Libdems killed the Child Trust Fund star


9:00 am - May 25th 2010

by Stuart White    


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Its official. After a short interim in which newborns will receive a mere £50 or £100, the Child Trust Fund (CTF) is in effect to be axed. As of January 2011, there will be no further government contributions into any CTFs, according to the announcement yesterday.

The Conservatives did not fight the election on a platform of completely abolishing the CTF. Their policy was to trim it back to the poorest families. The Lib Dems, however, have fought two elections on a platform of abolishing the CTF. The effective abolition of the CTF is, quite clearly, a Libdem responsibility.

Let us not be detained by the argument that this was a financial necessity. Despite being one of the most effective pro-savings policies ever introduced by a UK government, the policy is inexpensive. It could easily have been preserved with government contributions reduced but with a clear commitment to raise them back to present levels as financial circumstances allowed.

When the policy was first introduced, my wife, Kathy, discussed it with children in her classes at school – teenagers in a comprehensive school in Oxfordshire. The children were surprised and enthralled at the idea that the government might invest some money on their behalf. (They understood they were too old to benefit, but they had the ability to empathise with those future children who would benefit from the policy.)

My son’s CTF will continue.

But I think it is a great shame that so many other parents and children in the future will not receive this simple act of affirmation. And that so many of these children will consequently lack the capital to launch ambitiously into their adult life.

The Lib Dems have had fair warning that abolition of the CTF is a deeply illiberal policy. I have argued this case in a range of contexts from multiple Next Left posts to academic articles in Public Policy Research and British Politics.

The CTF was anticipated by policy thinking in the Liberals and SDP in the 1980s. It emerged out of academic efforts to think through the institutional implications of liberal egalitarianism of the kind articulated by John Rawls, Ronald Dworkin and Bruce Ackerman. It finally went some way to satisfy the call for the universalisation of asset ownership which we can trace back through generations of Liberals to the radical republicans of the Chartist movement and back further to Tom Paine.

I think it fair to say that at no point in these years have I received a single adequate reply to the arguments I have made against the Lib Dem policy.

Overwhelmingly, the response has been either silence – as when Nick Clegg ignored an open letter I sent to him on the subject – or embarassed acknowledgement that something was wrong. In private, Lib Dem policy wonks would look a bit bemused and sort of accept that, yes, the party’s policy of abolishing the CTF wasn’t right, but the party had to stick with it to ‘make the figures add up’ and that, ‘after the election’, there would be a rethink.

Some rethink.

When I have spoken at fringe events at Lib Dem conferences on this subject, I have found the audiences thoughtful and responsive. I have never had a sense that opposition to the CTF was a popular policy with the rank and file. The audiences I spoke to took my criticisms seriously.

And when I have challenged Lib Dem canvassers on the doorstep about the policy, I have met with a wall of ignorance: ‘Oh, I didn’t know we were doing that, I’ll have to go away and look it up…’ (canvasser hastily retreats…)

The CTF was one of the great liberal achievements of New Labour.

How sad that one of the first acts of the Liberal Democrats in government is to abolish it. What a self-inflicted wound to that old venerable Liberal ambition of creating a society based on ‘Ownership for All’.

——–
Cross-posted from Next Left.

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About the author
This is a guest article. Stuart White is lecturer in Politics at Oxford University, based at Jesus College. He blogs at the Fabian society's Next Left
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Story Filed Under: Blog ,Economy ,Equality

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Reader comments


Hey but they got fixed parliaments, so now we are all “progressive”.

2. the a&e charge nurse

Does this mean spirited policy dovetail with proposals to triple university fees to £27,000?
http://news.bbc.co.uk/1/hi/education/10119279.stm

Despite being one of the most effective pro-savings policies ever introduced by a UK government

Any proof of this at all, and that it isn’t just another middle class subsidy? I haven’t heard of anyone who isn’t white or middle class that actually benefits from this policy.

Overwhelmingly, the response has been either silence – as when Nick Clegg ignored an open letter I sent to him on the subject

No offense, mate, but do you think you’re important enough to warrant a response to your silly letter from Nick Clegg? Who do you think you are, exactly?

I suppose this illiberal policy ranks alongside the raising of the tax threshold as “very illiberal” (i.e. Not Labour Enough). No doubt you will pull out of your arse some articles from the “non-partisan, trusted, independent” Next Left and Left Foot Forward blogs to prove taking the poor out of tax is actually bad for the poor.

4. George W Potter

Well, my understanding was that we were scraping it because we thought it would be far better if, instead of effectively giving people £250 when they turned 18, we invested the money in better education instead. After all, it’s education that has the greatest effect on someone’s social opportunities not being given a little bit of extra money by the government.

5. George W Potter

*scrapping

I’m with George here. If we are going to redistribute money from taxpayers (please try to remember that we pay for these things) to children, then should we not focus it on areas where the state can provide far better outcomes. After all, what is the best £250 can earn over 18 years? Giving the very generous 7.5%, I get £855 (including the original sum). I suspect most CTFs are getting less.

Now how much is the premium for a good education worth to a child per year? I can’t dig these figures up, but I know we are talking thousands per year.

Since funding is limited, would you prefer to give each newborn £250, or invest all those in education? Whilst the CTF was a noble idea, it seems less effective than spending the money properly. Especially since without a good education, what are a lot of 18 year olds going to do with their newfound wealth?

7. Sunder Katwala

Bianco@3 – your statement about only white or middle class people benefitting from Child Trust Funds seems to me to just misreport or misunderstand what the policy is/was. I don’t understand how anybody could claim this about a universal asset policy.

George@4

The choice of “child trust funds or education spending” is a poor one, as those are not the choices on offer to a government, even once we accept a goal of how to make £6 billion of cuts in government spending (not, of course, for deficit reduction in this case, but to meet an election pledge to stop half of a different tax increase). The argument that education matters for life chances but assets do not really is a weak one, which has the effect of implying any scale of inequalities in wealth are broadly compatible with equal opportunity as long as we have good state schools.

Of the various ways in which the government incentivises and subsidies saving (including pension tax relief, tax relief on savings through ISAs), the Coalition have scrapped one of the least expensive approaches, yet the one which has involved much greater take-up from lower income households. So even if we restrict the search for spending cuts to savings vehicles, a much better approach would have been to look at the fairest way to make a similar amount of savings on expenditure from government subsidies towards saving incentives, looking at options to do so in the fairest distributional way, and to do so in a way which pursues the claim by both governing parties that they are concerned with asset and wealth inequalities.

Moreover, the attempt to claim that the policy is “giving £250 to every 18 year old” (which I have heard frequently claimed eg in radio and TV interviews by Nick Clegg) is misleading. I presume this is a deliberate misstatement of what the government are proposing to cut designed to make the policy outcome seem insignificant. It is true that the sums are relatively modest, but this is simply not a true statement.

The government vouchers themselves are worth £500 (£250 at birth and £250 at age 7). They are worth £1000 for families from lower income households. It has been estimated that the funds (if there is no further saving) would be worth in the region of £1250+ at the normal level, and perhaps £2500-£3000.

The early evidence does suggest that the Funds have significantly increased savings rates, including among those with little or no history of saving.

Since the lower income group are those who are likely to have no significant assets at 18, the impact of a couple of thousand pounds (with no top ups) is potentially quite significant in terms of opportunities. A summary of savings patterns for children prior to the Child Trust Fund can be found here
http://www.bris.ac.uk/geography/research/pfrc/themes/psa/saving-for-children.html

Anybody interested in equality of opportunity has tended to think that asset and wealth inequalities are one important sphere of concern. While there is a strong intuition that people want to pass something on to their own children, the principle that every young adult should have some financial asset base is a good one too.
(Moreover, cutting the programme does not exactly dovetail with an argument critiquing the CTF that “this is too small to do enough about the really important issue of asset inequalities”, until alternative plans to pursue asset inequalities are proposed).

It is interesting that the government does not seem to have any plans to publish any evidence on their impact on saving, especially among low income households. They should be pushed to do this in a credible way while proceeding with their abolition plans.

I therefore suggest that is something that both external academic experts and one of the new Select Committees in the House of Commons ought to look at in detail.

8. George W Potter

@7 Whilst I take your point of the importance of giving teenagers a financial base for when they begin their working life, I still believe that the money would be far better spent in education. Education fuels social mobility and gives people better prospects in life, investing in it will have a greater beneficial affect than spending the money on the trust funds instead. Yes, it shouldn’t have to be an either or choice but under the current financial circumstances (which I hold Thatcher and Brown equally responsible for) you have to make cuts somewhere if you want to increase spending elsewhere.

9. Matt Munro

“Despite being one of the most effective pro-savings policies ever introduced by a UK government”

You are kidding. I got £250 quid when my son was born, would have got another £250 when he was 7. If you left that till he was 18 (and were very lucky with the stock market) it might just pay for a whole week at uni. Plus it’s all borrowed money anyway, he’ll just pay it back in other taxes.

Re: Matt Munro @ 9.

Blinkered, privileged nonsense. £500 would have been nice for insuring my first car, or paying my first rent deposit. It could even be used to cover the cost of your kid’s University textbooks. I’m sure if you didn’t always have that kind of ready money, you’d appreciate the help.

Also, if your child pays 100% of the value of his welfare outlay in taxes over his lifetime, then he’ll be in the top earnings bracket and probably won’t whinge about it. I’m pointing this out in earnest, as I’m sure you’re not being wilfully deceptive or deliberately misleading at all.

RE: Matt Munro @ 9

If your child pays 100% of his respective welfare outlay in taxes, he’ll be wealthier than most of us anyway so presumably will have the class not to complain.

Also, £500 would have been nice to insure & tax my first car. Or pay my first rent deposit. More young people have to do that than go to Uni. It could even pay for textbooks. Use your imagination, rather than reaching for clichés.

@Matt Munro @ 9

CUNT

comments are fucked?

14. Watchman

Gwyn,

It would be nice to do those things, but why the hell should we (taxpayers) pay for someone to tax their car in the future? I’d prefer to see my taxes spent on sorting out problems now.

Whoah, I don’t think that’s appropriate language Gwyn.

@Sunder do you have figures for the take-up of the CTF, with a demographic breakdown?

If you have a choice between investing this money in education, and investing it in giving a lump sum back to people who will one day be taxpayers, what do you recommend?

Your/Labour Foot Forward’s criticism of the Lib Dem tax policy is that letting people keep a certain amount of the income they earn is regressive when compared to taking it off them so it can be invested in public services etc.

So reducing the amount of tax the poorest workers receive is regressive.
But taking money off them then giving a tiny amount to their kids is progressive?

Pull the other one, Katwala.

16. the a&e charge nurse

Surely the ideals underpinning the CTF are intended to amount to much more than simply handing over a wedge to a sulky teenager once they hit 18?

Isn’t the CTF all about encouraging families to enter into a partnership, so that as well as recognising the importance of saving/planning, the state and family, together, can give the next generation a leg up during a stage in their development when they are likely to be faced with some important decisions?

It’s not as if the future looks particularly rosy for today’s youngsters, especially given our current level of national debt, not to mention the gloomy prognosis associated with global warming, mass species extinction, and unsustainable population growth – £500 notes seems a rather meagre price to pay in my book, but obviously Clegg & Cameron think otherwise (nothing to with their own privileged backgrounds, of course).

17. Stuart White

George @ 8 (and lots of other comments): I understand the ‘Just stick the money into education’ idea.

But consider. First, the sociologists (e.g., John Goldthorpe) tell us that even when you control for educational attainment, people from higher social classes are more likely to end up/stay in these classes than people from lower social classes. So there is more to social mobility than education.

Second, there is some evidence that likelihood of getting an inheritance and its size correlate with parental class (see the data compiled by Karen Rowlingson in our Fabian pamphlet, How to Defend Inheritance Tax).

Third, there is evidence (a study by economists David Blanchflower and Andrew Oswald) that someone is more likely to be an entrepreneur if they get an inheritance.

Put that lot together and it seems at least reasonable to think that social mobility is affected by wealth inequality as well as educational inequalities. And that, if you care about social mobility, you might therefore want to do something about wealth differences in early adulthood as well as about educational differences.

What would I have done if a £1,000 lump sum arrived from the government on my 18th birthday?

Oh, I know. I’d have given it to a landlord rather than getting a private loan to do the same.

At the time, I’d just left a part-time job and was moving into University. Great fun. £1,000 extra would have made life a lot easier – but compared o the positive benefits of EMA, which I was fortunate enough to get, it would have looked reasonably pointless. I can’t see how it would have encouraged me to save – I didn’t have any money /to/ save, and going into university these days is an exercise in debt accumulation.

3 years of university, for me, was £12K of SLC debts, 2 £500 credit cards, a £1,000 loan and a £1,500 overdraft. I was lucky enough to sneak in before the tuition fee increases.

So, yeah. I can’t say the idea of a CTF is a bad thing for the recipients – it just doesn’t strike me as being particularly relevant. It might encourage people who have a disposable income as children / young adults to save – maybe – but I really can’t see it doing anything of the sort for the poorer. To them (former us), it’s not really an option. So why, exactly, is it being billed as some form of progressive step forward?

19. Matt Munro

@ 11 Are you familiar with the conept of inflation ?? As in, 18 years from now £500 quid won’t buy what £500 quid does now ? I suggest you google it before slinging abuse around

20. Matt Munro

@ 11 Gwyn – I’m not privelideged (I couldnt afford a fucking car until I was 30) but I am educated enough to know what inflation is, and that £500 in EIGHTEEN YEARS TIME will not amount to the square root of bugger all. It’ll probably buy a tankfull of petrol, if you’re lucky.

Excellent article Stuart White. I didn’t know the ins and outs of the CTF in social policy terms (so thanks), but have contributed to the CTFs of young relatives.

These youngsters wouldn’t in my view have had access to any funds at 18 without the CTF. They will have now, and much more than just the Govt kick-start money.

If they get away with it a tremendous, far-reaching innovation will have been carelessly wrecked by Ministers from families who have used trusts to benefit their progeny for generations.

22. George W Potter

Stuart @ 17, I agree with you. However, since we can’t make everyone equally wealthy, the best way to reduce the educational disparity caused by social backgrounds is to invest more in the education system itself with initiatives such as the Poor Pupil Premium. Ideally, I’d like to be able to invest in education and keep the CTF, heck, I’d like to abolish tuition fees as well, but under the current circumstances you can’t do everything. Hence my belief that the CTF money will be better spent in the education system.

23. Darren Canning

The error in assuming that education is the way to address all inequality in life outcome is in assuming we live in a meritocracy. Even assuming that a child from a poor background and one from a wealthy one achieve identicle results at university and somehow managed to have studied the same course at the same university (even less likely) the ability to take part in internships (unpaid work experience), take driving lessons (increasing employability), or relocate away from the family home (increase employability) all depend on some financial asset. One of the great things about the CTF was that it was a locked fund meaning families on low incomes could put what little they had in there knowing they wouldn’t be tempted to break into it at the end of the month. This fact, together with the start up capital meaning even small contributions seemed more worthwhile, has been shown to have initialised and raised savings amongst submedian wage earners.

RE: my posts above

Ignore obscenities, the comments were broken and it kept swallowing my posts. Eventually it seemed reasonable and proportionate to just chuck obscenities into the void – I was sure there was more than just one c-word.

But yeah, @20 if you’re going to point out inflation on the CTF, why not apply it to the debt? If it’s not worth saving £500 for 18 years, then neither is it worthwhile paying the debt off anytime soon.

Re: blanco @3

He probably thinks he’s this guy.
http://www.politics.ox.ac.uk/about/staff/staff.asp?action=show&person=44

@25 – you’re surely not suggesting that Oxford academics have any greater right to the attention of politicians than any of the other internet windbags who write pompous “open letters” on their blogs? They all send send my head burrowing into the nearest cushion with much the same degree of alacrity.

@23

But you can’t outspend the wealthy and privileged on an individual basis. It is an arms race they will always win. As an example, if we take the outcome of a CTF at £2k, that’s enough to do some of the things you describe, but not others. It’s enough for driving lessons, but not enough to do, say, a summer’s unpaid internship in London. Rent and bills alone will eat up three quarters of that, and that’s before you’ve bought a suit or a travelcard or any food. That is still only open to the privileged. You could only ever solve this problem through total egalitarian redistribution, as George W Potter says.

I’m puzzled about the lefty stance on display here, because surely the whole principle of collective action is that money is more effective at lifting individuals out of the circumstances of their birth when it’s pooled. I don’t think there’s an either/or choice between early years funding and the CTF, but I do think the former comes higher up the list of priorities than the latter. I’ve always understood that this is also what the Lib Dems think more generally, and Stuart is being rather disingenuous in electing not to know this. *If* we accept the premise that choices have to be made on some level, then saying “it’s not much money” is a feeble argument. Nor are any of the other “not much money” cuts being made, but they must be reflecting some sort of pecking order. If you have an alternative explanation for the pecking order that’s been chosen, let’s hear it.

28. Stuart White

Alix: on the argument that the CTF money would be better spent on (for example) early years school interventions…

Of course, I agree, IF we have to make a choice at the margin between those two things.

But we don’t, and, as I have argued repeatedly in the articles I’ve addressed to the Lib Dems, it is arbitrary to frame the choice in those terms.

Let’s step back and look at the broader policy picture. We spend large sums on both (a) human capital formation/education and (b) subsidising and encouraging asset accumulation. So far as the former spend (education) is concerned the amount per person/student rises as we go up the age range from early years to higher education – despite the fact that we know we’ll get more bang for our buck if we spend the money earlier in people’s lives. And on the latter spend, the public subsidies to things like pension saving and ISAs go disproportionately to higher income groups. They barely help the really asset poor.

Against this background, I think we could afford, even in the present climate, both a CTF program and more early years spending in schools or pre-school. We just have to rearrange the priorities of the existing spend.

Are you really saying, Alix, that we just could not save a residual CTF by, say, cutting back on some tax relief to private pensions or for ISAs, schemes which demonstrably do less for the asset poor?

A final word, Alix, on the tonality of your comment. You say my post is ‘disingenuous’ because I don’t make a point that you think is important. But the point is, as I have just explained, one that I have responded to repreatedly in numerous articles and posts, here, there and everywhere, since the 2005 election. I really think that you might have the decency to actually look at what I have said in the round before you start throwing out accusations of disingenuity.

“Of course, I agree, IF we have to make a choice at the margin between those two things. But we don’t, and, as I have argued repeatedly in the articles I’ve addressed to the Lib Dems, it is arbitrary to frame the choice in those terms.”

You’ve not quite read what I said. I explicitly pointed out that I didn’t believe it was an either/or choice, but a matter of order of priorities. For the Lib Dems, I suggested, the CTF comes way down the list, to the point that scrapping it was considered a reasonable option. If you want to argue that it is wrong for the Lib Dems to take this view then you have, perforce, to make a comparative argument explaining why the items above it on that list of priorities (the Lib Dem list, note) are less important – be it within education, or anywhere else.

“Against this background, I think we could afford, even in the present climate, both a CTF program and more early years spending in schools or pre-school. We just have to rearrange the priorities of the existing spend.”

This is where you start to fight the right corner, in my opinion. You want rearranged priorities in the government as a whole, you argue actively for them, and you’ll find plenty of Lib Dems on your side. What you cannot do is what you’ve done, which is promote the merits of the CTF in isolation and implicitly invite us to conclude that the Lib Dem are nasty and horrid for not agreeing with you – that is arbitrary, if you like.

Of course, there are things the government is prioritising that you and I would happily agree should be cut before the CTF. Higher rate pension relief is a very good example, because it was in the Lib Dem manifesto. Marriage tax breaks would be another. There’s all kinds of things the Tories are prioritising that are just utterly wrong-headed to a Lib Dem, but that’s where we are. As it happens, I’d probably agree with you on scrapping tuition fees as well, but since they’ve been kicked into the long grass anyway that battle of priorities is not realistically upon us yet.

The trouble is, I just can’t see, from where we are, how one would ever put CTF funding before primary and secondary education, or to be honest even something like child benefit. An eighteen-year-old’s ability to utilise the CTF in a way that gives her maximum benefit from it is going to be shaped entirely by her education and home life up to that point. For as long as we’ve still got a significant way to go on both those goals, I’d find it difficult to rank CTFs any higher than they are now.

“But the point is, as I have just explained, one that I have responded to repreatedly in numerous articles and posts, here, there and everywhere, since the 2005 election. I really think that you might have the decency to actually look at what I have said in the round before you start throwing out accusations of disingenuity.”

Sorry, but this is just silly. This is the internet. You write an article, I read it and respond to the points it makes. No, I am not obliged by dint of “decency” to trawl through your previous collected works on the offchance that they might contain a response to a point I plan to make, if that point isn’t referenced in the main article.

30. Stuart White

Alix:

my point about your tonality and your comment about disingenuity is far from being silly.

Of course, you were absolutely entitled to comment that I had not addressed a specific point in the article you read. Of course I don’t think you have to trawl through everything I’ve written to say ‘But what about x or y?’

But your claim of disingenuity does more than draw attention to something missing in my article, doesn’t it? It attributes to me a very specifc intent or motivation in missing out the point you are concerned with.

And what I am objecting to, Alix, is the way you attribute intent or motivation to me on the basis of one article. You have no basis for that accusation on the article above alone, and so it is perfectly in order for me to say, in effect: ‘If you are going to attribute a specific intent to mislead to me you need more evidence – you need to situate this article in the wider body of what I have written.’

I am all for maintaining respectful dialogue with Lib Dems. But in your case, Alix, you are far, far too prone to reach for the rhetorical bluderbuss at the first opportunity and to insinuate that people you disagree with are scoundrels.

Its a bullying tonality, Alix, and it does you and your cause no credit whatsoever.


Reactions: Twitter, blogs
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