Child Trust Funds (Amendment No. 3) Regulations 2010
Debate between Lord McKenzie of Luton and Lord Blackwell
Lord McKenzie of Luton
My Lords, I speak in favour of the amendment moved by my noble friend Lord Davies and in opposition to the content of the regulations.
Wherever we end up on this issue this afternoon, and if the statutory instrument is to proceed, I support the proposition of the noble Lords, Lord Naseby and Lord Hodgson, that we should do what we can to preserve the infrastructure of the arrangements, so that they do not die and can be revived at some stage.
I shall also digress a little into pensions, as did the noble Lord, Lord Hodgson. I was not sure whether we would discuss them this afternoon, but I contest the proposition that the noble Lord made about the record of the previous Labour Government. Yes, we did introduce the Pensions Regulator and, indeed, the Pension Protection Fund. Without those very important planks of pension provision, many more people today would have lost their pensions and be without decent provision in retirement. I have a specific question for the Minister. The noble Lord, Lord Hodgson, raised the issue of what he called a tax charge on pensions. It was not a tax charge on pensions, but a change in the imputation system which reduced corporation tax and therefore denied the repayable tax credit. If the noble Lord’s party sees that as an attack on pensions, can the Minister say whether that will be reversed and whether it is the policy of the coalition Government to revert to an imputation system of tax, or whether they will continue with, in his noble friend’s words, a tax raid on pensions?
As we have heard, these regulations are the first instalment of the coalition Government’s proposals to scrap child trust funds altogether. The Government have other form on this. Child trust funds are one of the initiatives that a Labour Government developed to promote asset-based welfare, in recognition of the importance of asset holding in determining approaches to employment, education and well-being. The other initiative was the savings gateway. It consists of a time-limited two-year savings account for those in receipt of certain means-tested benefits and credits—those on low incomes. Up to certain limits, the Government were to match savings pound for pound. That was clearly a way of incentivising saving by those for whom a tax break is not particularly relevant. Sadly, we are now told that this programme will not now be introduced this month, as it is also not affordable. This removes at a stroke one of the pillars of asset-based welfare, for a saving of £115 million in 2014-15—savings, by definition, paid for by the poor. They are some of the same families and individuals who will pay the highest price for the winding up of child trust funds, and they are some of the same families who will miss out because of the coalition Government’s scrapping of the tax credit elements for infants, the termination of the health in pregnancy grant, the limitation of the Sure Start maternity grant for the first child, and the freezing of child benefit.
These regulations end all government contributions for children at age seven. This is a loss of £250 for most children, but a loss of £500 for seven year-olds in low-income families. There is also a reduction in the special contribution of £500 for looked-after children. The poorest and most vulnerable are having to bear the greatest burden. There is yet worse. At present, children entitled to any rate of DLA are entitled to an annual government contribution of £100, or £200 if the highest rate of the care component is received. From April next year, this is to be snatched away as well. Government contributions to accounts when first opened are to be reduced by £200 for most children and £400 for the poorest.
My noble friend Lord Davies made the point that although the Conservatives’ manifesto made clear that they would seek to remove the universal element of the child trust fund, they had a commitment to preserve the remainder:
“We will … cut government contributions to Child Trust Funds for all but the poorest third of families and families with disabled children”.
So how do we justify the current situation? What was it that the Lib Dem wing of the coalition said that persuaded the Tories? I am bound to say that I hope it was more than what the noble Lord, Lord Newby, just enunciated. What was the quid pro quo, and how much of the half a billion pounds of saving comes from withdrawing support from the poorest families? Perhaps the Minister could specifically let us know.
We have heard about the Children's Mutual, which is a provider of accounts. It claimed that the child trust fund is the most successful savings policy to date. Does the Minister share that assessment? Does he at least accept that over 5 million children now have child trust fund accounts—I think the noble Lord, Lord Naseby, said 6 million—and, with the Government’s safety net, there is now virtually 100 per cent take-up of the facility. Some 1.4 million parents, families and friends are contributing to the accounts and, had the scheme continued, from 2020, each year nearly £3 billion would have been available to young people as they reached adulthood. Seventy per cent of the government investment goes to households with average or below-average incomes, and 50 per cent to the 1.5 million families with incomes under £16,000. Since the introduction of child trust funds, the number of children having regular long-term savings made for them has nearly doubled. While the annual cost is not insignificant, tax relief for ISAs costs double the tax relief for child trust funds, and even after proposed changes to tax relief on pensions, it is many multiples of the cost of child trust funds with take-up being 30 per cent and 40 per cent respectively, subject to auto-enrolment.
If the savings gateway and child trust funds are to go, what alternative policy approaches does the Minister recommend to encourage children and young people into recognising the value of saving? How does he propose to do that? Doubtless, he will pray in aid the importance of financial capability education. In this regard, we note that the Red Book identifies the launch of the new national financial advice service next spring. The coalition Government’s document states that it is to be,
“funded in full from a new social responsibility levy on the financial services sector”.
When he replies to the debate, will the Minister update us on this service, which is clearly well advanced if it is to be launched next spring? What form will the levy take? How much is intended to be raised? What is included within the definition of the financial services sector? If the levy is not to be in place by next spring, how is the service to be funded?
The coalition Government do not need to axe child trust funds. Leaving aside issues around the timing and depths of the cuts the Government intend to make, which we have made clear we consider to be too soon, too far and dangerous, there is a fundamental matter of priorities. What thinking goes into a Budget judgment that determines that a banking levy should raise less than a quarter of the cuts in welfare measures? What analysis drives the conclusion that savings should be given a boost by ending the obligation to annuitise at age 75, which is relevant only to those with very substantial pension pots, but that all children should not be given a helping hand to get into a savings culture and build assets for when they become adults? If the Government want to encourage people to save more and borrow less, why abolish this important programme that helps young people to save? If they are intent on rolling back universality in the welfare system, why extend this to poor families and families of disabled children?
These regulations are unworthy. I will conclude with a quotation from the alliance that is seeking to push back the measures. It states:
“We recognise that in a time of severe cuts financial contributions from the state to any savings schemes are hard, yet there is still an urgent need to encourage families to save for their children's futures. The Child Trust Fund is the most successful government saving scheme ever. It has made great strides towards increasing the asset base in Britain, helping families save for the costs they will face as their children make the transition into young adulthood. At present, nothing has been proposed to be put in its place. That is why we formed the Save Child Savings Alliance. The key element of the Child Trust Fund must be retained, even if Government decides that the Treasury cannot afford contributions at present”.
Lord Blackwell
My Lords, I rise briefly to support the Minister in bringing forward these regulations. I declare my interest as director of a life and savings institution in the UK, but stress that I speak in a purely personal capacity. Like my noble friend Lord Newby, I have opposed these funds on principle. At the level at which they are funded, they are an example of gimmick politics—where the Government take money off taxpayers and then give it back in ways that are meant to make the population feel grateful for their largesse, having taken off significant amounts in administration costs.
The reason why the poorest in this country do not have significant savings is that they cannot afford to save. The best way to help those people is to reduce their taxes and target benefits on them. That is why I favour anything that reduces public expenditure and enables us to take more people out of tax, as the last Budget started to do at the lowest end of the income level. Of course it is important to encourage savings, but an important characteristic of that is to have the simplest possible regime, not one that is adorned with lots of Christmas tree ornaments. We have very effective ways of encouraging savings through the ISA and pensions regimes. The Government should focus every effort on making those schemes as universally attractive and accessible as possible. This scheme does little to add real wealth to the poorest people in this country. It is an adornment that we can do without.