Child Trust Funds (Amendment No. 3) Regulations 2010

My Lords, I am grateful to those who have taken part in today’s debate. A number of noble Lords have spoken eloquently about the advantages of the child trust fund, and I agree with much of what they said, although others have pointed out that, even setting aside the issue of affordability, the child trust fund is not a perfect vehicle. However, as I said earlier, given the unprecedented budget deficit that we face, the question is whether government payments into the fund remain affordable, and I am afraid that the Government believe they simply are not. I turn to a number of the specific points that were raised. I start with a point made on both sides of the House by a number of your Lordships, including my noble friends Lord Naseby and Lord Hodgson of Astley Abbotts, and the noble Lord, Lord McKenzie of Luton, concerning whether the wrapper or unique number would continue to allow people to save through the child trust fund mechanism. Many other speakers suggested that the wrapper should remain available to parents, even once government contributions had stopped, or that some other, new form of tax-free savings account for children should be put in place. To reiterate what I said earlier, the Government are considering this question carefully and I am sure that it is one of the major issues that will be discussed later this week by my honourable friend the Financial Secretary when he meets representatives of the industry. I thought that the contributions of my noble friends who expressed their understanding of why the CTF had to go were particularly telling. I shall pick up some of the other points. I suppose that it is good knockabout stuff to try and pick out what people said in manifestos and to compare that with the coalition agreement, and we will live with that game for some time to come. In response to the noble Lords, Lord Davies of Oldham and Lord McKenzie of Luton, I say that it is indeed the case that both the Conservative and Liberal Democrat manifestos set out an intention to reduce spending on the child trust fund, as did the coalition agreement and the programme for government. We have since then looked at the options and the Government believe that it is right to stop the government contributions entirely as that will make the greatest contribution towards deficit reduction. We then had a number of contributions—including from the noble Lords, Lord Davies of Oldham and Lord McKenzie, and from my noble friends Lord Hodgson of Astley Abbotts and Lord Blackwell—about who had done what on savings over the past few years. I noted that the noble Lord, Lord Davies, talked of this as an onslaught on savings while, on the other hand, my noble friends talked about the hammer blows inflicted on savings by the previous Labour Government. I do not think that this is the time to go into who has done what to whom. Some of my noble friends have pointed out that what the previous Government did to support ISAs was important, and that if it was affordable, the child trust fund initiative had an important role to play. I think that we would all agree that the recent level of savings has been too low. It is the current Government’s intention to foster a culture of personal responsibility and better financial planning to improve individuals’ independence over their lifetime, particularly in planning for retirement. We will measure the policies on savings against the coalition’s three principles of freedom, fairness and responsibility, while making sure that such measures are affordable and effective. Attention has already been drawn to the fact that the Budget announced a number of measures which will take the first steps—I stress, first steps—in meeting these aims, such as the annual financial health check and an end to the effective requirement to annuitise pension savings at 75. That is an important reform that has not been mentioned this afternoon. There was then a particular stress—again from the noble Lords, Lord Davies and Lord McKenzie, and from the noble Lord, Lord Morgan—on whether we were hitting low-income families and how this was fair. They did not draw attention to the reforms that we are making to the tax credit system. We are tackling the deficit in a way that is fair and ensuring that tax credits, which are an important part of this construct, are targeted at those who need them most. I remind noble Lords that the Government will freeze child benefit to help fund very significant increases in child tax credit and will invest around £3 billion in the child element over the next two years. Although we are making significant savings to reduce the deficit, we can be sure that this will not lead to a negative measurable increase in child poverty over the next couple of years.