| The Child Trust Fund is worth fighting for |
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A decade ago, both the Fabian Society and IPPR successfully called for the introduction of a “baby bond” to encourage saving and to ensure all young adults started life with some financial assets. The Child Trust Fund (CTF) was introduced in 2002 but with pressure to cut public spending, some argue that the Child Trust Fund should be scrapped or narrowed. With all parties claiming to want to tackle social mobility and inequality what can we do to protect the Child Trust Fund? In this pre-election special, the Fabian Society gathered together a group of high-level thinkers to discuss the future of the Child Trust Fund. Ex-Number 10 adviser Julian Le Grand was joined by David White from the Children’s Mutual, Carey Oppenheim from IPPR and Jonty Olliff Cooper from Demos. The discussion took place at the Church House Conference Centre and was chaired by Stuart White from Oxford University. Professor Le Grand argued that we already help children to accumulate “human capital” through education at a cost of millions of pounds a year for schools and universities. We had reached the point where any further funding would have only marginal benefits. The CTF was a more equitable way of assisting those who may not benefit from a university education. Le Grand told the audience that even very small amounts of capital could have an enormous impact on life chances, by giving people the ability to start a new business for example. Another attractive feature of the CTF was that it acted as a badge of citizenship. Once a young person reaches 18 they are given political power through the right to vote; they should also receive some degree of economic power through the CTF. Professor Le Grand once wrote that he believed that the CTF could “shake the world” and he said he hadn’t changed his mind. When the first 18 year olds received their money we would, he argued, see a significant increase in the well-being and general happiness of the nation. He also linked the CTF to the recent financial crisis which had been caused in part by general financial instability, high levels of debt and financial illiteracy. The CTF helped increase the level of savings in the economy and by linking it in some way to inheritance tax he suggested we could find a way for the wealth of one generation to fertilise the growth of the next. David White from the Children’s Mutual told delegates that from his experience the CTF had been a huge success with very high engagement rates from families from all walks of life. Around 75 per cent of parents opened an account within a few months of their child’s birth and the number of people actively saving for their children’s future had trebled. The amount of money being saved had also increased by 60 per cent. The policy was an effective long-term cure for the debt disease problem and created a virtuous circle of saving and investment for the future. Income may feed stomachs, he said, but assets changed people’s heads and it was clear from the evidence that young people would enjoy greater opportunities with financial assets to provide a springboard into adulthood. He also argued that the nudge from government to encourage saving was relatively cost effective considering the billions of pounds a year spent on pension tax relief and ISAs. However, it was essential that the CTF remained universal, he argued. We couldn’t tell at birth how a child’s circumstances would change by the time they reached 18 and to pick and choose which children should have these chances was a dangerous strategy. Parents also believed that all children should be treated equally and from a purely economic perspective the government could not tell the companies which invested millions of pounds a year in encouraging people to open these accounts that they could only deal with people on low incomes. Carey Oppenheim from IPPR told the audience that the idea of a “baby bond” had come from the understanding that assets could have a profound impact on opportunity and choice and how people managed setbacks in their lives. Many of the government’s policies are designed to bolster people who already had assets, for example pension tax relief, but what was exciting and important about the CTF was that the government was helping to boost the assets of those on low incomes with few or no assets. The notion of ownership for all was the fourth plank of the welfare state, she said, and this policy was not so much about providing a safety net as a starting point. The government gave you £250 and then it was up to family and friends to contribute; introducing the idea of collective and individual responsibility. Oppenheim said the CTF policy was still in its infancy and it was hard to judge its long-term impact. This was one of the reasons why it had become an easy target. The long lead-in was a political problem because people did not yet feel a sense of ownership and would not immediately notice the impact were it to be cut. We needed to better communicate what the CTF was about and how it could change people’s lives. She suggested a number of ways in which it might be improved, including matched contributions from the government to encourage saving. Jonty Olliff Cooper, who leads the Progressive Conservatism Project at Demos, sounded a note of caution on the Child Trust Fund. Although in favour of an asset-based strategy to tackle wealth inequality, he did not feel the CTF as it currently stands achieves that aim. An effective pro-asset strategy could have an important impact on people’s sense of stability; making people more forward thinking and improving their engagement with society as well as creating more independent citizens who were less reliant on the state. There were, he conceded, strong conservative arguments in favour of the CTF and asset-based routes out of poverty. However, he felt the CTF was not the best way of targeting those most in need. For one thing, it didn’t restrict how the money was spent at 18. He did not feel that public money could be justifiably spent on, say, a new plasma screen television, and called for restrictions on how the money was used and for a programme of financial literacy to be built into the scheme. To encourage more saving and self-reliance, contributions to the CTF should be matched by the state, he agreed. If the CTF did have a future it had to remain universal not because it acted as a badge of citizenship, as other speakers had suggested, but because we could not decide at birth which children were going to be millionaires and we needed a policy that treated people equally at the start of their lives. He called for a broader asset-based strategy that rewarded thrift and reform of housing benefit was one avenue worth exploring, as at the moment this was “wasted money” which went straight out of people’s hands and into landlords’ pockets. The debate was then thrown open to the audience. One participant thought the CTF’s biggest weakness was its lack of ambition. He proposed the idea of a vastly increased initial endowment of £30,000 per child, money which would eventually pay for welfare, education and pension. This scheme would, he argued, pay for itself within a lifetime and could eventually replace the welfare state entirely. Returning to panel comments, Carey Oppenheim agreed that perhaps Labour needed to be bolder and to make the CTF central to its redistribution strategy, perhaps linking it to reform of inheritance tax. The modesty of the policy made it easier to get rid of and we needed to build popular support for it beyond those voters who have children. David White argued that restricting the way the money from CTFs was spent would be cumbersome and difficult to administer. There also needed to be an element of trust in young adults and the CTF should go hand-in-hand with more financial education. Stuart White summed up the mood by saying there appeared to be a consensus in favour of a reorientation of social policy in terms of spreading assets, matched savings and reform of inheritance tax. The Fabian Society and IPPR will be continuing to debate how we can defend the Child Trust Fund. If you have any further comments or suggestions on how to make an effective case for the CTF please contact Richard Lane on This e-mail address is being protected from spambots. You need JavaScript enabled to view it |
Defending the Child Trust Fund
