Child Trust Funds

Chris Ruane Excerpts

Wednesday 13th March 2019 Westminster Hall

[Helen Goodman (Bishop Auckland) (Lab)]

I beg to move,

That this House has considered Child Trust Funds.

It is very nice to see you in the Chair, Sir Christopher. I am pleased to have secured this debate on child trust funds—a landmark Labour policy set up by Gordon Brown in 2005 to give every young person a financial asset.

Child trust funds were closed to new accounts by the coalition Government in 2011. When Gordon Brown launched them in 2005, he said:

“Our aim is a Britain of ambition and aspiration where not just some but all children have the best possible start in life. The Child Trust Fund is designed to ensure every child has assets and wealth and that no child is left out.”

Unfortunately, it seems that lots of children are being left out. Child trust funds provided a tax-free savings account, with Government contributions to children born between 1 September 2002 and 2 January 2011. Under the scheme, the child is allowed to manage the account when they become 16, but can withdraw money only when they reach 18 years of age. The funds will mature on 1 September 2020.

The scheme was designed to provide a financial cushion for young people as they entered adult life, while building their skills and confidence in money management. As I said, child trust funds were closed to new accounts in 2011, but they remain live and continue to gain value through market growth and family contributions. Today, the Chancellor of the Exchequer announced the continuation of their tax-free status. There are now 6 million such accounts, worth an astonishing £9.3 billion in total, but shockingly the Government have lost more than 1 million of the account holders; their accounts are worth £1.5 billion. What a blunder! The Government have failed to run the scheme properly.

[Chris Ruane (Vale of Clwyd) (Lab)]

I congratulate my hon. Friend on securing the debate. Does she share my concern that, when I have tabled written parliamentary questions asking for the number of lost accounts by social class or nation and region, the Minister does not know? He also does not know how much he has allocated in additional resources. Does that not show a lack of political will to identify that, and to get the money to the poorest children in the country?

[Helen Goodman]

Absolutely. I did not know about my hon. Friend’s parliamentary questions, but I find that astonishing. The figures that I will present come from the Share Foundation.

There are now 6 million accounts worth £9.3 billion, but 6% of the accounts held by children in the top 15% of the income distribution have been lost. In total, those have a value of £213 million. Some 14% of accounts in middle-income families—where Her Majesty’s Revenue and Customs cannot link them up with the family—have a value of £540 million. There is no contact information for four in 10 of the children from families on child tax credits—the worst-off, struggling families, in the lowest 15% of the income distribution. The Share Foundation tells me that, on top of that, another 40% have been contacted but have not responded.

There are therefore between 400,000 and 800,000 children with accounts valued at £1,600—a lost value of £710 million, or even £1.4 billion. That is completely disgraceful. Losing £1,000 may not seem like a lot to a Treasury Minister, on a salary of £100,000 a year, but to most families in my constituency it is a fortune that could pay a young person’s rent as a student for several months, or for a course, or for driving lessons.

[Helen Goodman]

The money is in the accounts but the families have not accessed them and do not know about them, so what the Government need to do is link them up. The Chancellor had an opportunity in his spring statement this afternoon, but he failed to take it. The whole purpose of the scheme was redistributive. The wealthiest children were given a Government contribution of £250 at the outset and middle-income children were given £500, but poorer children and children with disabilities got more. They got it in two chunks that totalled an average of £920.

[Chris Ruane]

I thank my hon. Friend for being so generous. Why does she think that she can get that information from the Share Foundation, but I am unable to get the information from the Department?

[Helen Goodman]

I simply think that the Treasury has taken its eye off the ball completely on this matter. It thinks that it can contract the administration out to a small, well-intentioned charity that is doing its best, but it is fundamentally a Government responsibility, and Government Ministers must take their share of the responsibility.

As I was saying, children from wealthy families started off with £250. Children from poor families started off with £920. However, the valuation of the accounts now shows that that position has completely reversed. The accounts of the wealthiest children are now worth, on average, £4,000, but the accounts of the children from the poorest families are worth £1,600. That is partly because wealthy families were able to keep topping them up, which poor families cannot afford to do. Wealthy families have also been managing them more actively.

In essence, the Government have overturned the whole purpose of the scheme. Moreover, as my hon. Friend the Member for Vale of Clwyd (Chris Ruane) said, the Government seem to be hiding the funds from those for whom they are intended. Information is printed in tiny typeface on the letter that goes to 16-year-olds giving them their national insurance number. All it says is: “When you turn 16, take control of your child trust fund. Ask your parents for more information. Go to www.gov.uk/child-trust-funds”. If someone does not know that they have a child trust fund, or what a child trust fund is, they will not notice or follow that. It ought to say: “You have an asset. It is probably £1,000. If you want to get hold of it, you need to do this.” It should be in big red typeface, like the national insurance number itself, on the letter that is sent out.

Furthermore, most young people, once they have clicked through to the Government website, will not be able to access the fund, even if they follow the instructions in the letter that they get with their national insurance number, because the Government website requires them to have a Government gateway user ID—I do not know whether you are familiar with those, Sir Christopher. It means that, as well as their national insurance number, young people need a passport, a P60 or a payslip. Obviously, 16-year-olds are at school; they do not have P60s and payslips. We are particularly concerned about people in low-income families. Many of them do not have passports, which are very expensive. More to the point, young people are not really very financially sophisticated: 62% of 14 to 17-year-olds cannot read a payslip, while only 52% of seven to 17-year-olds say that they have received any financial education in school, at home or in other settings.

The Government contracted out the administration of the scheme to the Share Foundation, a charity that has been administering it for the 45,000 children in care and which has managed to track down 60% of them via local authority records. That is very commendable, but I put it to the Minister that it is completely irresponsible to contract out the administration of a database of 6 million people to a voluntary sector organisation for a fee of £300,000 a year and expect 1.5 million people to be tracked down on a voluntary basis.

HMRC writes to every mother whose child is soon to be 18, stating that entitlement to child benefit is about to end. I suggest that that is the perfect opportunity to signpost them to the child trust fund. Mothers could be told, “Your child benefit is coming to an end, but your child will then be entitled to this money.” I hope that the Minister will take that idea away and implement it with HMRC, which is a department under the Treasury’s responsibility.

--- Later in debate ---

[The Economic Secretary to the Treasury (John Glen)]

It is a pleasure to serve under your chairmanship, Sir Christopher. I congratulate the hon. Member for Bishop Auckland (Helen Goodman) on securing this debate; I recognise that she has taken a keen interest in the issue and has been a doughty campaigner on matters of childcare and child poverty, following her 11 months as a Minister in the last Labour Government. I also acknowledge and will try to address the points made by other hon. Members.

The Government share the commitment of hon. Members of all parties to supporting people to save at every stage of life, irrespective of income or background. Financial inclusion is one of my key priorities as Economic Secretary, and in the past year I have met many organisations and experts in the field. I strongly believe that learning financial skills at a young age equips young people to make better decisions when they are older, so I am pleased to have this opportunity to set out the Government’s view.

The Government introduced junior individual savings accounts in place of child trust funds in November 2011, providing continued tax incentives to encourage families to put money away for their children’s future. Under legislation introduced in 2015, existing child trust fund accounts can be transferred into a junior ISA, providing families with the flexibility to choose the right option for their child. The Government also sought to make specific provision for children in care; as the hon. Lady pointed out, we contracted the Share Foundation to work with local authorities to open a junior ISA account on behalf of looked-after children.

The Government currently pay £200 into the accounts of children who have been in care for at least one year. The Department for Education has provided the Share Foundation with funding totalling £531,624 for that administration, and 120,000 payments of £200 have been made to children in care since 2012. We want those children to leave care with money to their name and the means to continue saving as they become independent. I should stress that junior ISAs are just one element of our work to promote financial education among young people. We want all children to enter the world of work understanding the importance of budgeting and saving, so financial literacy is now taught as part of the citizenship curriculum for 11 to 16-year-olds.

Let me turn to the so-called lost child trust funds, which were the core of the hon. Lady’s speech. There are many complex and overlapping reasons for the lack of engagement, but the Government are working with industry to actively seek holders of the accounts. Child trust fund providers are required to send regular statements to the child’s last known address and are taking steps to trace those who have moved. They have a statutory obligation to send such statements on the child’s seventh, 10th and 15th birthday, but in line with Financial Conduct Authority guidance, most do so annually.

The national insurance notification letter that HMRC sends to all 16-year-olds has recently been amended to include details about how child trust funds can be located; the hon. Lady referred to the size and colour of the font used, which is clearly a matter that I can take on board and examine. I also draw hon. Members’ attention to HMRC’s online tracing tool, which is available via gov.uk. Of course, people can still contact HMRC by telephone or post if they so choose.

[Chris Ruane]

May I put to the Minister the same question that I put to my hon. Friend the Member for Bishop Auckland (Helen Goodman)? The Share Foundation was able to give her statistics on the distribution among socioeconomic groups, but when I tabled questions to the Treasury asking for exactly the same information, it was not available. When I asked for estimates by nation and region, that information was not available. When I asked what additional resources had been allocated to assist in locating child trust fund accounts, that information was not available either. Can the Minister supply it today?

[John Glen]

I am grateful for that question about the regional and income breakdown of the distribution of child trust funds. Such information is published by HMRC and discriminates by region and county and by whether additional contributions were made; no income distribution data is collected by HMRC. I am happy to look into the matter further; if I can give the hon. Gentleman any more information, I will write to him.

Looking to the future, approximately 6 million child trust funds have not yet been transferred to junior ISAs. The first of those accounts will mature next September, and a further 55,000 will mature every month thereafter until 2029. What young people choose to do with their money is ultimately a matter for them, but we want them to engage in the process so that they can make the best decision for their individual circumstances.

--- Later in debate ---

[John Glen]

I do not think that the hon. Lady’s raising her voice in an aggressive manner is going to help anyone. I have just set out the Government’s position and explained the detail of the provision. The hon. Lady has extrapolated some figures from one piece of analysis by one of the providers, which is not a reliable way of carrying on. I have told her about the action we took in January.

The issue is not just about the online portal, but about being able to call up HMRC. Last year’s Budget included a commitment to consult on draft regulations that will ensure that investments currently held in child trust fund accounts can retain their tax-free status after maturity. The consultation will take place later this spring, when the Government will lay regulations before the House, well in advance of the first accounts maturing in September 2020.

In summary, both junior ISAs and child trust funds allow parents and guardians to save on behalf of their children, tax free. People have the option to convert their child trust fund into a junior ISA, and we are working with providers to reunite dormant accounts with their intended owners. However, all remaining child trust funds will continue to enjoy tax-free status, even after they mature. The amount that young people can save in child trust funds and junior ISAs will increase by the rate of inflation in April—it is currently £4,260 a year.

[Chris Ruane]

I agree with my hon. Friend the Member for Bishop Auckland that the system is not working. As a way out, would the Minister consider meeting people who have sufficient knowledge—I would include my hon. Friend—or perhaps citizens advice bureaux, the Share Foundation and a panel of parents, so that some answers can be given to the questions that have been raised?

[John Glen]

On behalf of the Under-Secretary of State for Education, my hon. Friend the Member for Stratford-on-Avon (Nadhim Zahawi), who is the Minister responsible for this area and is currently before a Select Committee, I would be very happy to offer a meeting with hon. Members to discuss this matter further. It is his responsibility, and I am sure he would be very happy to attend.

We have made efforts to provide young people with savings to draw on as they reach adulthood, and we hope this encourages further saving at every stage of life. The points made by the hon. Member for Bishop Auckland on access have been comprehensively addressed by the Government’s sending a letter to 16-year-olds.