Lord Davies of Oldham
Main Page: Lord Davies of Oldham (Labour - Life peer)Child Trust Funds (Amendment No. 3) Regulations 2010
Lord Davies of Oldham Excerpts
Lord Davies of Oldham
Lord Davies of Oldham
My Lords, it is always encouraging to hear the Government’s defence before the amendment has been moved. I congratulate the noble Lord on taking advantage of his position and commenting on the amendment when introducing the regulations. I recognise his need to do so. Even before we had articulated and identified the main sense of the amendment, I found his response to it rather flimsy, not least because it was clear that the Conservative Party did not go into the general election with a proposition to abolish the fund. The Conservatives spoke in their usual vague terms about the necessity for some curtailing of this constructive scheme, but they did not address the issue of bringing forward primary legislation to abolish it.
The Liberals were in favour of abolishing the scheme but, knowing the consequences for the children of the less well-off in society, they had it in mind that the Budget would protect, or even enhance, the position of children in that situation. We shall debate the coalition Budget next week, but the Liberal Democrats will be hard pressed then to defend their part in it. That is why they ought to think twice about the impending decision to scrap the whole of this scheme through primary legislation in due course.
We have heard from both parties in the coalition that savings are a priority. Earlier this year, the present Chancellor said that we need to restore our savings culture and that,
“we will build a saving society”.
This scheme has one significant advantage—it is universal in its appeal and covers each and every child, with special provisions for those families with the least propensity to save. It was because of that that it was warmly welcomed when it was introduced.
What is now being proposed is quite clear. We may, in due course, hear of some vague ameliorative measures for the poor and disabled, but what will happen as a result of these regulations is a straightforward deterioration in their position. This is an attack on the poor and disabled. I appreciate that the noble Lord made the best fist that he could of it when indicating an element of gradualness, but this will happen all too quickly and with dramatic effect.
The scheme is successful in emphasising a savings culture and long-term investment. If we were talking about sacrificing short-term investments—I imagine that there will be plenty of examples and illustrations from the government Benches over the forthcoming months and longer about the constraints necessary on investments in the short term—that would be one matter, but this is investment for the long term. It ensures that, when young people reach the age of 18 and their needs are particularly acute, they have a basis that can help them to organise their lives.
We should not underestimate the significance of the point that young people will have reached at that time. When people reach the age of 18 to 21, family expenditure increases apace. The average amount owed by 18 year-olds is just over £5,000; the average family spend on young people in this range is more than £13,000. That is before we have any idea—although how can we feel encouraged?—of what the implications of higher education finance might be for that substantial section of young people who expect to stay in full-time education beyond the age of 18. A black hole is opening up for that generation of young adults, who could have looked forward to long-term, modest savings, who could have looked forward to being part of a savings culture and who could have looked forward for the first time to having a stake in the economy and in the country, something that I would have thought had some appeal to Conservatives down the ages. This was an opportunity not just to talk in broad terms about the advantages of increasing financial literacy and improving equality of financial education among our young people but also to give a clear illustration of resources that were being developed on their behalf and would give some point to that financial education and assist in it.
None of this underestimates the fact that aspects of public expenditure need to be reined in. We made quite clear as a party before the election—and we made no bones about the issue in the debate on the Budget—the necessity for constraints on public expenditure. However, at stake today is a scheme that is long term in its investment potential and has particular advantages to the least well-off in our society. It is one that aids all the objectives that we share with regard to creating greater opportunities for young people and ensuring that they feel part of society, yet the Government are out, first, to strip the scheme of many of its benefits and, then, in the very near future, to abolish it. That is why the Opposition have put down their amendment. I beg to move.
Lord Naseby
My Lords, I declare an interest. I contribute to the child trust funds for both my granddaughters, Ciara and Ella. In a sense, I should declare an interest in that I am the only one in the Chamber at the moment who was involved in the creation of the child trust fund when it was originally voiced by one of the think tanks, IPPR. Some funds were transferred from the Children’s Mutual, of which I had the privilege of being the chairman at that time, so I was in at the beginning. I state now, as I stated then, that I had reservations about the supplementary contributions at seven and 11.
The scheme has worked, in the sense that 6 million children have benefited from it so far. About a third of the trust funds have been topped up by various family members and that figure is slowly increasing. Some would say that a third of young people saving anything significant is not a huge success, but it is certainly a very good start. It is certainly better than anything that had happened in any previous scheme from any other Government, so when I first heard the news I had to think hard about this whole situation.
I suppose that as an economist I am conscious of the economic situation that my noble friend on the Front Bench has been saddled with. I am not the least bit surprised that he has looked at every conceivable large sum sitting on the books—and £500 million is a large sum in anybody’s counting house. My noble friend will correct me if I am wrong, but I think that the figure is £525 million, of which £5 million is the cost of administration and £520 million is the figure for the amount given out in benefit.
I recognise that any Government facing the situation that our Government face at this time would need to claw back a significant sum from any scheme, whether for children or anyone else. However, I want to make a plea. I welcome the news that my noble friend announced from the Dispatch Box that there is to be a meeting with the providers later this week or early next week. That is a hopeful sign and could be beneficial.
Whether or not this particular scheme goes forward, the kernel of the scheme is the unique number that is issued by the Government to every child in the country. I have calculated the cost of issuing those unique numbers to be about £2 million. Whether or not the scheme continues and whether or not there is to be a mark 2 version—there was an inference on that from my noble friend on the Front Bench—without that unique number it is not possible to take it forward. My plea to him is to recognise that that is the kernel of the scheme. I am sorry to take issue with my noble friend, who has just joined us, but I think that what he said was wrong. The unique number is absolutely crucial. If that goes, the scheme is dead and I would personally regret that.
Lord Morgan
My Lords, I will make one simple point. This country is deeply unequal. Inequality has extended and expanded during both Conservative and Labour Administrations. It expresses itself in many ways, including in the differing abilities of people to save and in whether saving as a concept means anything to them. There are plenty of possibilities for saving. We heard a paean of praise for them from the Liberal Democrat Benches. They are for middle-class and wealthier people, through ISAs, which enable wealthier people to lay aside money and provide additional benefits to them as well. For poorer people the possibilities for saving were already weak, and this Government's inegalitarian policy is clearly designed to make things worse.
The abolition of the saving gateway, to which my noble friend referred, is obviously a part of this issue. It was a very carefully tested and costed scheme, and it worked extremely well in other countries as well as in this one. It was not a display of mad largesse by a left-wing Government in this country—there are plenty of examples of it elsewhere. However, the saving gateway scheme has simply been abolished, which means that poorer people who would not normally fall into the categories of those who are able to save, as set out by the noble Lord, Lord Newby, will now not have the possibility of doing so. The child trust fund is a part of that. These are people who have to be assisted by the state. As we have heard, they cannot save very much, if anything, and it is the function of government to provide assistance for such people. The scheme was very successful with a good take-up, as we heard from the noble Lord opposite, who spoke impressively with great knowledge and feeling on the subject, but now working-class and poorer people will be denied the ability to take serious decisions at key moments in their lives. The savings structure that we have is manifestly unfair, and it reflects the social inequalities and unfairnesses in this country.
My final point is that, contrary to what has been said, child trust funds, along with the saving gateway provision, improved people’s ability to understand finance. There was a real point in financial literacy. People with no financial literacy at all because they had no funds and were simply victims of a harsh capitalist system now found themselves with the means to understand these matters. Therefore, this extremely mean-spirited proposal increases inequality, denies economic and social empowerment to many people, and, I am afraid, is all too typical of what we have had over the past few weeks.
Lord Davies of Oldham
My Lords, I am grateful to all noble Lords who have contributed to the debate. Of course, the Minister will have the joy of the last word and the necessity of replying to the specifics of my amendment. However, I assume that he is going to contribute to the debate before we conclude and I extend him the courtesy of doing just that. If he wishes to rise now, I shall of course defer to him.
Lord Sassoon
My Lords, I am grateful to those who have taken part in today’s debate. A number of noble Lords have spoken eloquently about the advantages of the child trust fund, and I agree with much of what they said, although others have pointed out that, even setting aside the issue of affordability, the child trust fund is not a perfect vehicle. However, as I said earlier, given the unprecedented budget deficit that we face, the question is whether government payments into the fund remain affordable, and I am afraid that the Government believe they simply are not.
I turn to a number of the specific points that were raised. I start with a point made on both sides of the House by a number of your Lordships, including my noble friends Lord Naseby and Lord Hodgson of Astley Abbotts, and the noble Lord, Lord McKenzie of Luton, concerning whether the wrapper or unique number would continue to allow people to save through the child trust fund mechanism. Many other speakers suggested that the wrapper should remain available to parents, even once government contributions had stopped, or that some other, new form of tax-free savings account for children should be put in place. To reiterate what I said earlier, the Government are considering this question carefully and I am sure that it is one of the major issues that will be discussed later this week by my honourable friend the Financial Secretary when he meets representatives of the industry. I thought that the contributions of my noble friends who expressed their understanding of why the CTF had to go were particularly telling.
I shall pick up some of the other points. I suppose that it is good knockabout stuff to try and pick out what people said in manifestos and to compare that with the coalition agreement, and we will live with that game for some time to come. In response to the noble Lords, Lord Davies of Oldham and Lord McKenzie of Luton, I say that it is indeed the case that both the Conservative and Liberal Democrat manifestos set out an intention to reduce spending on the child trust fund, as did the coalition agreement and the programme for government. We have since then looked at the options and the Government believe that it is right to stop the government contributions entirely as that will make the greatest contribution towards deficit reduction.
We then had a number of contributions—including from the noble Lords, Lord Davies of Oldham and Lord McKenzie, and from my noble friends Lord Hodgson of Astley Abbotts and Lord Blackwell—about who had done what on savings over the past few years. I noted that the noble Lord, Lord Davies, talked of this as an onslaught on savings while, on the other hand, my noble friends talked about the hammer blows inflicted on savings by the previous Labour Government. I do not think that this is the time to go into who has done what to whom.
Some of my noble friends have pointed out that what the previous Government did to support ISAs was important, and that if it was affordable, the child trust fund initiative had an important role to play. I think that we would all agree that the recent level of savings has been too low. It is the current Government’s intention to foster a culture of personal responsibility and better financial planning to improve individuals’ independence over their lifetime, particularly in planning for retirement. We will measure the policies on savings against the coalition’s three principles of freedom, fairness and responsibility, while making sure that such measures are affordable and effective. Attention has already been drawn to the fact that the Budget announced a number of measures which will take the first steps—I stress, first steps—in meeting these aims, such as the annual financial health check and an end to the effective requirement to annuitise pension savings at 75. That is an important reform that has not been mentioned this afternoon.
There was then a particular stress—again from the noble Lords, Lord Davies and Lord McKenzie, and from the noble Lord, Lord Morgan—on whether we were hitting low-income families and how this was fair. They did not draw attention to the reforms that we are making to the tax credit system. We are tackling the deficit in a way that is fair and ensuring that tax credits, which are an important part of this construct, are targeted at those who need them most. I remind noble Lords that the Government will freeze child benefit to help fund very significant increases in child tax credit and will invest around £3 billion in the child element over the next two years. Although we are making significant savings to reduce the deficit, we can be sure that this will not lead to a negative measurable increase in child poverty over the next couple of years.
Lord Davies of Oldham
I shall speak to my amendment in a moment, possibly with some significant conclusion, but, first, I thank all noble Lords who have contributed to a very constructive debate. One obvious divide in the debate is that my noble friends Lord Morgan, Lord Liddle and Lord McKenzie emphasised the distribution of wealth, which is what the scheme is about. The scheme is not about child benefits and support for poor families in the short term; it is about producing a modicum of wealth for young people at the age of 18, when it is recognised that they need it. What is important about that is not that there will not be disparities between the middle class and the poor, and between the very wealthy and the middle class—of course there will. Of course those with greater resources will contribute more, but the significance of this scheme is that it brought, and brings, the crucial issue of a savings culture to the less well-off. It provides for young people who come from poor homes at least a toehold on resources and brings them within the framework of the nation as far as wealth is concerned.
The Minister, with his contributions on what the Government will do to ameliorate the impact on poor people through tax changes and changes to benefit, convinces no one. First, we all know in this House that if we think that there is to be a major redistribution of wealth from the better-off to the less well-off in our society under the coalition's politics, we will be grievously mistaken. We are not going to be conned with those generalisations, nor will we accept that this is about a direction of travel. It is not. This is about a full stop. The noble Lord, Lord Hodgson, made a constructive point and in a moment I will give him due credit for that.
I do not accept that the Government’s proposals are anything other than an interim for a matter of months; that is, to cut and then to stop something most constructive. The noble Lord, Lord Blackwell, indicated that the funds are a gimmick, but they are not at all. They were to engage and to be an incentive to those whose propensity to save is very low. The noble Lord, Lord Newby, thought that the substitute could be ISAs. My heavens, if ISAs had been the substitute, we would not have the distortion that we have at present in those who benefit from incentives to save. He knows very well that, whereas this scheme engages 30 per cent of the population, ISAs engage about 13 per cent from those who are better off and can afford to save.
I am grateful to the noble Lord, Lord Hodgson, and the noble Lord, Lord Naseby, who speaks with great insight. They emphasised the importance of the Government thinking again about the infrastructure of this scheme. On our Benches we would probably use the word “principles”. I know that such a word is almost alien to those who form a coalition of diverse views and call themselves a Government but, if the Minister were to discuss some issues of principle which can be saved and safeguarded with those who have been concerned about this scheme and have contributed so much, in order that we could build on the successes achieved so far, out of this debate and the ashes of the Government’s proposal would come one small glimmer of hope for the Opposition. There is not sufficient of a glimmer of hope to dissuade me from believing that I should test the opinion of the House.