Monday, 7 September 2009

A future for the Child Trust Fund?

Will the Child Trust Fund (CTF) survive the new era of fiscal austerity? Does it deserve to?

A recent post at the IFS website by Carl Emmerson highlights the potential vulnerability of the CTF - and also a vulnerability in the case against the CTF.

Carl's argument is basically as follows: (1) cutting the CTF will cause some harm to the interests of today's/future children; (2) but we would probably do more damage to their interests if we were to cut income transfers or public services to children by an amount equal to the cost of the CTF; (3) therefore, on balance, we do least damage to these children by cutting the CTF; (4) so let's cut the CTF.

Of course, in a short blog post one could hardly make a conclusive case against the CTF, and Carl's language is appropriately tentative.

But its worth underscoring the limitations of the argument, so far as it goes. (I assume here that we have to cut some things and cannot deal with the deficit only by raising taxes.)

In essence, Carl is reproducing the Lib Dem rhetorical tactic of arbitrarily framing the issue as one of the CTF versus other forms of spending on children. The framing device is arbitrary because it excludes from consideration, without any reason, all kinds of other expenditures which CTF is also relevantly 'in competition' with.

To explore the advisibility of the CTF in a less arbitrary fashion, we would have to pose at least two questions (more explicitly and more broadly than Carl does):

Question 1: How fair is the distribution of public spending across different age-groups?
Question 2: How fair is the distribution of public spending within given age-groups?

The CTF is really a form of public spending on young adults in the sense that it is intended to provide a particular benefit - independent capital - for people in early adulthood. Carl's point is that we may well get a bigger bang for our buck in terms of social justice if we cut this spending on (future) young adults in order to maintain spending on children. So he is pressing a criticism that is related to Question 1 above - suggesting that it is fairer to shift an item of spending directed at young adults towards children.

But now that we have identified Question 1, why not open it up more generally? It is, as suggested, arbitrary just to look at what we are spending on young adults and children. What about, say, public spending that primarily benefits the elderly? Are we sure that the overall division of spending as between children and young adults on the one hand, and the elderly on the other, is fair? Concretely, is it fairer to maintain spending on children by cutting the CTF or by cutting an equivalent amount from what we spend on the elderly?

We also need to bring Question 2 into the discussion. In identifying the CTF as a potential cut, Carl is focusing on only one item of spending that is intended to benefit young adults. He ignores other, much more significant items of spending on young adults, such as higher education subsidies. But this is to side-step another important question of fairness.

When CTF accounts mature, they will provide benefits to all young people, including the most disadvantaged. Higher education subsidies, by contrast, tend to provide direct benefits for only some young people - and they tend to be those who are already advantaged in terms of potential marketable talent and/or social class.

So if we were seeking a fair distribution of public spending on young adults, would we maintain higher education subsidies at the expense of a policy like the CTF? Concretely, turning back to Carl's concern, is it fairer to maintain spending on children by cutting the CTF or by cutting some other item of spending aimed at young adults, such as higher education subsidies?

Of course, even when these wider questions are made explicit and properly considered, it could still turn out that the best (least damaging to social justice) cut is to CTF. But that is very far from obvious. At first sight, means-testing some benefits to the elderly (e.g., free bus passes) and reducing higher education subsidies strike me as likely to be less damaging cuts to social justice than cutting the CTF.

If the CTF is to get a fair hearing, we must at least insist that its merits are considered in relation to all the relevant items of spending it is competing with. We must protest at the arbitrary way in which the issue is often framed, not only in Carl's post but by influential politicians.

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