Savings Accounts and Health in Pregnancy Grant Bill

Richard Graham Excerpts

Tuesday 26th October 2010 Commons Chamber

[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.

[Catherine McKinnell]

The hon. Gentleman made a point about accessibility and the fact that 25% of child trust funds set up by the state are not taken up by the individuals. How does he suggest that that 25% of people benefiting from those savings funds will benefit from ISAs, given that they are unlikely to walk into a financial institution to arrange one for their children?

[Richard Graham]

I have a specific suggestion on that, which I will come to in a moment. Meanwhile, I am sure that the hon. Lady will have noted earlier the intervention from my distinguished colleague on the Work and Pensions Committee, the hon. Member for Stretford and Urmston (Kate Green), who in an earlier career pointed out that CTFs do not necessarily reach the most vulnerable families. Arguably that was a flaw in the concept at the beginning.

[Kate Green]

It is important to clarify this point. I did not say that they did not reach the poorest. I said that it was difficult for the poorest to participate in the savings element. However, as my hon. Friend the Member for Newcastle upon Tyne North (Catherine McKinnell) just pointed out, with an ISA product there would not be any element of asset building for the very poorest, because they would be unable to save for themselves.

[Richard Graham]

The only difference is that CTFs are funded by the Government, so we come to the argument about whether that funding can be used more effectively in the context of the goals. I was going to come on to that. I suggested that there are alternative forms of savings that are more effective than CTFs, have lower management fees and better performance, and come at no cost to the taxpayer.

I come to the next point made by the SCS alliance. It argues that CTFs have been

“one of the most successful government savings schemes ever”.

Members will agree that everything is relative. Clearly, CTFs did better than the previous Government’s attempt to create a savings scheme—the stakeholder scheme—which is a scheme that not even the right hon. Member for Delyn (Mr Hanson), in one of his more elaborate flights of fancy, could conceivably describe as having been an outstanding success. However, by comparison with the success of other savings schemes not run by the Government, CTFs have done only a relatively modest job.

The important thing is that, although Governments can, do and should create the structure for savings schemes, their track record in running them is not good. For example, do Members believe that we should be paying people to work for Her Majesty’s Revenue and Customs and spend their time advertising and promoting CTFs, or do we believe that they should be ensuring that benefits go to the right people and that we all pay the tax that we should pay? HMRC should not be in the advertising business.

[Catherine McKinnell]

rose—

[Richard Graham]

I have given way to the hon. Lady already, but I am happy to do so again

[Mr Deputy Speaker (Mr Lindsay Hoyle)]

Order. If hon. Members are going to give way, they should give way quickly. If not, the hon. Member trying to intervene must sit down.

--- Later in debate ---

[Catherine McKinnell]

On the hon. Gentleman’s point about HMRC officials spending their time promoting savings accounts to children and parents, the idea is to give a hand-up, rather than a handout. Rather than benefits being handed out to families, the idea is to encourage saving in a family and to make it accessible to families that would not otherwise easily access saving funds. That is a hand-up, rather than a handout, and I would have expected Government Members to support such a programme.

[Richard Graham]

The answer is that we all want to encourage hand-ups to everybody, through whatever means possible, but that brings us to the second point about the difficult decision that the Government have had to take in their proposals—and which we as individual Members have to take—which is: what are the alternatives? I will come to that in one second, but on the Government’s role in running saving schemes, one crucial lesson that I hope will be learnt from the stakeholder experience and, now, from CTFs is that the Government should operate such schemes at arm’s length. When it comes to the creation of the national employment savings trust—or NEST—by the Department for Work and Pensions, I very much hope that that lesson will be taken on board.

The question then is one of choice. What could we do for our children with the money that the Government have been spending on CTFs that would be more effective? My belief is that the best investment that any of us can make as parents for our children is an investment in education. Therefore, Members need to focus on several crucial changes that have been made in the education of our children. Those changes will cost the Government and the taxpayer significant amounts of money, but that is an investment on which I believe we will all see a significant return. First, the retention of Sure Start children’s centres, which were begun by Labour, is an important move by the Education Secretary. Secondly, there is an extension of the availability of free education to every three and four-year-old in the country. Thirdly and most significantly, there is the poor pupil premium, which will cost the Government some £7 billion over this Parliament and which comes on top of baseline funding for schools.

I really believe that the most important thing that any of us can invest in is education. This is not about money: I do not believe that there is any evidence that financial literacy in this country has improved as a result of CTFs, nor, in a sense, could it, because the children are not involved. Children benefit from financial literacy programmes that go into schools and talk about what type of mobile telephone package they should have and so on, not from being given a lump sum of money that goes into an account with which they have no involvement. From the choices available to the Government, the best way to spend the money was and should be in education. For that reason, I shall be supporting the Bill.

--- Later in debate ---

[Catherine McKinnell]

My hon. Friend ably makes a point that I was about to make myself. Families are being asked to bear the brunt of the mistakes made by bankers. The Government plan to take £190 away from the pregnant mothers who need it most. I believe that that constitutes a shameful attack on the most vulnerable and needy in our society. The Government tell us that the banking levy would bring in £2.4 billion, but my hon. Friend the Member for Walsall South set out the economic case—the “you do the maths” case—very clearly.

[Richard Graham]

I promise that my intervention will be briefer than the last one.

How fair does the hon. Lady think it is that those with money in child trust funds pay £25 million a year in fees at the last Government’s prescribed rate of 1.5% a year, which reduces the amount of money in the funds?

[Catherine McKinnell]

rose—