“Establish a savings habit among children: providing a cushion of financial assets as they embark on adult life, and enabling them to be confident in the management of their finances.”
HM Treasury’s Child Trust Fund Objective
Today is a major landmark in the journey towards intergenerational rebalancing: the oldest recipients of Child Trust Funds get access to their accounts on reaching adulthood. For the next eight years, an average of two thousand young adults will be able to benefit every day from Gordon Brown’s major strategic initiative.
The BBC has caught the moment perfectly: but don’t read the UK Sunday broadsheets to get any sense of the importance of this anniversary. Their front pages mirrored each other in scaremongering their diminishing audiences with headlines such as: ‘Triple tax raid on the wealthy’ and ‘Bombshell tax hikes to pay for virus’. The only considered piece on this landmark occasion was Paul Johnson’s article in Monday’s Times Business.
So, in this commentary we explain why the Child Trust Fund anniversary is so important, not only for young people in the United Kingdom but also the long-term stability of the free world.
In 1987 I wrote to the then Prime Minister, Margaret Thatcher, proposing a new approach for intergenerational rebalancing called ‘Popular Inheritance’. It envisaged using the proceeds of Inheritance Tax as a levy to fuel a starter capital account for young people: so that what was privately-owned capital would remain as such, but be distributed across all young people rather than being squandered as current public expenditure.
I received a full reply, although no action was taken at that stage. When the Labour Party took the reins of power ten years later, I wrote again to the new Chancellor Gordon Brown - the same proposal, but this time entitled ‘Youth Legacy’. As usual with HM Treasury, I received a non-committal reply, but in Budget 2001 he announced the Child Trust Fund.
These are individual investment/savings accounts opened for every child born in the United Kingdom within one year of their birth: 6.3 million were opened with £3.3 billion of Government contributions between 1 September 2002 and 2 January 2011, when the incoming coalition Government stopped making contributions, thereby closing the scheme for new accounts.
Since then, the aggregate value of accounts has risen to £9 billion, with roughly half of the increase coming from additional family contributions and the other half from investment growth: and because the default arrangement was for the accounts to be invested in the stockmarket, over 80% shared in that investment growth.
Why does this matter, you may ask? For those families wealthy and experienced enough to set aside their own savings for children and grandchildren, it doesn’t matter. But that’s barely 20% of all families, as the ONS wealth data shows (scroll down to Figure 5).
Where it matters is therefore giving a small starter capital account, and the opportunity to learn about how investment and savings can provide a degree of economic freedom, to huge numbers of young people with no hope of inheritance. Not surprisingly, this has completely passed by the Sunday broadsheets.
It matters, because if we can show over the next eight years that having a Child Trust Fund can materially improve the life chances for young adults, we can argue strongly for re-introduction of a more targeted scheme both here in the United Kingdom and overseas. In a world where the proportion of disadvantaged young people is so high and wealth is so concentrated in the old baby boomer generation, this matters.
So we have made a new proposal for intergenerational rebalancing, combined with The Share Foundation’s strategy of incentivised learning: we’d like to see a new Child Trust Fund (or whatever HM Treasury chooses to call it) targeted specifically for those with no hope of family inheritance, and started with £1,000, with an additional £1,000 at age 7, then – critically- with £3,000 more to be earned between ages 15 and 17 as a result of progressing through a programme of life skills and financial awareness.
The Share Foundation already provides incentivised learning for young people in care, who can earn an additional £1,500 in their Child Trust Funds by taking the six step ‘Stepladder Plus’ programme. It’s already in operation in 20 local authorities throughout the United Kingdom, and the contrast in progress between the incentivised and standard versions is dramatic. Incentivisation builds a real sense of ownership and accountability.
It’s clear that a debate is underway between No.10 Policy Unit and HM Treasury concerning fiscal strategy. While the latter is evidently exploring tax rises, No.10 is looking for more strategic approach to economic management. Hopefully our proposals for Bank of England cancellation of Government debt holdings will remove the need for a short-sighted resort to swingeing tax rises, which would result in many entrepreneurs moving overseas.
But I also hope that No. 10 will look seriously at the re-introduction of targeted starter capital accounts, which could bring hope and opportunity to millions of young adults over the years ahead.
These proposals are now combined as an online slide display on egalitarian capitalism and intergenerational rebalancing, which you can access via www.shareradio.co.uk/EC. This package of proposals, many of which have been brought forward in these commentaries over the past couple of years, could help re-establish democratic capitalism so that all can benefit as we emerge from the shadow of the virus emergency, and anchor its stability for coming generations.
As the slides show, there are two key elements: capital participation for all and intergenerational rebalancing. From today we will start to see how the latter can be achieved, thanks to the Child Trust Fund.
Gavin Oldham OBE