Tuesday 6 October 2009

Osborne pledges to cut the Child Trust Fund

Back in the day, the Conservatives always used to say that while Labour wanted to put wealth in the hands of the state, they wished to spread it amongst the people. Their goal, they insisted, was a 'property-owning democracy'.

In the past year, would-be 'progressive Conservatives' and 'Red Tories' have revived this tradition of Tory thinking, seeking to link Cameron's political project to a bold new agenda for spreading asset ownership through society.

In one fell swoop, George Osborne has revealed just how superficial and opportunistic Tory thinking on assets really is. Today Osborne announced that an incoming Tory government will abolish the Child Trust Fund for all children except those in the poorest third of households.

Under the Child Trust Fund, all children get a sum at birth which is held in trust for them until they are 18 - with a further state payment scheduled for the child's 7th birthday. The sum is £250 for most children, rising to £500 for children in the poorest third of households. Families, too, can contribute into the CTF to a maximum of £1,200 per year.

Osborne's proposal is to take the CTF away from the bulk of future children, leaving it as a policy specifically for the 'poor'.

The defence of this proposal presumably goes like this: 'Kids in the middle classes will get savings from their parents anyway. They don't need this help from the state. So let's limit the state assistance to those most in need.'

Well, I suppose this is better than the Lib Dem policy which would also take the CTF away from children in the poorest third of households (its what they call 'progressive austerity'). Nevertheless, Osborne's proposal remains a misguided policy for at least three reasons.

First, the assumption that the 'middle-class' parents will save anyway for their children is flawed. There is evidence which shows that the CTF has increased parental saving for children - in other words, that it has helped to prompt net saving on children's behalf. Part of the explanation for this may lie with one of those ideas that the Cameroonians were supposedly very keen on a little while back - the idea of 'nudge'. The presence of the CTF may help to 'nudge' parents into saving they want to make but which they might otherwise not make. Thus, by taking it away from 'middle-class' families, one might well discourage saving for children in this group.

Second, there is a well-known political dynamic according to which benefits for the poor tend over time to become poor benefits. By removing the bulk of families from the CTF, Osborne's plan will obviously diminish 'middle-class' interest in the program. The program will become politically more marginal and, thus, an easier prospect for further cuts down the line.

My third reason for rejecting the proposal arises from a basic difference of philosophical principle with Osborne and the Conservatives. I think all citizens have a right to a decent sum of capital on maturity. This right, as a right, should not be made dependent on their parents' decisions about whether, or how much, to save. The CTF embodies this principle, albeit modestly in terms of the amounts of resources going into the accounts as of right from the state. Abolishing the CTF for most children shows just how far the Conservatives are from accepting this idea of a right to capital as a right of citizenship. They want our life-chances to be more at the mercy of our parents' decisions.

'Property-owning democracy'? 'Ownership for all'? Time was, these were Tory and Liberal slogans. But it seems that Labour is the only one of the three main parties which really believes in them now.

1 comment:

Rajiv Prabhakar said...

So this is what progressive conservatism amounts to in practice. Taking away a modest grant that is provided to all children while at the same time raising the inheritance tax threshold that will benefit the wealthiest in our society.

Osborne’s promise to limit the Child Trust Fund chips away at the universal welfare state and points towards a means-tested and residual future. As Stuart White notes, benefits for the poor can quickly become poor benefits.

I’ve done research with parents on their attitudes to the Child Trust Fund. One of the main findings of this was a strong commitment to a provision of a Child Trust Fund for all. They felt all children should get something, irrespective of background.

This proposal also has implications for efforts to improve the financial capability of the young. Part of the purpose of the Child Trust Fund is to help young people learn about money in a practical fashion and in a way they are likely to find engaging. There are lessons at school on how to manage the Child Trust Fund. Evidence shows that the Child Trust Fund can help youngsters plan ahead, and planning for the future is a priority area. What will happen to the Child Trust Fund and the opportunities for learning under these proposals? Would lessons be restricted to only those with Child Trust Funds, or would they happen at all?