By: Julian Le Grand
April 27, 2010
Confining CTFs to the poor would be divisive, and would result in low take-up and stigma, says Julian Le Grand
Almost the only time that ITV's real-time popularity rating on Nick Clegg's performance during the first prime ministerial debate took a downward turn was when the Lib Dem leader attacked the child trust fund (CTF).
Yet the CTF may not survive the general election. The Liberal Democrats want to abolish it, the Conservatives have proposed limiting it to the poorer sections of the population, and only Labour is committed to its retention as a universal benefit.
That all young people should set out on their adult lives with an endowment of capital was an idea I put forward in the early 1990s, and again in 2000.
The Institute for Public Policy Research also developed the idea of a "baby bond", given at birth, and Tony Blair's Labour government took up the proposal, opening child trust fund accounts with seed money of £250 for every child born in the UK since 2002, and adding £250 to those from less well-off families. Subsequently, there have been extra payments for children with disabilities and for all children on reaching seven years old.
Many of the arguments for the CTF were economic: raising saving rates, and encouraging financial literacy and responsibility. But the real drive came from its social potential. Longitudinal studies showed that young adults with a small amount of capital at the beginning of adulthood had a significant advantage 10 years later over those who did not, enjoying more employment, higher earnings and better health - even when factors such as income, family background and education are taken into account.
This did not surprise the psychologists and sociologists. The ownership of even a small amount of capital assets encourages people to invest, to save, and to think about the future. More generally, it gives people a psychological and economic independence of position and thought. As the US academic Michael Sherraden has put it: "While incomes feed people's stomachs, assets change their minds".
Confining CTFs to the poor would be divisive, and would result in low take-up and stigma. A universal endowment is a badge of citizenship. On reaching 18, all young people get the vote. Having access to a capital endowment at the same age gives them social power and responsibility.
The CTF is not expensive: it cost around £250m in 2008/9, rising to £520m in 2010/11 due to payments to seven-year-olds and payments to children with disabilities. This is a tiny amount, compared with most items of government spending. In fact, it is just over half of 1% of the £84bn to be spent on education on 2010/11.
However, if it is felt that the CTF ought to take its share of cuts, it could be reduced without losing its essential character. If, for instance, the extra payments were stopped, then the total yearly cost could be reduced to £200m - as much as the NHS spends in 20 hours.
Axing the CTF would be a major mistake, both socially and economically. So would confining it to the poor. It should not be sacrificed on the altar of short-term expediency.
Julian Le Grand is Richard Titmuss professor of social policy at the London School of Economics.