Considered in Grand Committee
My Lords, these draft regulations introduce new government payments to the child trust fund accounts of all disabled and severely disabled eligible children. As noble Lords will know, the child trust fund is a long-term savings and investment account for children born on or after 1 September 2002. Children are eligible if they live in the UK, child benefit has been awarded to them and they are not subject to any immigration restrictions.
The child trust fund is an important part of the Government’s savings strategy. It is an ambitious initiative that will ensure that every child, regardless of their background, has a financial asset at the age of 18. It promotes positive attitudes towards saving and will help to strengthen the financial education of both children and adults by bringing financial education to life.
When parents are awarded child benefit for a child, they are automatically sent a child trust fund voucher which they can use to open the account of their choice. Almost three-quarters of parents have so far chosen to open an account on behalf of their child. However, if, for whatever reason, parents do not use the voucher within 12 months, the Government open a stakeholder account with a financial provider on behalf of the child. That ensures that no eligible child misses out on a child trust fund.
The Government contribute £250 into the child trust fund accounts of all eligible children when it is first opened and again when the child is aged seven. Children from lower income families receive a further £250, both initially and again at the age of seven. There are also special arrangements in place to ensure that children in care, who may not be in a child benefit award, do not miss out on an account.
The Child Trust Funds Act contains powers to allow the Treasury to make regulations that provide for further government payments to be made into accounts of eligible children, such as those that we are debating today. These powers have been used before, for example to introduce government contributions at the age of seven. Recognising that children with disabilities may need extra support to make the best of their potential on entering adulthood, the Chancellor announced in the 2009 Budget that the Government would contribute an additional £100 into the child trust funds of disabled children every year, with severely disabled children receiving a total of £200 each year.
Children entitled to any rate of disability living allowance at any point within a tax year will receive £100 into their child trust fund, and children entitled to the highest weekly rate of care component of disability living allowance at any point in the year will receive £200 into their child trust fund. That is in line with the definition of severe disability used elsewhere in the tax system.
These new payments will start to be made in April 2010 for children who were entitled to disability living allowance in 2009-10. The Government intend to make these payments to disabled children throughout the life of their child trust fund. This secondary legislation provides for payments until 2018, when the first eligible children turn 16 years of age, because that is what is achievable under the current powers.
The Government intend to make an amendment to the child trust fund primary legislation before 2018 to enable payments to be made to the child trust fund accounts of all eligible disabled children, including those aged 16 and 17. Payments will be made into the accounts of disabled children using the same process used for other government contributions, such as payments at age seven. Child trust fund providers are already familiar with that process and will not have to make any changes to their IT infrastructure to cope. Therefore, the impact on business will be minimal.
Her Majesty’s Revenue and Customs will extend the existing data feeds from the Department for Work and Pensions to get information about which children are entitled to disability living allowances and thus entitled to these new child trust fund payments. Those payments will be made automatically and no claim will be required on behalf of the child.
Noble Lords may be aware that these regulations have already been debated in the other place, where both main parties offered no objection to their introduction. The Government recognise that children with disabilities often have greater financial needs on entering adulthood and therefore need extra support to make the most of their potential. The regulations provide for the Government to make annual contributions of £100 into the child trust funds of eligible disabled children and £200 into the accounts of severely disabled children starting this April. I beg to move.
My Lords, I thank the Minister for introducing the order. He will be aware that our policy is to cease child trust funds except for those who are eligible for additional payments. On that basis, we will not object to the order. That said, I am not convinced that this extra £100 or £200 a year for disabled children is necessarily the right way to spend taxpayers' money on such children. It is highly likely that there are greater priorities for them than a bit more money in their child trust fund account which matures when they reach 18.
We are a party committed to saving, and so we support the least-advantaged in our society being able to start adult life with a small amount of capital behind them if that improves their ability to manage their long-term finances. However, the Minister will be aware that, when introduced, this was an evidence-free policy. A few moments ago, he said that the policy promotes positive attitudes to saving, but that is far from proven. We shall find out whether the existence of a modest capital sum will result in an adult saving habit some way into the future. We will not know for at least another dozen or so years whether the money is used wisely or, as many of us feared when the Bill was considered in your Lordships’ House, to fund a large party or other forms of frivolous consumer expenditure. The lack of evidence taints the policy not only for the better-off but also for those who are in receipt of additional payments—that is, largely those whose parents are on benefits, and disabled children of course. However, lack of evidence has never stopped this Government from legislating or spending taxpayers’ money.
One of the alleged benefits of the policy was that it would encourage additional savings for children by parents and others associated with the children. The latest HMRC statistics show that only 24 per cent of all accounts have attracted any additional savings, and only 1 per cent had the maximum of £1,200 added last year. The average was less than £300 for those who did save extra, but that is only £70 per child overall.
I do not believe that there is any proper evidence—as opposed to the opinion of certain child trust fund providers who have an interest in the continuance of the product—on whether the extra contributions are additional to other savings or whether they merely substitute for savings which would otherwise have been made in another form.
We are clear that an evidence-free policy which has an annual price ticket of some £500 million is not the best use of scarce resources. But, as I said earlier, we are content for this order to proceed.
Opposing any payment to disabled or severely disabled children seems churlish and heartless. However, we have consistently opposed the child trust funds. The fact that more money is being poured into an initiative that we have never supported does not mean that we support it, however worthy the recipients.
The Minister talked about the debate in the Commons. Unless I misread Hansard—and it is possible that I have—I do not think that there was a debate in the Commons. The statutory instrument was agreed without debate. Therefore, it is wrong for him to say that we supported this in the Commons.
I agree with almost everything that the noble Baroness said except about the lack of evidence. It would be very difficult to have evidence in a case such as this one, where one is putting money into a pot that cannot be realised for a significant number of years. Our opposition to child trust funds is based on experience rather than evidence, and on what we know from our own experience about the consumption patterns of teenagers. It has been our view from the start that this is not an effective way of spending government money; that the incentive for additional payments would inevitably benefit those with above-average incomes; and, therefore, that the distribution effects of the programme are not what we would want to see.
The Minister said that 75 per cent of parents are exercising discretion about where the funds go, but what proportion of parents in the poorest constituencies are exercising this discretion? The evidence in the past has been that the poorest families have not taken up the opportunity to invest the funds and that they may almost be unaware of the funds’ existence.
We simply do not believe that the child trust fund is the most effective use of government money. To spend more money on it seems, at this point, perverse, and I am pretty confident that whichever Government are in power during the next Parliament, the scope of child trust funds will be severely restricted if the scheme is not abolished in total.
My Lords, my noble friend mentioned a figure of £500 million. Is that the cost of the existing scheme or the anticipated cost of these additions? I would like to know both those figures. As we are now in much more stringent economic conditions, can we know where the savings are coming from to meet the additional cost?
My Lords, the noble Lord, Lord Newby, questioned whether there had been a debate in the other place. I was referring to the Eighth Delegated Legislation Committee, which debated this issue on Wednesday, 10 February. The report I have is headed Parliamentary Debates, and I read with confidence what is put in front of me.
The positions expressed by the noble Baroness, Lady Noakes, and the noble Lord, Lord Newby, are consistent with the stance that their parties have taken on child trust funds. I understand the point that the noble Baroness makes about evidence on whether a savings habit is established, but the nature of such an intervention is that conclusive evidence can be available only once we have experience. We are pleased, from the research we have been doing and the uptake of child trust funds, that there is real interest in child trust funds, and we continue to work to promote awareness of them among eligible members of society.
The noble Lord, Lord Hamilton, asked about the cost of the scheme. I have a note here somewhere which I think corroborates the figure that the noble Baroness gave as the absolute cost of the scheme. I believe that the incremental cost of this proposal is of the order of £35 million or so a year. The overall cost of the child trust fund will be £520 million in 2010-11. That includes the disability payment, which will be £30 million in the current year, in addition to the £490 million cost of the birth and age 7 payments. The financing of that will come from Exchequer resources, raised through taxation, and is already factored into the Chancellor’s Budget. The noble Lord, Lord Newby, asked about the take-up in constituencies. I am not sure whether we have data on that but I will investigate; if we do, I shall of course write to all Members participating in the debate.
It is clear, given that we have child trust funds, that although there may be different attitudes between the different parties on these funds, nobody today wants to stand in the way of a proposal to make additional contributions in respect of children suffering from disability or severe disability. That is appropriately and correctly noted, and with that I commend the regulations to the Committee.