My Lords, in moving Amendment 62C, I shall speak also to Amendments 62D and 62E. There are four clauses—Clauses 45, 46, 47 and 48—about child trust funds and they are so exciting that, at Second Reading, the Minister devoted two lines in Hansard to them, to call our attention to the fact that they were there. I hope the Committee will forgive me if, so that my amendments and remarks make sense, I outline the clauses and what they do. I hope the Minister will correct me if I make any errors.
The four clauses concern child trust funds. The first, Clause 45, is about looked-after children and changes the sole manager from being the Official Solicitor to others. Clause 46 is about child trust funds and the role of 16 and 17 year-olds. Clause 47 is about transfers and child trust funds morphing, for want of a better word, into junior ISAs. Clause 48 is the wonderful clause that creates the capacity for enormous regulation, right in the heart of a deregulation Bill—more of that later.
I start with Clause 45, which relates solely to looked-after children. We know that looked-after children are some of the most disadvantaged—probably the most disadvantaged—young people in our society. In some ways, they are a group of people of whom we, as a society, should be ashamed because of the paucity of their outcomes. We know from recent publicity that they are the subject of sexual predation and that they generally, in education, work and so on, have very poor outcomes. When child trust funds were invented in 2003 and introduced in 2004, the Government committed to ensuring that looked-after children would participate in them. In the period within which those children born became eligible for child trust funds—from 2004 to 2011—some 9,000 looked-after children got child trust funds.
To remind the Committee, child trust funds were funds to which the Government made an initial payment. That fund became the property of the child and was managed so that they did not have access to it until they were 18. In general, a parent looked after the management until the child reached the age of 16. However, in 2011 the present coalition Government decided that child trust funds could no longer be afforded but, in a little-known act of generosity, created junior ISAs so that looked-after children would have an equivalent benefit. It is rare for me to find an opportunity to praise the Government but, in this case, I am reluctantly forced to do so.
I do not know whether it was the creation of junior ISAs that led to the creation of the Share Foundation but it is the organisation that manages junior ISAs. It is a third sector organisation and, while it is difficult to judge from just looking it up on the internet, from everything I can find out about it, it seems a thoroughly excellent organisation. It does the management role, but it is also a charity that tries to get contributions to child trust funds for disadvantaged children. As far as I can see, it is to be admired.
The regulations under which child trust funds were set up stated essentially that where there was not a parent or guardian—where the child was a looked-after child—the manager had to be the Official Solicitor. The language of this clause makes it sound as though other people could become the manager. In practice, as far as I can tell from the facts and from the debate in the Commons, effectively the only other manager would be the Share Foundation, because it is a third sector organisation that has shown skill in those areas.
My Amendment 62C is a probing amendment. Essentially, it looks not at the commendable improvement in flexibility, which we support, but at the fundamental dilemma of the whole concept of the child trust fund: what does the child do with the money at 18? The Minister in the other place suggested that one of the possibilities might be to throw a big party. He also implied that that might be a regrettable outcome. We all want every child to act responsibly when they have the benefit of the child trust fund, and take control of it, at the age of 18. Our probing amendment seeks the agreement of the Government that a proper objective of government is ensuring that children have the education and skills to act responsibly.
The amendment seeks to understand what guidance the Government intend to give to local authorities and account providers to advise them on how to deal with this task of helping children to act responsibly. In responding to this, I wonder whether the Minister—I pause to check that I have his attention—might focus on the particular question of looked-after children. What general guidance will the Government give to try to ensure that looked-after children have financial training as they approach 18? As we all know, one of the problems with looked-after children is the precipice they face at 18, as they fall from one area of responsibility to another. It is a period when they particularly need financial education. The Minister might want to comment on that, as it was also the topic of a short debate in the other place on the general context of how all children
are educated financially in the later years of their schooling, to prepare them for the difficult world of money.
Turning to Clause 46, we have no amendments. The clause merely gives some flexibility. The present regulations require 16 and 17 year-olds to take responsibility for the management of their child trust fund. This is a sensible piece of deregulation, permitting—if the child so wishes—the parent or guardian to continue responsibility. It is, dare I say, a sensible piece of deregulation.
I turn next to Clause 47, with which goes our Amendment 62D. The clause concerns the transfer of child trust funds into junior ISAs. However, it could never be that simple, could it? Anyone who cares to read the appropriate definition and looks for the words “junior ISA” will not find them; they will find the words “protected child account”. My understanding is that the rest of the world refers to these things as junior ISAs. If I have that wrong, I hope the Minister will tell me.
Assuming I have that wrong, the regulation addresses the issue whereby if you were born between particular dates—I think they are 2004 and 2011, roughly—you get a child trust fund and you cannot have a junior ISA. If you were born outside that time, you do not get a child trust fund but you can choose to have a junior ISA. In many ways, a junior ISA is much like any other ISA. Its essential feature is that it is a tax-advantaged savings product that can roll into the next year and not count against the limit. In fact, it is an ISA for which the manager is a parent or guardian. The two options this clause allows are for the child trust fund to be converted into a junior ISA or, at the age of 18, for the child trust fund to continue and remain in its tax-advantaged situation. That is how I read it and I hope I have it right. I assume that is because the present legislation is a bit woolly about what happens at 18 because 18 will not happen until 2020, and we have only just got around to thinking about what to do about it, but that is good. That is not a criticism; it is good to tidy things up.
The issues of flexibility, choice and competition are prayed in aid of this, and that is probably fair enough. The desire is that this choice and competition should improve the market for these products. Amendment 62D probes that to see how much the Government have thought this through and what their expectations are. The essential question behind the amendment is about the extent to which the Government intend to promote competition between providers. Are they going to go out actively to do that? Are they going to promote competition between child trust funds and junior ISAs or between junior ISAs? We all know that you can create a system of rules whereby financial instruments can move from one description or firm to another, but we also know that the ease with which that can be done varies radically between different financial instruments. I am interested in the extent to which the Government will be looking to make any such competition easy so that there is a genuinely competitive market. I hope that in answering that question, the Minister will be able to give some indication of the discussions he has had with providers about ways to improve competition.
Finally, Amendment 62E relates to Clause 48, which is an absolute delight to somebody like me. I, unlike the party opposite, do not think that every regulation is a bad thing. I believe that good regulation is the essence of a civilised society. Good regulation is a good thing. It is great that the coalition Government recognise this by creating a clause that allows them to make just about any regulation conceivable about child trust funds. Indeed, I really enjoy the language. If I go to page 38, new Section 7C(1) states:
“The Treasury may make regulations under this section if the Treasury think it appropriate”—
I love the word “appropriate” as it means “I have not got a decent argument”—
“to do so for the purpose of safeguarding the financial interests of children, or any group of children, who hold child trust funds”.
New subsection (3) states:
“The regulations may authorise the Treasury to require any account provider or any account provider that is prescribed, or of a description prescribed, in the regulations to take one or more of the following steps in relation to every child trust fund held with it”.
That seems to me to be a description of everything. The most draconian of all the steps thereafter is to,
“to transfer an amount in cash representing the value of all the investments under the fund (whether consisting of cash or stocks and shares) to a protected child account that can be used for investments in cash and is provided by a person specified by—
wait for it—“the Treasury”. The Treasury will be able to make any rules to move anything about to anybody.
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The unlimited extent of these powers takes one’s breath away when one gets to new subsection (7), which states:
“The Treasury is not liable in respect of … a decision made by it as to the person to be specified in a requirement of a kind mentioned in subsection (3)(d)”.
As I understand it—once again, the Minister will correct me if I am wrong—the parliamentary procedure to which the new Section is subject is that of negative resolution. Our amendment does not resist this new Section, because, at the end of the day, we do not really know when we set up a competitive market what the outcomes might be, but we want to see consultation and to be given a feel, as far as possible today, as to the circumstances in which Her Majesty’s Government would intervene.
Of course, the track record of this industry in the most general terms is hardly good. We have had many mis-selling scandals, the closest example perhaps being that of pensions, so I can see that there will be some circumstances when intervention is needed, but it would be good to know which circumstances the Government had in mind in creating this capability for regulation. What do they think is the correct level of interference in the market? When and whom will they consult before they make any regulations? Why will it be Her Majesty’s Treasury and not the FCA that does it? Do they anticipate making any special preparations for 2020, when these funds start to mature and, as some have speculated, possibly produce particular disturbances in the market?
Our amendments are designed to probe. I hope that the Minister can answer some of my questions, but I realise that this is not a general but rather a specialist subject and I entirely accept that he may have to write. We support the initiatives. I ask the Minister to write very carefully, because my objective is not to make this speech again on Report. Therefore, I would like answers that fully satisfy my concerns. Our interests are in financial education, the effectiveness of the market and where intervention might be necessary. I beg to move.