Child Trust Funds (Amendment No. 3) Regulations 2010

My Lords, over the coming months and years a series of public expenditure cuts will no doubt come forward that will make people on these Benches feel extremely uncomfortable,. This, however, is not one of them. We opposed the introduction of child trust funds at the start, before there was a financial crisis, for a number of reasons that in my view have not been seriously undermined by the experience of the child trust fund programme. First, we were very sceptical of the programme because we felt that it was poor value for money. We felt that the principal beneficiaries of it would be middle-class parents and middle-class families who saved every last penny they could tax free, and that the poor—because they were poor—would not be able to add to the programme. As the noble Lord, Lord Liddle, said, poor children will undoubtedly end up with a nest egg aged 18, but middle-class children will end up with a big nest egg aged 18 because their parents will have taken advantage of very significant tax breaks. This view has been borne out by the take-up of child trust funds in constituencies. In the poorest constituencies, 40 per cent of parents have not even exercised their option on where the trust fund should go, far less put any money in it. Therefore, our view was that the scheme was not such a wonderful measure in reducing wealth inequalities—far from it, as the wealthy were the principal beneficiaries. Secondly, it always seemed to us implausible that this scheme would somehow inculcate a savings culture among young people as young people were not saving. The Government were saving on their behalf and in a minority of cases their parents were also saving on their behalf. Why would that inculcate a savings culture in a 10, 12 or 15 year-old? Many children will simply be unaware of the scheme as they are not putting anything into it; they are passive beneficiaries of it. Therefore, I do not believe that it inculcates a savings culture, nor do I see how, in itself, it helps improve financial literacy. The third issue we have with this flows from that. I am a great supporter of thrift. When I was a boy, my parents practised it and encouraged me to practise it. However, the thing about thrift is that you save up and forgo something now so that when you get the benefit of it at a later date, you value it because you know that it has cost you something in terms of consumption forgone. The problem with this scheme is that there is no link between the contribution and the benefit which you achieve aged 18. Noble Lords have said that 18 year-olds will use a nest egg they are given for all kinds of worthy purposes and that it will be used to help their education. On an earlier occasion, a noble Lord from the Labour Front Bench suggested that 18 year-olds might use this nest egg to put down a deposit on a house. I do not know whether my experience of 18 year-olds is totally different from that of other noble Lords who have spoken but, frankly, I do not believe that the mentality of most 18 year-olds—poor or affluent—is to take a nest egg to which they have not contributed and use it for long-term savings and benefits. To me, that goes against the grain of human nature and nothing that I have seen in my experience of 18 year-olds suggests that human nature has suddenly changed. The strongest argument for child trust funds is that it must be in the interests of society for parents to save funds so that their children can be helped when they have more requirements. At the moment, parents can save £5,100 tax free in an ISA, which can then be transferred to their children at age 18, or whenever, to benefit them. If the money is transferred in that way, I suspect that the relationship between the parents who have saved the money and their children will mean that it is more likely to be used for a positive purpose. The tax free ISA limit of £5,100 is far beyond the savings capability of a family on a median income. It offers plenty of scope for parents who have a desire to save for their children to do so already. There may be an argument for marketing ISAs which may eventually be used to provide a nest egg for children, but the benefit in terms of taxation is already there in ISAs, and the child trust fund, almost by definition, can be of additional benefit only to parents who have enough money to put not only into an ISA but into a child trust fund. That is not the cohort of parents who the proponents of child trust funds—