Savings Accounts and Health in Pregnancy Grant Bill

John Hemming Excerpts

Monday 22nd November 2010 Commons Chamber

Finally, I hope that he will look pragmatically at ensuring that an alternative product is in place and at maintaining the child trust fund until such time as the child ISA is introduced next October. Serious issues are at stake. I know that my right hon. and hon. Friends feel very strongly about these matters—we all do—and it is important for the Minister to respond on them. I hope that having reflected on the 19 Divisions in Committee and the seriousness with which we take these matters, he will at least come back to the House and reflect strongly on the views that we have put to him today.

[John Hemming (Birmingham, Yardley) (LD)]

We are back where we were in the Public Bill Committee: the Opposition are going to fight on the barricades to protect the child trust fund because it is so important. We are in a world where we are borrowing large sums—we have seen in Ireland what happens if we do not bring the finances under control—and the Labour party wants to borrow money to put it into child trust funds. That sounds interesting, and in 18 years, children will be able to access that child trust fund. We then have to ask, however, what happens to the money in that child trust fund, and it is relatively difficult to find out. Today, I looked at the annual reports of the Children’s Mutual. In 2008, the funds were generally worth less than the money put in. In 2009, some were worth more than the money put in and some were worth less.

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[Fiona Bruce (Congleton) (Con)]

Would we not be far better off doing what we are doing now and supporting growth in the economy so that we can provide the jobs that those young people will need when they finish education and start work?

[John Hemming]

The hon. Lady is entirely right. If we do not deal with the deficit, we face many other problems. We will end up paying a higher interest rate on sovereign debt. At the moment we are doing quite well, with an interest rate of about 3.5%. Before the bail-out, the Irish were being charged about 8% and the Greeks are being charged about 11%. When a country has a large deficit, if that country does not take action, not only does the amount of debt go up but so does the rate of interest.

[Sheila Gilmore (Edinburgh East) (Lab)]

In April, the leader of the Liberal Democrats said that big cuts would be extremely dangerous. Did the hon. Gentleman agree with him then? If he does not agree with that now, when did he change his mind?

[John Hemming]

That might be slightly out of order, but I should probably answer the question. There has been a debate about the £6 billion of cuts in this financial year. At about 4% of the overall deficit, £6 billion is not a large sum, but given what happened with the initial sovereign debt crises during the general election—things that we have to be aware of, such as what was going on in Greece—we need to give the message that we are serious about dealing with the deficit. That is a socially progressive policy.

[Cathy Jamieson (Kilmarnock and Loudoun) (Lab/Co-op)]

Does the hon. Gentleman accept that the state has a special responsibility for children in care, irrespective of how they end up in care? Even in times of financial difficulty, any responsible parent would look first to the most vulnerable children, and that is what the state should do.

[John Hemming]

I agree entirely, but it is also the state’s responsibility to make sure that we do not spend £7 million to give people £2 million. Putting aside whether child trust funds bring a return over time, it is absolutely absurd to propose, as the Opposition do, spending £7 million to give children in care £2 million. There has to be a better way of doing things. Also, those children would not get the money until they were 18.

[Nic Dakin (Scunthorpe) (Lab)]

I think that the hon. Gentleman agrees that we should support looked-after children in some way, so can he suggest a better way? [Interruption.]

[John Hemming]

From a sedentary position, an hon. Member suggests that we ensure they have a job. That is true, but what we are talking about is a child trust fund that is made available at the age of 18.

[Pete Wishart (Perth and North Perthshire) (SNP)]

Would not the people whom we are talking about need that money at 18 to pay for the Liberal Democrats’ tuition fees?

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[John Hemming]

The good news is that we are scrapping up-front tuition fees not just for full-time students but for part-time students, but I think we are straying—

[Mr Deputy Speaker (Mr Lindsay Hoyle)]

Order. We are going off the Bill.

[John Hemming]

The point is that spending £7 million to give £2 million is an appalling waste of money. Anyone who votes for anything like that will have a real stain on their financial track record, because people will observe the Opposition saying, “This is so important that we have do things in this inefficient way.” It is a ludicrous proposal.

[Bill Esterson (Sefton Central) (Lab)]

The hon. Gentleman has talked about ISAs replacing the child trust fund as a way of saving for children. Does he appreciate that ISAs are often related to stocks and shares and that their value can go down as well as up? I do not see the difference in what he proposes.

[John Hemming]

At this point, I should declare my interest, which is on the Register of Members’ Financial Interests, as the chair of a company, John Hemming and Co., which provides software to ISA providers. I understand how ISAs operate and that the value of ISAs that are exposed to the stock market can go up as well as down. The difficulty with the child trust fund is that it is relatively small and that there is a great challenge in managing small funds. As a proportion of the fund, the 1.5% charges rate is higher than that for many other funds.

[Kate Green (Stretford and Urmston) (Lab)]

Is the hon. Gentleman confident that the junior ISA will be more cost-effective for the local authorities that are the corporate parents of children in care than the child trust fund?

[John Hemming]

There is no reason why a junior ISA should be any less effective for the corporate parents. The issue is that running the computer systems for the child trust fund costs £5 million a year. That cost would not affect local authorities but would mean central Government incurring an extra £5 million in administrative costs now to give children in care £2 million in 18 years’ time.

[Kate Green]

Rather than this being about whether there will be more or less cost, is it not simply about whether the cost will be borne by central or local government? In the scheme of things, that makes very little difference when we are talking about overall cost to the public purse.

[John Hemming]

The Opposition’s proposal to maintain the child trust fund and give £2 million to children would cost £7 million, so they would waste £5 million on the process. In the sphere of the massive deficit, £5 million might not seem like much, but it is the responsibility of Government to be effective and efficient in their use of public funds.

[Cathy Jamieson]

Will the hon. Gentleman confirm that £5 million will still be used for children in care under the Government’s proposals? Will he also tell us how it will be used?

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[John Hemming]

I cannot confirm precisely what is being done in the care system. I am not a Minister; I have never been in a ministerial car and I have no interest in putting my derrière inside one. I happen to be a Back-Bench Member of my party who is very supportive of the Government’s strategy of being cost-effective and of using public funds in the most effective way, particularly to look after the most vulnerable members of society. The simple point, on which I shall end if there are no more interventions, is that it is insane to spend £7 million to give people £2 million.

[Paul Goggins (Wythenshawe and Sale East) (Lab)]

Let me begin by complimenting my right hon. Friend the Member for Delyn (Mr Hanson) and, indeed, all my hon. Friends for their sterling work on the Bill and exposing clearly its impact on looked-after children and children from all backgrounds. My right hon. Friend said that he wanted to be helpful and conciliatory. I have worked with him for many years and I thought he was very helpful and conciliatory this afternoon. I want to adopt the same approach regarding amendments 51 and 52, which stand in my name. They would place a duty on the Chancellor to report, by the end of 2011, on two things: the impact of clause 1 on looked-after children, and the take-up rate of tax-free savings accounts for looked-after children. Admittedly, this is in its early stages because we do not have the details on the child ISA that have been promised.

Whatever divisions there are in the House, we should always try to reach consensus on our obligations and duties in relation to looked-after children. We should not be divided on that and should constantly seek answers that we can all agree on and that clearly show we are prepared to meet our obligations. Whatever other motives might be attributed to the Minister in bringing the Bill to the House, I do not believe that he came here intending to cause children in care any harm. I believe that the impact the Bill will have on looked-after children is a genuinely unintended consequence. Equally, however, if it is enacted without steps having been taken to ensure that looked-after children are not disadvantaged by its measures, the Government—indeed, all of us—will have failed to meet our obligations.

The Minister has said on several occasions that he wants the new junior, or child, ISA to be the replacement for the child trust fund, which might have merit—I shall not discuss this in too much detail. That policy might well make sense for the child who has a parent who can afford to set up and contribute to an ISA, but for the child who does not have a parent or who does not have a parent who is in a position to invest on his or her behalf, it is meaningless. It is therefore essential to establish in the Bill the principle that the Government should open and make suitable contributions to a child ISA when a child is in care for a reasonable length of time. For me, that is a fundamental principle. I will be listening carefully to the Minister’s response, because its nature and content will be important when I decide whether to press the amendment to a Division.

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[Mr Hoban]

The fundamental difference is that under the junior ISA there will be no contributions from the state, whereas in the case of the child trust fund there were contributions from the state. Our intention is to save money in order to cut the deficit—that is why we are ending eligibility for those sums. The junior ISA will be a simple product. The hon. Member for Stretford and Urmston (Kate Green) queried that, but she should remember—to reiterate a point that I made in Committee—that 20 million people have ISAs, 12 million of whom earn incomes of less than £20,000 a year. The ISA is a mainstream financial product that people of all income streams and all ages understand; they find it very easy to contribute to a cash ISA or to an equity ISA.

[John Hemming]

Perhaps the hon. Member for Edinburgh East (Sheila Gilmore) was slightly confused about whether people get tax relief on contributions to an ISA. My understanding is that they do not. They get it only on contributions to a pension.

[Mr Hoban]

Indeed, the tax models for ISAs and pensions are different. With an ISA, the income and gains are tax-exempt, which is one of their incentives.

I believe that child trust fund eligibility should end for children born from January 2011, as the Bill provides, and not from any other date. I continue to believe that ending eligibility is the right thing to do. I know that some find that disappointing, but in the middle of the exceptional fiscal challenge that we are facing, it simply does not make sense to continue to spend half a billion pounds a year on giving people money that is locked up until the age of 18. There are more urgent priorities, and the child trust fund is a luxury that we cannot afford.

I wish now to refer to the amendments tabled by the right hon. Member for Wythenshawe and Sale East and the wider points raised in his new clause and amendment that were not selected. I understand his point about looked-after children, who are among the most disadvantaged young people in our society and face a number of particular challenges that mean they need additional support. As he said, we met last week to discuss the matter, and he outlined to me the proposal that he has referred to today. As I said then, I have a lot of sympathy with what he is trying to achieve, and I want to consider the matter more closely. Indeed, I have already written to the Under-Secretary of State for Education, my hon. Friend the Member for East Worthing and Shoreham (Tim Loughton), to ask his views on the proposal. We will have to consider it carefully, but as I have said a number of times during debates on the Bill, we have limited resources at the moment and there is currently no unallocated funding in the Department for Education budget that could be used for the suggested payments. We would also have to be sure that they were the best use of our resources and gave us the best possible value for money.

As I have said, there is also the question of whether locking up money for up to 18 years provides better value than spending it to support people now, and we need to ensure that we focus resources on our priorities. We will also have to consider what the proposal would leave children with. As the right hon. Member for Wythenshawe and Sale East explained, the provision would not be triggered until a child had been in care for at least 13 weeks, to avoid junior ISA accounts being opened for children who were in care for only a week or so. We know that, thankfully, most children are not in care for long periods. Of the children who left care in 2009-10, about 37% were in care for less than six months. I will therefore wish to consider how many children would receive accounts containing just the £250 Government payment that he suggests, and whether those accounts would necessarily provide good value.

However, as I have said, I am more than happy to continue to consider the proposal with my hon. Friend at the Department for Education, and I certainly commit to maintaining contact with the right hon. Member for Wythenshawe and Sale East. I reassure him that if we do want to move forward with his proposal or something similar, the Bill will not be the right vehicle for doing so. It may be possible to legislate on the matter alongside the provisions on junior ISAs, or even to introduce them without legislation. Not including them in the Bill does not close down our options.

I understood the right hon. Gentleman’s points on amendments 51 and 52, which were selected, but there are practical reasons not to accept them. First, as I have said, we are still looking closely at our options, and that may end up making the reports called for in those amendments unnecessary. Secondly, if we wanted such reports to be produced, requiring their completion by the end of 2011 would be too early. By then, child trust funds would only just have stopped being opened, as the last vouchers are not expected to expire until well into 2012, and junior ISAs would have been in place for only a few months.

Thirdly, I suggest that even if we did want to carry out the reports that the right hon. Gentleman suggests, we could do so without having them specified in the Bill. In fact, leaving them out of the Bill would provide us with more flexibility on both content and timing.

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[Yvonne Fovargue]

I want to talk about the abolition of the saving gateway and the disappointment felt not only by the putative savers but by the credit unions, which thought that it would have a massive impact on the sector. The credit unions put a large amount of time and money into designing and introducing their product because they believed that the scheme had cross-party support. While matching the money is important in incentivising savings, it is not the only factor involved; in fact, it is not always the most important factor in influencing people to save. As we have heard, ease of access to a financial institution cannot be overstressed, and to use the existing credit unions at the heart of the community and to encourage the growth and development of the sector via this product was seen as vital. Indeed, Mark Lyonette said that encouraging people to save with credit unions was the issue. People are used to credit unions giving out loans, but the important thing is to provide them with products that encourage people to save.

The message that has been endorsed by the Government via the scheme is that even a small amount of savings matters, and that cannot be overstated. Most people do not deliberately set out to be in debt, but life events—such as the loss of a job, accidents, disability or even something as simple as the cooker breaking down—can cause debt. A small amount of money saved can act as a buffer, and people can then feel more in control and have more confidence. The value of that feeling cannot be overestimated.

It might be conventional wisdom that people should pay off all their debts before they start to save, but I take issue with that, as do people from the credit unions. As I said, events happen. The washing machine might break before someone has paid off the cooker, and if there is nothing to fall back on, the spiral of debt gets faster and deeper. That is when people turn to the legal loan sharks who charge more than 2,000%, or the actual loan sharks who prey on the vulnerable who have no resources. It is vital to provide a mechanism to remove people from the spiral of debt and make it easier to save. We know that people want to save for such events. Otherwise, why would so many people have saved with Farepak, a scheme that they believed was safe? If we could provide a trusted, easily accessible, local savings vehicle to encourage saving, we would prevent a considerable amount of human misery as well saving the health service a considerable sum for the treatment of depression and, in some cases, attempted suicide due to debt. A small amount of investment now could prevent a huge amount being spent later, and I urge the Government to reflect on that.

[John Hemming]

The Government have to look at what can be done when resources are limited. It is generally accepted that we need to enable people on lower incomes to save, and access to bank accounts and credit unions are important in that regard. We had an evidence session in Committee, which was quite useful. The Institute for Fiscal Studies has no axe to grind in this regard, but its acting director, Carl Emmerson, said that

“perhaps the £115 million should just be spent on boosting the incomes of these individuals.”

I then asked him:

“Or potentially on a system with more crisis loans?”––[Official Report, Savings Accounts and Health in Pregnancy Grant Public Bill Committee, 2 November 2010; c. 19, Q47.]

His response to that question was yes.

There is no question but that people need to balance their costs when they have to replace a washing machine, for example, and need the resources to do that. There is an issue there, but the Government need to look at the best way of helping people in those situations.

[Fiona Bruce]

The Government are not leaving people entirely bereft of support, are they? Next spring, the new national financial advice service will be introduced, which will make available to everyone who needs financial advice—not just those in education—real support to ensure that they make the best financial plans for their families.

[John Hemming]

Indeed. The difference with this particular scheme was that it was to provide a way of matching funds that people put into their savings. If we go back to the evidence session, we find that the Institute for Fiscal Studies was asked whether it thought the child trust fund did no harm; in fact, it showed that this particular scheme had the potential to do harm by encouraging people to put money into the savings account rather than pay off the debt at the time. The Royal College of Midwives said that if people have just had a baby, it is better for them not to save money, but to spend it on healthy living and feeding the baby well. I believe that this is where the Opposition are fundamentally wrong. According to the IFS—again, I stress the IFS rather than the Government or the previous Government —there was no strong evidence that greater saving was encouraged.

[Mr Hanson]

I would be grateful if the hon. Gentleman could tell us why the Minister of State, Foreign and Commonwealth Office, his hon. Friend the Member for Taunton Deane (Mr Browne) supported the scheme prior to the election, did not oppose it during the election and did not vote against it on Third Reading?

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[John Hemming]

We need to find some way of reducing this country’s borrowing. We do not want to end up like Ireland or Greece. If, on looking around, we find something that costs £115 million—

[Mr Hanson]

Why not support amendment 13 to delay the abolition for three years and see whether the economy picks up?

[John Hemming]

If there were an amendment to say that we should delay it until it is instituted by order, I would find that more reasonable, but I do not think we should set a date in the future. If there is not sufficient independent evidence that this scheme achieves a result and there are good arguments to show that there are better ways of helping people in these circumstances, I would press the Government to consider them and work with organisations such as the credit union movement to ensure that everyone has access to accounts, is encouraged to balance out their financial positions and gain wider access to crisis loans.

[Bill Esterson]

The hon. Gentleman did not answer the question about why there was such a change of heart. When the figures came out after the election, they showed that borrowing was £20 billion lower than had been assumed before the election. That could not have been the reason for the change of policy.

[John Hemming]

The hon. Gentleman ignores the fact that there was a sovereign debt crisis in Greece and that we need to learn from circumstances. If we do not do so, we will face great difficulties. We have a saving of some £100 million-plus on a scheme viewed by independent experts as not being the best way to use that money. There is no independent evidence that it even achieved its objective, save perhaps for reducing the amount of money people spent on restaurant bills when eating outside the home or on takeaways. That is what the IFS drew our attention to at the evidence session. If we are serious—and we are—about ensuring that the Government keep the interest rate on sovereign debt down so that we avoid ending up with the problems of Greece or Ireland, we must take that into account.

Yes, I accept there is a job to be done: we need to look after people on lower incomes and ensure that they have access to funding systems so they can balance their finances when they incur higher expenditure. We also need to encourage people to save where appropriate, but it is not always appropriate to do so. As I mentioned, the Royal College of Midwives said that a mother who has just given birth should not be concentrating on saving all her money; she needs to focus on eating well. On that basis, the proposals represent an entirely sensible and reasonable way of reducing the amount of money that the country has to borrow.

[Sheila Gilmore]

First, the selection of evidence we have heard from the Committee sittings is very limited, particularly from the hon. Member for Birmingham, Yardley (John Hemming). Other people giving evidence explained exactly how helpful the saving gateway scheme had been in its pilot phases and could be in the future. Mark Lyonette of the credit union movement said how important saving was, not only because of the money actually saved, but because of

“what it does to people’s confidence that they have… a few hundred pounds built up over a year or two. It gives them some sense that they are more in control. They will have credit commitments at the same time, but it is really important to feel that there is something of a buffer. Whether through the savings gateway or some other initiative, we think that the Government can encourage—and needs to encourage—more people to get that better balance between what savings they have, however small, and their credit.”––[Official Report, Savings Accounts and Health in Pregnancy Grant Public Bill Committee, 2 November 2010; c. 49, Q143.]

Yes, he also said that the saving gateway was not the only way to generate savings for the credit unions, but when asked whether it would make an important contribution he said “Yes, absolutely,” it would.

I did not quite understand the rhododendrons reference of the hon. Member for Blackpool North and Cleveleys (Paul Maynard), but he seemed to suggest that we believed that a scheme like this was “the answer” to deprivation and poverty. That is obviously nonsense. We are not suggesting that and we never have suggested it. It is one part of a whole jigsaw of provision that has to be put in place. It is that part of the jigsaw that needs to look forward to two things: first, questions of asset inequality; and, secondly, long-term solutions where people begin to change their behaviour and build up some assets for themselves.

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[John Hemming]

Let me ask a question. If the Labour party will not cut these three things, what will it cut? They are probably three of the easiest things to cut that could possibly be identified.

Let us take the child trust fund. At present we have a deficit. Every year, we borrow the deficit and add it to our debt. Putting money into the child trust fund means that the taxpayer—the state—borrows some money and then puts it into a fund. Some of the funds lose money while others gain money. Hopefully, 18 years later there will be a little bit of money for someone. If the Labour party cannot cut that, what will it cut? As the witnesses said, if we want to help people when they are 18, we can help them when they are 18. If we want to help 18-year-olds who are leaving care, we should help them at age 18, not so that they will have to wait for 18 years. It is absurd to borrow money today to put in a fund that might lose or might make money—there is evidence of both eventualities—and then 18 years later maybe a young person will have some money.

We have to make choices. A key question is whether people on lower incomes, and especially those who have just given birth, should spend money on food and health or save some money. In Committee, I asked Katherine Rake that question and she said:

“You cannot make a choice in that way.”––[Official Report, Savings Accounts and Health in Pregnancy Grant Public Bill Committee, 4 November 2010; c. 95, Q244.]

In essence, that is the Labour party’s argument. The Opposition are basically saying, “We don’t make choices. There’s no need to make choices. We can have this and this and this, and we can keep on going until the interest rates go sky high, we lose lots more jobs and we have a sovereign debt crisis.”

On Report, the hon. Member for Edinburgh East (Sheila Gilmore) talked about paying down the deficit. We do not pay down a deficit; we pay down debt. The deficit is the amount of money added each year to our debt, and the danger we face is that if we are not careful the interest rates on the debt will rise as well as the debt itself, and that would mean more cuts. If Opposition Members are going to argue this point of view, therefore, they have to explain where the cuts would come from, but they have not answered that. Are they going to close down hospitals to pay for these things? Are they going to sack more police officers? We face a very difficult time, but if the Opposition say they would keep these three particular projects, they have to explain where they would get the money from to pay for them. Would they put VAT up again?

[Pete Wishart]

If I had closed my eyes, I would have thought this was the hardest right-wing Thatcherite speech I had ever heard, yet it is being made by a Liberal, for goodness’ sake. Why are the Government taking this out on women and children? If cuts have to be made, why is it women and children who are in the firing line?

[John Hemming]

What we are talking about is putting some money in a fund and leaving it there for 18 years. That is not going to affect any woman or child for 18 years. What we should be doing is looking after people now. Our priorities have to be the vulnerable people now. We have to give priority to protecting the poorer, the less well off, the vulnerable and those with learning difficulties now, rather than putting some money away for 18 years.

[Kate Green]

Can the hon. Gentleman give me one single instance of where the incomes of the poorest are being increased by this Government?

[John Hemming]

Well—[Interruption.] Sorry? [Interruption.] Yes, that is a good one. The tax threshold is a good example. One area we are focusing on is low-paid people in work, so there is the first stage of gradually increasing the tax thresholds up to £10,000 a year, and the universal credit itself should be particularly helpful to those on benefits and low pay, such as many people who come to my advice bureau. On Saturday, I did some calculations with somebody who had worked out that when we took into account all the rules the Labour party had produced over the years, it was not worth his while to work. Interestingly, in that instance that was because of a Child Support Agency deduction. We need to focus on the low-paid and make sure that people get into work and through that route get themselves out of poverty. That is a good example of our putting money into the hands of low-paid families.

There is no evidence that the child trust fund produced extra saving, there is no evidence that the saving gateway produced extra savings—and there is only some evidence that, perhaps, it reduced spending on food outside the home—and there is no evidence that the health in pregnancy grant did any good for health in pregnancy. On that basis, if we are not going to cut these measures, what are we going to cut?