Savings Accounts and Health in Pregnancy Grant Bill

Yvonne Fovargue Excerpts

Monday 22nd November 2010 Commons Chamber

[Paul Maynard]

I thank the hon. Lady for that intervention. One of the joys of the Bill is that I have learned so much from her about progressive universalism. She is right that the progressive element is being removed. However, it has struck me that it is as though I have been locked away on Moonbase Alpha for the past fortnight, because there seems to have been no recognition on the part of the Opposition that we are operating in a much more stringent financial climate. The hon. Member for Wirral South (Alison McGovern), who is no longer in her place, dismissively said at one point in Committee, “I recognise that there has been a debate about the deficit and all that sort of thing.” I found that regrettable.

We are operating in a situation in which we have to make financial savings. Rather than having a discussion about whether the child trust fund is the most appropriate use of public money, we have continually debated why we should do this, and this, and this, and then something else, and something else again. At no point did we discuss the crux of the issue: whether the child trust fund was the best use of public money to help those most in need in our society.

I welcome the fact that the Minister is having discussions with the right hon. Member for Wythenshawe and Sale East (Paul Goggins). I hope something comes of that, but I remain concerned that the Opposition’s determination to try to save child trust funds is based on an outdated notion that only those savings vehicles provided by the state can provide a solution. That is not the case.

[Yvonne Fovargue (Makerfield) (Lab)]

The child trust fund has a dual purpose—not only to give the young person a lump sum, but to nurture in them a savings habit for life. Some 74% of those eligible have taken up the responsibility of the child trust fund account. It is the most successful savings product on the market; ISAs and pensions fall well behind that figure. It is simple—much simpler than opening a deposit account—and it gives people a nudge to save.

Nearly a third of parents and grandparents have added to the fund, and the poorest 20% have added a higher proportion of their income to it. However, even for young people whose families do not contribute, the practical demonstration of saving in the account is invaluable. Organisations such as the Personal Finance Education Group, which works in schools, structure their lessons around it, certain in the knowledge that all pupils will have received a statement annually on their birthday, and that all pupils have such an account.

The very universality of the scheme provides a useful and practical foundation for learning and for influencing behaviour. In addition, it is especially useful for looked-after children and children with disabilities, who receive extra premiums. For looked-after children, it is a practical example of the state acting as parent and attempting to improve their prospects at 18—an ambition that all parents have for their children—by providing a lump sum at one of the most difficult periods of their lives, a time of transition that is difficult for any teenager, but especially for those leaving care.

For children with disabilities, the scheme provides an asset that allows them to take advantage of life opportunities or to invest in whatever they see as their priority. It is unfair to remove the scheme without a full impact assessment of groups who may be disproportionately affected, such as families with disabled children and people with disabilities, especially as the Demos report showed that the emergency Budget had a substantial financial impact on families with disabled children.

It has been suggested that a junior ISA may replace the child trust fund, but I cannot believe that it will provide an adequate replacement, even if a seamless transition in January 2011were possible, which has been disputed by a number of experts in the savings field. An ISA primarily benefits taxpayers and higher-rate taxpayers in particular, so what advantage does an ISA offer to a non-taxpaying family? Equally, the simplicity of the child trust fund product has been praised.

I have worked with people to whom ISAs and other financial products have little relevance, with people who need support to open a basic bank account and with people who have no notion of opening a deposit account. I urge Members, therefore, to retain the scheme in some form—even if only for looked-after children, children with disabilities and the poorest third of families—and not to scrap it completely. I urge Members to support the amendments.

[Kate Green]

I shall speak strongly in support of amendments 51 and 52, which my right hon. Friend the Member for Wythenshawe and Sale East (Paul Goggins) has tabled. As he says, Members from all parties share a deep concern about the continuing very poor outcomes that we, as corporate parents, deliver for children in the care of the state. Those children suffer difficult childhoods, often arriving in care in traumatic and traumatising circumstances. They are therefore significantly unsettled and disadvantaged in their childhoods, and that disadvantage continues, to our shame, into their adult lives.

Such children all too often achieve poorer outcomes in education and health: in adult life they are less likely to move into sustainable employment or further or higher education, and they are more at risk of poverty. I know all hon. Members feel deeply that that is wrong, so I shall speak strongly in support of my right hon. Friend’s amendments, because they open-mindedly ask us to address that endemic disadvantage. If Opposition Members are offered assurances that other financial instruments can meet those concerns, we will of course consider them, but we are clear about what those alternative instruments must deliver if they are to receive our approval tonight. They must deliver some of the advantages that the child trust fund was able to deliver for looked-after children—advantages that sought to some degree to adjust and compensate for the disadvantages that such children face as they embark on adult life.

The first important thing about a payment mechanism specifically designated to meet the needs of looked-after children is that it represents a signal from us as a community that we care about such children—that they are valued, and as precious as any child living with his or her family is to his or her parents. Too often, looked-after children feel that our society does not value or recognise them and that nobody has an interest in them, so a financial contribution to a savings fund for them is one of a number of steps that we can take to show that those children and their futures are important and matter to us all.

The child trust fund, in its design, also delivered much more hard-edged benefits to looked-after children. As Members have said, it put extra money aside for children through double payments, and in responding to my right hon. Friend’s questions it is important that the Minister should address how we ensure that those children do not suffer further financial disadvantage and inequality in adulthood by embarking on adult life with a significantly smaller asset than many other children. Adjusting wealth and asset inequality was one of the intended bonuses of the child trust fund—one that was particularly important for looked-after children, and one that I hope the Minister will address.

My hon. Friend the Member for Makerfield (Yvonne Fovargue) pointed out that the fund sought to meet costs at a time of transition, and reaching 18 is a particularly difficult time for children leaving care, because we leave them at the mercy of adult life as no familial parent would with her or his child. No mum or dad would throw their child out of the family home without so much as a kettle or an offer to underwrite the gas bill if they struggle as they set up home, but that is what we do to too many children who leave the state’s care. By providing those children with a financial asset, the child trust fund helped to smooth some of the extra costs that they faced at transition points, with which no other family member might have been available to help them. The fund therefore enabled those young people to embark on their adult life with the confidence, certainty and stability that other young people often draw from family support.

I hope the Minister will reassure me that any alternative financial model will replicate two other in-built advantages of the fund, one of which is the product’s relative simplicity. It was fairly clear what sums were going in, and it was fairly clear when they could be drawn out. Junior ISAs might offer more flexibility and allow more contributions and different points of withdrawal, and that might bring some advantages, but we must not set up a product that is too complex for corporate parents and others who might wish to donate to the funds of looked-after children to access readily and save within. I look forward, therefore, to the Minister’s assurances about how the product will prove accessible to anyone who wishes to save for a looked-after child or young person, and in particular how a corporate parent will be able, without unnecessary bureaucracy and expense, to make contributions for children in their care.

Right hon. and hon. Friends have mentioned how the child trust fund offered consistency throughout the country, between local authorities and in all four parts of the United Kingdom, ensuring that every looked-after child left care with the same opportunity of an asset with which to start adult life. Can the Minister assure us that the alternative mechanisms and products that he might bring forward will deliver such consistency? We do not need to perpetrate inequalities among children leaving care as we do between children leaving care and other young people as they start out on adult life.

My hon. Friend the Member for Makerfield rightly pointed out that the junior ISA offers little that is intrinsically attractive to savers who do not benefit from a tax break. By definition, that includes corporate savers who invest for the future of children leaving care. I very much want to hear how the Minister will at least incentivise, more than that exhort, and—preferably—insist that corporate parents save adequately and equally for every child who falls within their care. If those assurances are forthcoming this evening, like my right hon. Friend the Member for Wythenshawe and Sale East, I will be able to look again at his amendments. If we do not receive satisfactory assurances, however, every young person and every child who has been in care will expect the House to support the amendments, and I for one certainly will.

--- Later in debate ---

[Paul Maynard]

Unfortunately, the hon. Gentleman’s point was not borne out by the evidence of Mark Lyonette of the Association of British Credit Unions Ltd. He was quite clear when he said of the saving gateway:

“None of the credit unions built their business plan around it, so I don’t think its withdrawal is a threat to the health of credit unions.”––[Official Report, Savings Accounts and Health in Pregnancy Grant Public Bill Committee, 2 November 2010; c. 52, Q149.]

It is important to ensure that we give credit unions what they want, and that is why we are seeing reforms to the Credit Unions Act 1979 enabling them to work with more than just individuals—they will now be able to work with interest groups, social enterprises and the like. We should not therefore allow the Opposition’s statement that credit unions have to be involved to obstruct the fact that this scheme will cost £300 million to continue. This might cause some Opposition Members to roll their eyes and shake their heads, as they did earlier in response to my hon. Friend the Member for Truro and Falmouth (Sarah Newton), but we are now living in a very different fiscal situation. The shadow Minister was quite right: the Government have changed, and we now have to take tougher financial decisions. We cannot justify spending £300 million on a saving gateway that will not be universally accessible across the country because there simply are not enough commercial providers willing to provide it. This is not a debate about a group hug, or about trying to encourage everyone to save more. We all know about those things.

I have been delighted to hear the hon. Member for Makerfield talk about Brighthouse, of which there is a branch in my constituency. I almost thought that she must have sneaked into my surgeries, because her tales about her voters’ problems with Brighthouse were the same as mine. However, I do not think that the saving gateway is the answer to the problems that many poor people face in getting access to cheap credit. It is not the answer to the problems we have been discussing. It fails the test that I raised on Second Reading—a test that I call my rhododendron test. The Opposition have a tendency to fixate on a single item of legislation that they believe will somehow solve all the problems in the world, but I am afraid that the saving gateway, however popular the pilots might have been, has not been popular enough with the providers that we need to ensure its success. That is why I support the Government’s decision to remove the scheme.

[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.