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This is the first time that the Treasury will be using its powers in the Companies Act 2006 to enable the Comptroller and Auditor-General to audit non-departmental public body companies and non-departmental subsidiary companies. Members of the Committee may recall that, in 2003, the Government implemented key recommendations made by the noble Lord, Lord Sharman, on audit and accountability in central government. In particular, the Government responded to concerns expressed in Parliament by strengthening the statutory powers of the Comptroller and Auditor-General in two ways. First, they made him the statutory auditor of certain non-company NDPBs where he is not already the statutory auditor and, secondly, they gave him greater powers of access to documents held by bodies in receipt of grants or in relation to contracts with organisations of which he is the statutory auditor.

Since then, the Government have ensured that all non-company NDPBs are subject to the Comptroller and Auditor-General’s audit, either through their establishing legislation or through orders under the Government Resources and Accounts Act. The Government also accepted the recommendation of the noble Lord, Lord Sharman, that company NDPBs

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should be subject to the Comptroller and Auditor-General’s audit. However, until recently, company law created obstacles to the Comptroller and Auditor-General auditing companies. Provisions in the Companies Act 2006 clear the way for him to do so with effect from the financial year 2008-09. Section 482 of the Companies Act allows non-profit-making companies to be audited by the Comptroller and Auditor-General under the Government Resources and Accounts Act instead of the normal discipline of statutory company audit.

To take advantage of the exemption, non-profit-making companies must have been designated in an order under the Government Resources and Accounts Act. The purpose of this order, therefore, is to make the companies listed in the Schedule subject to public audit. In order for a company to be included in the order, Section 482(2) of the Companies Act sets out a number of eligibility conditions. These are, first, that the company is non-profit making; secondly, that where the company is a parent company or a subsidiary of a parent company, every group undertaking is non-profit making; and, thirdly, that the balance sheet contains the statement required by Section 475(2) of the Companies Act 2006 that it is exempt from the requirements of Part 16 under Section 482 of the Act. All 26 companies in the order are limited by guarantee. Each has confirmed that it is non-profit making, is not part of a group that contains profit-making companies and is willing to include a statement in its balance sheet to that effect.

Let me say a few words about the position of profit-making NDPB companies. Sections 1226 to 1238 of the Companies Act 2006 create a supervisory regime for the Comptroller and Auditor-General that allows him to carry out statutory company audits. The intention is that he will do so for NDPBs that are profit-making companies or have profit-making subsidiaries. No further legislation is required to give effect to these arrangements since these companies will remain responsible for appointing their own auditors, which is why they do not need to come within the scope of this order. By making non-profit-making companies subject to public audit by the C&AG, the Government are delivering the greater public accountability that the noble Lord, Lord Sharman, recommended for these types of company. I hope that the Committee will welcome that.

In conclusion, as regards the effect on the companies themselves, strictly speaking there was no need to carry out an impact assessment to accompany this order because the costs fall below the £5 million threshold. However, the Government believe that NDPB companies are substantially similar to ordinary executive, non-company NDPBs and giving the C&AG public audit responsibilities for NDPB companies constituted a step change in his responsibilities. It seemed sensible therefore to revisit the assumptions made in the regulatory impact assessment that accompanied the 2003 order, which gave the C&AG audit responsibility for the first batch of, by pure coincidence, 26 non-company executive NDPBs following the Government’s response to the report by the noble Lord, Lord Sharman. The Government thought that this would provide a useful template for the likely impact of the Comptroller and Attorney-General’s audit of NDPB companies.

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The impact assessment included a survey of the executive NDPBs covered by the 2003 GRAA order. The results of the survey showed that most NDPBs were happy with the C&AG as their auditor. They believed that he provided a professional service and value for money. Also, C&AG audit fees have generally been comparable with private audit firms, partly because many audits have been put out to tender. NDPBs advised the Government that putting audits out to tender enables the C&AG to benefit from best private sector practice. In the Government’s view, the results of the survey showed a positive view of the Comptroller and Auditor-General and his staff and the Government therefore have no hesitation in endorsing the policy that the C&AG should be the auditor of all NDPBs.

Lord James of Blackheath: I have a serious concern with this order, which has been with me since the first day I read it in the Merits Committee. It conflicts with my experience of an NDPB, the New Millennium Experience Company. That company was allowed to trade into an insolvent situation with the deliberate and proactive consent of the Permanent Secretary to the DCMS, who issued an indemnity to the directors of the NDPB to allow them to trade while insolvent. The Sharman report quite specifically said that a company might be non-profit making, but that it must abide by the Insolvency Act 1986. I do not see that message fortified here or any statement made which would preclude another gaffe like the one the Permanent Secretary to the DCMS made at that time. It is an outrageous situation that should not be left in any doubt.

Lord Howard of Rising: I thank the Minister for introducing this order, which I was going to say is relatively uncontroversial. The wind has disappeared a little from my sails, not least because the extension of the Comptroller and Auditor-General’s public audit responsibility was welcomed by the bodies involved.

I have one point: can the Minister confirm whether the change is voluntary? The order states that the “Auditor-General shall audit”, but there are a series of conditions that would make it quite easy to avoid that, if anyone wanted to.

Lord Razzall: I agree with the noble Lord, Lord Howard of Rising, that, in itself, this order is non-controversial. Indeed, far be it from me to be critical of anything that implements the work of my noble friend Lord Sharman. What is controversial is the point touched upon by the noble Lord, Lord James, about what is not in this order. He raised the operation of the insolvency law with regard to non-profit-making companies that are effectively under government control, but I am sure that we could all think of companies that fall within these criteria that are not in the Schedule, particularly in view of the Minister’s remark that where a company is effectively receiving funds from the taxpayer, it is advantageous for it to be audited in the way set out in this order.

On this topic, dare I raise the thorny issue of the BBC? I know it exercised my noble friend Lord Sharman when he was producing his recommendations. It would

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be fair to say that his wishes with regard to the BBC were not welcomed by it. I do not know whether the Government have any response to that.

Lord Davies of Oldham: I was delighted when I saw that the noble Lord, Lord James, was present because I thought it would impossible for us to proceed on these issues without the millennium edifice being part of our discussion. I am grateful for the point that he raised. I hope that I will answer it in a moment, after I collect my thoughts.

I thank the two Front Benchers for their general welcome. I confirm to the noble Lord, Lord Howard, that it is compulsory for the NDPBs to be subject to this audit. The noble Lord, Lord Razzall, raised wider issues and said how delighted he was by the point that the noble Lord, Lord James, made. If, by that, he is threatening me by saying that he would otherwise have made it, I shall be even more anxious when he arrives at these Committees than I have been in the past. The noble Lord raised a significant issue, and no one, certainly not me, is going to come close to the expertise of the noble Lord, Lord James, in regard to that development.

I emphasise that ordinary company and insolvency law is not affected by this order. It applies to the C&AG audit only and is very limited in its scope. The noble Lord, Lord Razzall, asked me to follow up the noble Lord, Lord Sharman, and deal with anxieties about the BBC. On occasion, I spend part of my time dealing with anxieties about the BBC, but I had not anticipated it coming within the orbit of this order. The noble Lord will recognise that the particular constitutional structure and answerability of the BBC puts it outside the normal range of NDPBs. If it were not, he, I and all noble Lords would be very anxious about its independence and the role of the trust, the director-general and his staff in preserving it.

I shall have to look again at the anxieties of the noble Lord, Lord Sharman, on this, but quite a bit of water has gone under the bridge in terms of the governance of the BBC since he reported. I am wary of trading on my own ignorance, but I had the enormous pleasure of being involved in the Broadcasting Act, and I cannot remember this issue cropping up in that context. I do not think that there was anxiety in the House, and there was an extensive range of expertise available to us when we discussed the BBC. I see the noble Baroness, Lady Bonham-Carter, in her place, and she played her full part. I do not recall her referring to this dimension. I think that all that was dealt with in the charter review. The noble Lord will have to brush up on that some time and get someone to advise him on the matter. I emphasise that I do not think that the order gives rise to the anxieties that the noble Lord, Lord James, has voiced. Particularly if he lets me know in advance that he is going to raise an issue, I am always careful to let my officials know that we had better be primed to respond to him.

Lord James of Blackheath: Might I try to make a helpful suggestion? When this goes out in this form, Permanent Secretaries should be reminded that they do not have a right to override the rules of the Act as

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well, because that has obviously been overlooked. It has resulted in a serious sanction from the Public Accounts Committee at the time. It is unfair that they are not reminded of their responsibility in this.

Lord Davies of Oldham: There may be more than one way of meeting that problem. Because of our experience with the Millennium Dome and the subsequent developments in which the noble Lord played such a significant part, I cannot think of a single government department that is not all too well aware of the dangers of projects of this kind. I will bear in mind the very constructive suggestion that he has made and make sure that it is relayed back to the Treasury. I am grateful for his point.

Motion agreed.

Child Trust Funds (Amendment) Regulations 2009

Copy of the Order
3rd Report from JCSI

Considered in Grand Committee

4.26 pm

Moved By Lord Davies of Oldham

Lord Davies of Oldham: These draft regulations provide for a government payment to all eligible child trust fund children on reaching their seventh birthday. They also extend the eligibility criteria for the additional government payment that is paid to the child trust fund accounts of children in lower-income families.

The child trust fund is a long-term savings and investment account and is an important part of the Government’s savings strategy. It will ensure that every child, regardless of their background, has a financial asset at the age of 18. It will be used to help bring financial education to life as part of the “My Money” programme that is being rolled out in schools. It will bring financial education within the framework of the child’s development, and it will help strengthen the financial capability of both children and adults while promoting positive attitudes towards saving.

All children born since 1 September 2002, who are the subject of a child benefit award, are eligible for the child trust fund, as long as they live in the UK and are not subject to immigration control. The Government provide an initial contribution of £250, and children in lower-income families are entitled to a top-up contribution of a further £250. Children are eligible for this additional payment if their families are entitled to the maximum child tax credit at the time when the child becomes eligible for the CTF. There are special arrangements in place to ensure that children in care, who may not be in a child benefit award, do not miss out on receiving a child trust fund account.

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After a parent has been awarded child benefit, they are automatically sent a child trust fund voucher, which they can use to open the account of their choice. To date, around three-quarters of parents have used the voucher to open a child trust fund account for their child. However, no child eligible for a child trust fund account will miss out, because HMRC will open an account on behalf of the child if their parents have failed to do so. The Act allows the Treasury to make regulations that provide for further government payments to be made into the accounts of eligible children.

After extensive consultation, the Government published their detailed proposals for the child trust fund in October 2003. Those proposals included an announcement that the Government would make a top-up payment to each child’s child trust fund account as they turn seven years old. The top-up was designed with two main purposes in mind: to increase the value of all children’s accounts, so 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.

Following consultation in 2004 and 2005 on the details of these further payments, the Government announced in Budget 2006 that the age-seven payments would be £250 for every child, with a further £250 for children from lower-income families and children who are in care on their seventh birthday. Eligibility for the age-seven payments will follow similar criteria as for the initial contribution into the account. The universal payment will go to children who are in 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 paid if the child’s family is entitled to the maximum award for child tax credit during the tax year in which the child’s seventh birthday falls, and all children in care on their seventh birthday will get the universal payment plus an extra £250.

HMRC will arrange for these further age-seven payments to be paid automatically into the child’s account and will write to the child’s family to inform them once the payment has been made. The cost to the Exchequer of making the age-seven payments will be around £250 million per annum, making the total cost of the scheme £510 million by 2012-13.

The draft regulations also amend the eligibility criteria for the additional government payment for children born in lower-income families. Representations were made last summer at the Treasury Select Committee when evidence on the child trust fund was given by the Economic Secretary to the Treasury. The concern was that some people may be missing out on an additional payment because eligibility is based on eligibility to the child tax credit and the rules require families to claim the child tax credit within, broadly, three months of the birth of the child. Mums with, for example, post-natal depression, might not get around to that in time.

We have listened to those concerns and will change the regulations to give individuals more time to qualify for the additional payment. Under the new rules, the

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additional payment will be due as long as a child tax credit claim is made before the CTF voucher expires. This new eligibility period will usually be just over a year from when the child is born. The additional payment will be made automatically by Her Majesty’s Revenue and Customs and eligible parents will not have to do anything for their child to receive the additional money. This amendment will apply to children in respect of whom child benefit commenced on or after 6 April 2008.

The annual cost of administering the scheme is £7.2 million, which works out at around £1.80 per child with a child trust fund account. The calculator which can be found on the child trust fund website estimates that for a child born in 2008, who receives nothing other than two government contributions of £500, the final value of the child trust fund account would range from £1,600 to £2,600. For a child born in the same year, but who receives two government contributions of £250 and the maximum annual top-up payment of £1,200 per year, the final value of the child trust fund account would range from £29,000 to £38,000. It is encouraging that, even at this early stage in the life of child trust funds, one in four children received extra contributions into their accounts and the average contribution made in 2007-08 was £279.

In summary, these regulations will provide for a further government payment into the child trust fund account of all eligible children on reaching their seventh birthday and will also extend the period of eligibility for lower-income families to receive the additional payment. With these final values in mind, I fully believe that the benefits far outweigh the costs and that these regulations will help the child trust fund move towards meeting its objectives of ensuring that each child has a financial asset at the age of 18, helping each child to get into the habit of saving, understanding personal finance and teaching them about the benefits of saving. All of those issues mean that I commend these regulations to the Committee.

Lord Howard of Rising: I thank the Minister again for introducing the regulations, which have already been discussed in another place. This has led to rather more clarification of the costs and benefits than is contained in the explanatory documents.

Under this Government, personal savings have fallen significantly, possibly because of the example of the Government. The discipline of saving is not easy to instil, especially when the Government themselves make no attempt to avoid impossible levels of debt. Giving children a first-hand experience of the process and benefits of saving may go a little way towards repairing the damage caused by the Government’s example of profligacy.

The debate of 9 February was useful in highlighting the costs and benefits of the scheme. An accurate understanding of how much long-term savings can build up over time is rare. If one accepts that there is a benefit from this scheme, giving children first-hand experience of the satisfaction of seeing a small initial deposit grow slowly but steadily into a significant amount would go some way towards helping them to appreciate the benefit of the principle of saving.

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Other lessons may also be learnt; for example, that of the enormous effect that the interest rate can have on savings. It is currently fashionable for those on the government Benches to consider the effect of interest rates only on borrowers, ignoring the plight of pensioners and savers who have seen the return on their carefully stored money falling to nothing while knowing that the inflation that is sure to be coming will make future attacks on the value of their savings. That having been said, we will not oppose the regulations.

Lord Razzall: We on this side of the Committee will certainly not oppose the regulations. Indeed, on the assumption that the Child Trust Funds Act and the child trust funds system remain in place, these are sensible amendments. The noble Lord, Lord Howard of Rising, indicated that there was an extensive debate in another place on this issue, on which we as a party part company from the Tory and Labour coalition. We have consistently taken the view that the best way to get resources into the hands of those from less advantaged backgrounds is not via the child trust fund. We would spend the same money—we might even spend more—in a different way. Notwithstanding the attempt of the noble Lord, Lord Howard, to demonstrate the normal Tory innumeracy on economic matters, this is not the appropriate place to continue that debate. I will just sit down and say that we support these regulations.

Lord Davies of Oldham: Temptation abounds; I have two invitations to engage in a major economic debate on the Government’s savings strategy. I shall forswear that opportunity.

I heard what the noble Lord, Lord Howard, had to say. Of course, he takes many opportunities to be critical of the Government, and I suppose that this is one. However, his party supports the child trust fund and I know that he sees some, if not all, of the merits, of which I elaborated on four. He will agree with several of them, particularly those about increasing the propensity to save and the increase in financial literacy among young people. He will be four-square behind that. I assume that he wants to put this measure into the context of the dire economic situation using a different strategy: if, like the noble Lord, Lord Razzall, I can identify what that different strategy might be. It might be to lament the drop in interest rates. That is an interesting economic proposition.

I am politician. I understand the concern of the noble Lord, Lord Howard, about savers. Of course, we must be concerned about those on fixed incomes, as the Government are. That is, however, a little different from suggesting that the Government have somehow got their strategy wrong in the present economic circumstances, and that the Bank of England has misjudged the matter in thinking that the economy requires lower interest rates. If the British economy does not require lower interest rates, I wonder what he thinks is going on in the United States of America. We must not indulge in these opportunities. After all, my task is to get extremely benign regulations through. I commend the regulations to the Committee.

Motion agreed.

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Social Security (Contributions) (Amendment No. 2) Regulations 2009

Copy of the Order
6th Report from JCSI

Considered in Grand Committee

4.40 pm

Moved By Lord Davies of Oldham

Lord Davies of Oldham: I am pleased to introduce to the Committee the Social Security (Contributions) (Amendment No. 2) Regulations 2009 and to speak to the Social Security (Contributions) (Re-Rating) Order 2009.

As the regulations and the order deal with the various national insurance contribution rates and thresholds, it is sensible that we take them both together. I confirm that the provisions in the regulations and the order are compatible with the European Convention on Human Rights. All the changes were announced at the time of the Pre-Budget Report on 24 November 2008.

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