Wednesday 14 April 2010

Why cut the Child Trust Fund?

The Lib Dem manifesto is likely to get a warm response from many progressives who are currently disenchanted with Labour. And in some respects, deservedly so.

But let's not ignore the somewhat less progressive - indeed, less liberal - elements of the Lib Dem manifesto. These include the commitment to abolish the Child Trust Fund (CTF).

Historically, the Liberals were the party that called for 'ownership for all'. In the 1980s, along with their allies in the SDP, the Liberals were at the cutting edge of thinking about how to introduce a genuinely, fully universal capital grant for every citizen - to make wealth ownership truly universal and put real content into what Paddy Ashdown called 'citizens' capitalism'.

The CTF is the first policy by any UK government - and, so far as I am aware, one of the first policies anywhere in the world - to enact a universal capital grant. All children at birth get a sum from the government, topped up with a further payment at age 11. Familes can also save into the accounts. The money accumulates as the child grows up and is theirs to use as they please at 18.

The idea goes back to Tom Paine. In his Agrarian Justice, Paine called for everyone to get a capital grant on maturity so that he or she could 'begin the world'. And that's the idea. We all have a right to face our adult lives in a spirit of ambition. We all have the right to ask: 'What do I want to do with my life?' and to be able to explore this question in an ambitious way. Universal capital grants for all young people are a way of making this a reality - not just a reality for those who go to university, but for all.

Of course, the CTF as it stands is not perfect. The emphasis on family contributions risks inequality in assets at 18 unless government subsidises saving into the CTFs by low-income households. The state itself could put more into children's accounts, perhaps especially those from low income families, possibly linking this with a reformed inheritance tax.

But the order of the day should be to refine the policy in these ways, not to abandon it.

Yet the Lib Dems propose simply to cut it. The Tories also propose to cut it for about 2/3 of families, keeping it only for the poorer third or so. But the Lib Dems do not see any merit even in that. They propose to take the prospective asset out of the hands of even the children in the poorest third of familes.


So far as the Lib Dem manifesto is concerned it is a matter of having to make 'tough choices' on how we tax and spend.

But this doesn't answer the question: why cut this and not something else? Consider just two things the Lib Dems do want to spend money on and ask yourself if it is really fairer to spend money on these things or to keep the CTF.

First, phasing out tuition fees. Even with tuition fees, those going into higher education currently receive large public subsidies. Those young people who don't go into higher education seldom get a comparable resource boost in early adulthood. And young people in higher education come disproportiontely from high income families. Unsurprisingly, then, the benefit of cutting tuition fees will go overwhelmingly to the children of higher income families. This, indeed, is why the Lib Dem thinktank, CentreForum, recently called for the Lib Dems to scrap the policy of ending tuition fees.

Now to avoid confusion, let's bracket the question of whether, in an ideal world, we think free university tuition as such is good idea. Maybe it is, and, in the ideal world, we could have free university education and a generous CTF or something like it.

The question to put here and now, to the Lib Dems, is this: If, as you say, tough choices about tax and spending have to be made, why choose to scrap tuition fees rather than keep the CTF?

Or: Why use public monies that you say are so scarce to give an even larger public subsidy to a minority of young people, disproportionately from richer backgrounds, and pay for this in part by cutting a policy that would put an asset into the hands of all young people, including those from the most disadvantaged homes?

Why should the children of poor familes pay with a cut in their CTF for an even bigger subsidy for the children of middle-class professionals to go to university?

Second, let's return to the now infamous policy of spending £17bn on an across-the-board increase in the income tax threshold to £10,000. The Fabian analysis has shown that the lion's share of this spend (70%) will benefit households in the top 50% of the income distribution. Lib Dems reasonably point out that the distributive effect of their policies also depends on how they raise this £17bn. This is quite right. But one is still entitled to ask: Given that you have raised £17bn through specific tax measures, why then spend so much of it on a tax cut for the better off?

In particular: Why do we need to cut the CTF when we could fund it easily by redirecting just a fraction of that tax giveaway to people in the top 50% of the income distribution?

Yes, tough choices are in the offing.

But cutting the CTF is not a choice that a progressive government needs to make. Or should make.

1 comment:

Renideo said...

I accept fully that those in higher education come disproportionately from higher income backgrounds, but is this not just as much because those from higher income backgrounds perform better at school?

Giving low income individuals money does not solve their fundamental problem, which is reduced access to the chance to thrive. Improvements in education as it impacts lower income individuals, and in subsidised non-university higher education, apprenticeships and so on, seem like a more reasonable direction.

Though first, corrections in our education theory and administration are of course critical. The success of lower income individuals is hampered by path-dependent factors, such as home life and how their parents have lived their lives, and this can only be truly impacted, not by money, but by investing in educating a generation, here and now, to provide a better background for all our children. Long term income patterns, and indeed happiness, choice and human flourishing cannot be remedied by simply giving money to the poor without a mandate for its application.