Savings Accounts and Health in Pregnancy Grant Bill

Owen Smith Excerpts

Tuesday 26th October 2010 Commons Chamber

[Mr Hanson]

I will say just this to the hon. Gentleman: record levels of the minimum wage, record support on Sure Start, record investment in education and tackling child poverty across the board. The Labour Government have a proud record of tackling inequality and trying those issues. [Interruption.] The Financial Secretary says, “Records of deficit”. I recognise, as does my right hon. Friend the shadow Chancellor of the Exchequer, that we need to tackle the deficit, and that is where the choice is today. The choice for the Financial Secretary is to cut deeper—[Interruption.] If he stops chuntering for a moment from the Front Bench and listens, he will hear me say that choices have been made to cut the deficit much more slowly than the hon. Gentleman was doing, over a longer period. There are other issues that could be looked at. The Government’s banking levy is worth a proposed £2.4 billion. If the Labour Government had been in office, that would have been £3.5 billion. There is £1.1 billion extra already from that funding. The hon. Gentleman knows there are differences of approach, and the Labour Government would have taken a different approach to the deficit, and would have been able to save those resources in a much better way.

[Owen Smith (Pontypridd) (Lab)]

Does my right hon. Friend agree that another example of the fundamental difference between what we would have done in office—indeed, what we did in office—and what this Government are doing today is the disgraceful sop we have heard from the Minister, replacing the child trust fund with a tax-free account, which as we all know will do absolutely nothing substantive to encourage saving among low-earning families, as the trust fund was doing? That is the real business we are debating today, and I, for one, think it is a mistake and a disgrace.

[Mr Hanson]

One of the great benefits of the child trust fund was that it encouraged people on lower incomes to save, it gave a kick-start to their savings accounts and it helped them to get into the habit of saving. The change that the Minister has made will mean that those people who can save will save, and those who are not used to saving, do not have the resources to save or are not part of that savings culture, will not save. That will impact, in due course, on the inequalities of people in their 18th year.

--- Later in debate ---

[Richard Graham (Gloucester) (Con)]

Before coming here I read a document from the Save Child Savings alliance, which hon. Members might have had a chance to look at. I thought it would be helpful to run through some of its points about why it is so important to maintain and retain child trust funds, and answer them one by one. Its first major point is that child trust funds are all about fostering a long-term savings culture. I am sure that everyone in the House, from whatever party, will agree that that is a major national goal. However, the point about a long-term savings culture is that every form of fund or saving, including pensions, is exactly that—savings. So we cannot look at CTFs in isolation. The SCS alliance’s second major point is that keeping CTFs will help to protect the savings culture in the UK. To that, we could add the CTFs’ original goal of spreading financial literacy.

The question at stake this evening, therefore, concerns two main points: first, how effective have CTFs been in delivering either their original goals or the aims suggested by the SCS alliance? Secondly, what choices and other alternatives are available to provide the best for our nation’s children? The results so far show that CTFs have, over their lifetime of just over five years, accumulated £2 billion of assets, which is a reasonable absolute figure on its own. However, £1.4 billion of that was provided by the Government, and only £600 million by the families and friends of those participating. As mentioned by my hon. Friend the Member for Blackpool North and Cleveleys (Paul Maynard), the take-up amounts to 70%, with 24% of open accounts having received no contribution from participating families or friends.

Many better forms of savings are available in the marketplace for achieving the same ends. In particular, I highlight the existing individual savings accounts, which came from the original personal equity plans of the 1980s. These provide significantly more investment options, have, by and large—although not altogether—delivered better performance and have much lower costs. They can be designated to children, which is important, and cost the taxpayer nothing.

[Owen Smith]

Is that not an unfair comparison, because the ISAs have been in place for much longer than the child trust funds? It is extremely early in the life of CTFs for one to conclude that they will not achieve what they might achieve, and what we would hope they would achieve. A good point was made earlier about the point at which families tend to invest in long-term savings for their children. We can safely assume that more would have been paid in by families and friends at later stages, as more expendable income became available.

[Richard Graham]

The hon. Gentleman is right that this is a short period of history over which to judge them, but the fact remains that the annual management costs for CTFs, at 1.5%, are significantly higher than most of us would need to pay for an alternative form of savings. That will not alter over time. In answer to the suggestion that, in time, parents, families and friends might put more into the accounts, there is nothing to prevent them from opening an ISA or, as the Minister suggested, a new denomination of children’s ISA—if one becomes available—in their child’s name. Although I think that half the point made by the hon. Member for Pontypridd (Owen Smith) is right, I do not think that the overall impact of CTFs would be positive.