Lady Noakes. As only the child can access the money at the age of 18, in applying the regulations on income-related benefits, the Department for Work and Pensions will not treat the child trust fund as part of a parent's capital or a child's capital before the child turns 18.
It is the Government's intention that when the child trust fund account matures, the funds could be rolled over into tax-effective savings schemes available at the time. Income from investment in such schemes does not affect entitlement to tax credits.
The Government acknowledge that savings in child trust funds or any other savings vehicles could affect entitlement to income-related benefits once the child trust fund account holder turns 18. I do not see this as quite the point of principle referred to by my noble friend Lady Hayman, but it is certainly a potential clash of cultures between the benefits regime and what we are attempting to do here. We have responded to that.
As a first step, the Financial Secretary announced at Second Reading in the Commons that from April 2006, the Government would increase the £3,000 threshold above which all savings reduced the amount of income support, jobseeker's allowance, housing and council tax benefits to £6,000. I should make the point that this concession goes very much wider than the child trust fund. It is a general concession confirmed in the Budget of 2004.
In any case, very few people on benefits have capital of over £6,000. For example, only 1 per cent of claimants under 60 on income support and income-based jobseeker's allowance have capital of over £6,000 as at May 2002. The Institute of Fiscal Studies' analysis of the British household panel survey shows that the median net liquid financial wealth is zero for adults aged under 25. So it is reasonable to conclude that the number of 18 year-olds with capital of over £6,000 would be under 1 per cent.
In addition, possession of capital above the lower threshold of £6,000 reduces the amount of benefit paid by one pound for every whole or part of £250 over £6,000. An individual would need to have capital over the upper threshold of £8,000 for income support and income-based jobseeker's allowance for them not to be entitled at all to the affected benefits. The upper threshold is even higher for housing benefit and council tax benefit, excepted at £16,000.
The doubling of the lower threshold is a significant move to reward those who save. It will give parents, carers, grandparents and friends the reassurance they need at this stage that the child will not be unfairly penalised in future for the savings made now.
In addition, the Government have made a public commitment to keeping under review the treatment of capital in income-related benefits. The first child trust fund accounts will not start to mature until 2020. The treatment of capital in income-related benefits needs
I turn now to Amendment No. 19, which would have the effect that when an individual spends his or her child trust fund at age 18, or if a person spends money inherited from a child trust fund, this would not be treated as deprivation of capital. The second situation refers to when a child dies. Under normal intestacy rules, the child's assets, including the child trust fund, will go to the parents, or spouse if the young adult was married, and then the normal rules for income-related benefits and tax credits will apply. This applies to any assets in the estate of a dead child.
The Department for Work and Pensions has advised that expenditure would trigger the rules only when the significant purpose behind the spending is to secure entitlement to benefits. This also applies when grandparents make contributions to a child trust fund account. Their entitlement to pension credit is affected only if gifts into the child trust fund account are for the purpose of securing entitlement to pension credit.
The decision on whether the capital deprivation rules are triggered for a particular case will be based on full knowledge of the individual circumstances. This is the way in which the Department for Work and Pensions operates, and has to operate. If an individual decides to spend his or her child trust fund account at age 18 and the significant motivation behind the spending was not to secure entitlement to benefits, this spending would not be treated as deprivation of capital. For example, if an individual was less well off and needed to buy a car in order to find worka point made by my noble friend Lady Haymanthe motivation for spending his child trust fund would not be to secure entitlement to benefits; therefore the rules would not be triggered and the entitlement to benefits would be unaffected.
That goes a good deal further than the description given by my noble friend Lady Hayman about local officers having to be generous and trying not to apply the rules. These rules are, in my view, properly tailored to individual cases rather than rules which ought to be on the face of the Bill, which it is sought to achieve.
In the same way, in the event of a child dying and the sums being transferred to the parents, if the parents spend the child trust fund it would not affect their entitlement to benefits if the motivation behind spending the money was not to secure entitlement to benefits. That takes into account the example of the memorial raised by my noble friend Lady Hayman. The decision maker will take into account the parent's reason for the spending. For example, if a parent wished to transfer the deceased child's trust fund to the child's sibling and if the motivation was not to secure entitlement to benefits, the capital deprivation rules would not be triggered. The parents are likely to be
I acknowledge what my noble friend Lady Hayman said about numbers. She estimated, and we agree, that there are likely to be approximately 5,000 deaths among children and young people under the age of 18. She estimated that about 10 per cent of them would come from families on benefits. The 32 per cent which she quotes from the Written Answer would seem to be in about the same range as the 40 per cent of children who will receive supplementary payment because they are in households in receipt of child tax credit because they have an income of less than £13,480. In situations where the child dies and moneys received from the child trust fund affect the parents' benefit, there will still be a tiny percentage of the population in receipt of the child trust fund, which we estimate to be about £10 million. Doubling the threshold will still work to reduce the number of parents who are affected in this way.
I have said something about the comprehensive guidance which the Department for Work and Pensions issues to decision-makersthat is, its own staffto ascertain when the capital deprivation rules would be triggered. The decision-makers' guide is not secret. The public can consult a copy of the guide at the social security office or view it online.
Amendment No. 19 would allow individuals who deliberately spend their CTF to secure entitlement to benefits to be successful in their attempt. I say to my noble friend Lady Hayman that that would be unfair to taxpayers, inequitable and at odds with the Government's message that work is the best form of welfare. I say that in all friendship to Peggy Wynn, because, like my noble friend, I respect the lifetime's work that she has given to this and many other subjects.
The Government aim to provide a balance between personal responsibility, work incentives and targeted state support. Income-related benefits are intended to provide help for those who are unable to provide themselves and their dependants with enough to live on and need outside financial support. It follows that if someone has resources, they should use them before calling on the state. Capital rules allow people to have a modest amount of savings without their benefits being affected, but they reinforce the message that work is the best form of welfare.
I am sorry to have gone on so long on this subject but it is clearly treated as a matter of principle. I take it very seriously and I hope that the length of my response and the argument in it will encourage those who have put forward the amendments not to press them.
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