The business - Patrick Hosking fears our babies will be diddled
Why are we encouraging our children to hand over money to life insurance companies that have spent t
Oh, dear. The Treasury has capitulated and over at the Pru, the Norwich Union and the other big life companies they can't believe their luck. The Financial Secretary, Ruth Kelly, has decided to allow the savings industry to charge up to 1.5 per cent commission per year on child trust funds, or "baby bonds".
These are the government's big idea to give every newborn in the country a nest egg when he or she reaches 18. Kelly's concession - the commission was originally to be 1 per cent - will make those nest eggs significantly smaller.
A £500 nest egg - the amount to be given at birth to children in the poorest families - would grow to £1,203 after 18 years, assuming a 5 per cent annual return. The same lump sum after 1.5 per cent is gobbled up in commission each year would grow to £929. The child would see a £429 capital gain on its money; the savings companies would receive £274 in commission. So the industry stands to skim off more than one-third of the jam. And it will start to get its mitts on the money 18 years before the ultimate beneficiary sees a penny.
After pensions mis-selling, endowment mis-selling and the Equitable Life fiasco, it leaves a bit of a sour taste that this industry, the ultimate repeat offender, should be so favoured and trusted with taxpayer-funded largesse.
The life assurers hope that the concession will be repeated across the entire range of low-cost "stakeholder" savings products envisaged by the government. Kelly was savvy enough to insist that the baby bonds were a special case, but the industry undoubtedly thinks it could be a useful precedent.
True, child trust funds will be fiddly to run. They will have to accept additional contributions from parents or other relatives of as little as £10. But the life assurance industry is bloated with unnecessarily high expenses. As the independent insurance expert Ned Cazalet recently told a select committee of MPs, Britain's insurers spend £5bn a year on administration and £7bn on underwriting new business, mostly in commissions to salesmen. "You have to ask, is an industry that costs £330 per household in administration and £570 per household in commissions each year sustainable? Does that business truly and really make commercial sense?" Only if the government throws in big chunks of money, you might think.
Why not just give the money to our 18-year-olds and cut out the savings industry? Ministers argue the funds are about more than redistributing wealth. They are also about creating a savings culture and making children financially literate. But are we really teaching them to be financially smart if we encourage them to hand over money to firms which for 20 years have been mis-selling to their parents and grandparents?
One lesson of Hutton for the media is that we should be more suspicious of big set-piece events orchestrated by the government. What did we expect from a judge appointed by Downing Street, with terms of reference set by Downing Street? We should never have taken Hutton so seriously in the first place. The parallel here is the Budget, which Gordon Brown has just announced will be on 17 March this year, coinciding, to the irritation of City racegoers, with the Queen Mother Champion Chase during Cheltenham week. Every year, we newspapers work ourselves into a lather of expectation over it and set aside entire supplements. TV devotes hours of live coverage. Then, usually, nothing much happens. Despite exceptions, the story most years deserves little more than a page or two in the nationals.
The Budget is increasingly a soapbox for the same Brown sermon, complete with the repetition of previously announced initiatives, piddlingly minor reforms, and the burial of bad news in print so fine that it takes three days for accountants to winkle out the truth. Every year, we allow Brown to do a Hutton on us.
Group 4, the Danish security group best known here for mislaying prisoners in the 1990s, wants to merge with Securicor. The idea is to create yet another dual-listed company, this one quoted on both the London and Copenhagen stock exchanges. Such firms have become all the rage. Unilever and Shell go back decades, but others such as Rio Tinto are more recent creations. The product of cross-border mergers, they are often the only structure acceptable to both sets of shareholders, because they give both of them easily tradeable shares.
But as I write, the Shell chairman, Sir Philip Watts, faces a grilling from the City over his bungled admission that Shell inadvertently overstated its oil reserves. Shareholder attitudes to dual-listed companies are hardening. Without a core constituency of shareholders in a single home country, their managers sometimes seem accountable to no one.
Patrick Hosking is deputy City editor of the London Evening Standard