Deregulation Bill

Lord Tunnicliffe Excerpts

Thursday 6th November 2014 Grand Committee

Moved by

[Lord Tunnicliffe]

62C: Clause 45, page 37, line 21, at end insert—
“(5) Under the provisions of the Child Trust Funds Act 2004, the Secretary of State must issue guidance on the support to be provided to account holders when they reach the age of 18 by local authorities and persons authorised to manage a child trust fund for looked after children under section 3(10) of that Act.”

[Lord Tunnicliffe (Lab)]

My Lords, in moving Amendment 62C, I shall speak also to Amendments 62D and 62E. There are four clauses—Clauses 45, 46, 47 and 48—about child trust funds and they are so exciting that, at Second Reading, the Minister devoted two lines in Hansard to them, to call our attention to the fact that they were there. I hope the Committee will forgive me if, so that my amendments and remarks make sense, I outline the clauses and what they do. I hope the Minister will correct me if I make any errors.

The four clauses concern child trust funds. The first, Clause 45, is about looked-after children and changes the sole manager from being the Official Solicitor to others. Clause 46 is about child trust funds and the role of 16 and 17 year-olds. Clause 47 is about transfers and child trust funds morphing, for want of a better word, into junior ISAs. Clause 48 is the wonderful clause that creates the capacity for enormous regulation, right in the heart of a deregulation Bill—more of that later.

I start with Clause 45, which relates solely to looked-after children. We know that looked-after children are some of the most disadvantaged—probably the most disadvantaged—young people in our society. In some ways, they are a group of people of whom we, as a society, should be ashamed because of the paucity of their outcomes. We know from recent publicity that they are the subject of sexual predation and that they generally, in education, work and so on, have very poor outcomes. When child trust funds were invented in 2003 and introduced in 2004, the Government committed to ensuring that looked-after children would participate in them. In the period within which those children born became eligible for child trust funds—from 2004 to 2011—some 9,000 looked-after children got child trust funds.

To remind the Committee, child trust funds were funds to which the Government made an initial payment. That fund became the property of the child and was managed so that they did not have access to it until they were 18. In general, a parent looked after the management until the child reached the age of 16. However, in 2011 the present coalition Government decided that child trust funds could no longer be afforded but, in a little-known act of generosity, created junior ISAs so that looked-after children would have an equivalent benefit. It is rare for me to find an opportunity to praise the Government but, in this case, I am reluctantly forced to do so.

I do not know whether it was the creation of junior ISAs that led to the creation of the Share Foundation but it is the organisation that manages junior ISAs. It is a third sector organisation and, while it is difficult to judge from just looking it up on the internet, from everything I can find out about it, it seems a thoroughly excellent organisation. It does the management role, but it is also a charity that tries to get contributions to child trust funds for disadvantaged children. As far as I can see, it is to be admired.

The regulations under which child trust funds were set up stated essentially that where there was not a parent or guardian—where the child was a looked-after child—the manager had to be the Official Solicitor. The language of this clause makes it sound as though other people could become the manager. In practice, as far as I can tell from the facts and from the debate in the Commons, effectively the only other manager would be the Share Foundation, because it is a third sector organisation that has shown skill in those areas.

My Amendment 62C is a probing amendment. Essentially, it looks not at the commendable improvement in flexibility, which we support, but at the fundamental dilemma of the whole concept of the child trust fund: what does the child do with the money at 18? The Minister in the other place suggested that one of the possibilities might be to throw a big party. He also implied that that might be a regrettable outcome. We all want every child to act responsibly when they have the benefit of the child trust fund, and take control of it, at the age of 18. Our probing amendment seeks the agreement of the Government that a proper objective of government is ensuring that children have the education and skills to act responsibly.

The amendment seeks to understand what guidance the Government intend to give to local authorities and account providers to advise them on how to deal with this task of helping children to act responsibly. In responding to this, I wonder whether the Minister—I pause to check that I have his attention—might focus on the particular question of looked-after children. What general guidance will the Government give to try to ensure that looked-after children have financial training as they approach 18? As we all know, one of the problems with looked-after children is the precipice they face at 18, as they fall from one area of responsibility to another. It is a period when they particularly need financial education. The Minister might want to comment on that, as it was also the topic of a short debate in the other place on the general context of how all children are educated financially in the later years of their schooling, to prepare them for the difficult world of money.

Turning to Clause 46, we have no amendments. The clause merely gives some flexibility. The present regulations require 16 and 17 year-olds to take responsibility for the management of their child trust fund. This is a sensible piece of deregulation, permitting—if the child so wishes—the parent or guardian to continue responsibility. It is, dare I say, a sensible piece of deregulation.

I turn next to Clause 47, with which goes our Amendment 62D. The clause concerns the transfer of child trust funds into junior ISAs. However, it could never be that simple, could it? Anyone who cares to read the appropriate definition and looks for the words “junior ISA” will not find them; they will find the words “protected child account”. My understanding is that the rest of the world refers to these things as junior ISAs. If I have that wrong, I hope the Minister will tell me.

Assuming I have that wrong, the regulation addresses the issue whereby if you were born between particular dates—I think they are 2004 and 2011, roughly—you get a child trust fund and you cannot have a junior ISA. If you were born outside that time, you do not get a child trust fund but you can choose to have a junior ISA. In many ways, a junior ISA is much like any other ISA. Its essential feature is that it is a tax-advantaged savings product that can roll into the next year and not count against the limit. In fact, it is an ISA for which the manager is a parent or guardian. The two options this clause allows are for the child trust fund to be converted into a junior ISA or, at the age of 18, for the child trust fund to continue and remain in its tax-advantaged situation. That is how I read it and I hope I have it right. I assume that is because the present legislation is a bit woolly about what happens at 18 because 18 will not happen until 2020, and we have only just got around to thinking about what to do about it, but that is good. That is not a criticism; it is good to tidy things up.

The issues of flexibility, choice and competition are prayed in aid of this, and that is probably fair enough. The desire is that this choice and competition should improve the market for these products. Amendment 62D probes that to see how much the Government have thought this through and what their expectations are. The essential question behind the amendment is about the extent to which the Government intend to promote competition between providers. Are they going to go out actively to do that? Are they going to promote competition between child trust funds and junior ISAs or between junior ISAs? We all know that you can create a system of rules whereby financial instruments can move from one description or firm to another, but we also know that the ease with which that can be done varies radically between different financial instruments. I am interested in the extent to which the Government will be looking to make any such competition easy so that there is a genuinely competitive market. I hope that in answering that question, the Minister will be able to give some indication of the discussions he has had with providers about ways to improve competition.

Finally, Amendment 62E relates to Clause 48, which is an absolute delight to somebody like me. I, unlike the party opposite, do not think that every regulation is a bad thing. I believe that good regulation is the essence of a civilised society. Good regulation is a good thing. It is great that the coalition Government recognise this by creating a clause that allows them to make just about any regulation conceivable about child trust funds. Indeed, I really enjoy the language. If I go to page 38, new Section 7C(1) states:

“The Treasury may make regulations under this section if the Treasury think it appropriate”—

I love the word “appropriate” as it means “I have not got a decent argument”—

“to do so for the purpose of safeguarding the financial interests of children, or any group of children, who hold child trust funds”.

New subsection (3) states:

“The regulations may authorise the Treasury to require any account provider or any account provider that is prescribed, or of a description prescribed, in the regulations to take one or more of the following steps in relation to every child trust fund held with it”.

That seems to me to be a description of everything. The most draconian of all the steps thereafter is to,

“to transfer an amount in cash representing the value of all the investments under the fund (whether consisting of cash or stocks and shares) to a protected child account that can be used for investments in cash and is provided by a person specified by—

wait for it—“the Treasury”. The Treasury will be able to make any rules to move anything about to anybody.

--- Later in debate ---

[Lord Wallace of Saltaire (LD)]

My Lords, I thank the noble Lord for that speech and I am glad that he has so much enjoyed reading the details of Clause 48. I confirm that his understanding of these clauses is by and large correct.

The Government are most concerned, of course, about looked-after children. As I understand it, the change in the 2011 Act was introduced partly as a result of pressure from within the House of Lords, so we were doing our job properly at that time—I do not know who was involved in it; certainly, I was not myself. I am also told that a number of charitable bodies and philanthropists have in some instances added to these new junior ISAs for looked-after children, which seems to us to be a good public benefit and a step forward. That is very much part of where we are. The move to junior ISAs allows for a more flexible system, and it is expected that better-to-do parents and, speaking personally, better-to-do grandparents should contribute to junior ISAs when they can afford to do so. One is therefore most concerned about disadvantaged children.

The remainder of the clause concerns the transitional impact as one moves from child trust funds to junior ISAs; I wrote a note to the noble Lord, Lord Kennedy of Southwark, yesterday. Part of the transition is what happens to existing trust fund organisations, which may include credit unions, as much of the money is taken out. At a certain level, there is a point at which the scheme might become unviable. The Government are very concerned about those transition issues.

Financial education is a particular issue for looked-after children, but it is a broader issue for all children. This is why financial education now forms a part of the compulsory national curriculum in England in citizenship classes, which should teach 11 to 16 year-olds the functions and uses of money. Budgeting, managing risk and financial mathematics are also included in the maths curriculum for this age group. The noble Lord might say—I would probably agree with him—that we all know, and have often debated in this House, the inadequacies of citizenship education so far. There is clearly a long way to go. That is something on which I suspect that, again, the House of Lords in its revising role should keep exerting pressure on schools to make sure that citizenship education continues to improve. Of course, the child trust fund and the junior ISA provide excellent ways of increasing a child’s financial capacity and their capacity to learn about the role of savings, mortgages, trusts and the like.

The second amendment was about junior ISAs and protected child accounts. My understanding is that the reason for using “protected child accounts” rather than “junior ISAs” is that, as we have often discovered, the exact names of financial instruments may change over the years, but they will continue to be protected child accounts even if they are later renamed from junior ISAs to something else. That is the simple reason for that. At the moment, we are of course talking about junior ISAs. The question about the transition from one to the other is well taken. We are of course concerned to provide the maximum amount of competition. If the noble Lord is not satisfied with anything I have had to say on this point, I am happy to write to him further on that. One wants a range of providers. We want, however, to make sure that the providers are viable and have sufficient financial reserves.

The noble Lord asked about the Financial Conduct Authority. I can answer with reference to both of these amendments: the FCA has a crucial role in ensuring that account holders are treated fairly, but its remit does not extend to making detailed changes to the child trust fund account rules. Such changes will be required if the safeguards envisaged in Clause 48 are applied. Changes to the CTF rules are most appropriately brought before Parliament by Her Majesty’s Treasury. I am sorry that the noble Lord is so suspicious of Her Majesty’s Treasury—I picked up on that—which has been responsible for the development of child trust funds and the detailed account rules since the account was created.

I think that the noble Lord was most concerned about Clause 48, which is again about making sure that, as we go through the transition, which he rightly points out will be from 2020 to 2029, we guard against any untoward developments. That is why Clause 48 is there: it is very much precautionary. It is intended to ensure that if things that we have not yet anticipated come along, the Government are able to respond. We consider it prudent to seek these powers, given the background of uncertainty about the impact of transferability on the child trust fund market. We do not know—and I cannot speculate on at the moment—what action the Government may need to take in this area or the timescale for such an intervention. However, if it became necessary to use these powers, the Government would have to act promptly and appropriately. Therefore, we felt that we should include this measure, with the proviso that it would be subject to the usual public law safeguards. The overriding interest would be to safeguard the interests of the trust fund holder.

The Government’s usual approach is to consult on changes to the child trust fund rules where possible. However, while the Government will always look to consult and engage interested groups wherever possible, they must also be free to intervene at short notice in response to market conditions. I hope that provides the reassurance the noble Lord seeks.

[Lord Tunnicliffe]

Will the Minister be kind enough to comment on the parliamentary involvement?

[Lord Wallace of Saltaire]

I had better write to the noble Lord on that. However, I understand exactly what he is asking and can assure him that I will feed back to him precisely what role Parliament will have in overseeing any such necessary interventions. Having said that, I hope that the noble Lord will withdraw the amendment, and perhaps he and I might have a further discussion off the Floor of the Committee about the exact areas on which he would like further reassurance.

[Lord Tunnicliffe]

My Lords, I thank the Minister for that response. I will read it in Hansard with great care and compare our two contributions. I will certainly get back to him if I feel that there are any inadequacies. However, for the moment, I beg leave to withdraw the amendment.

Amendment 62C withdrawn.