Monday, 24 May 2010

Child Trust Fund: a great liberal policy killed by the Liberal Democrats

Its official. After a short interim in which newborns will receive a mere £50 or £100, the Child Trust Fund (CTF) is in effect to be axed. As of January 2011, there will be no further government contributions into any CTFs.

As Sunder pointed out in his post here earlier today, the Conservatives did not fight the election on a platform of completely abolishing the CTF. Their policy was to trim it back to the poorest families. The Lib Dems, however, have fought two elections on a platform of abolishing the CTF. The effective abolition of the CTF is, quite clearly, a Lib Dem responsibility.

Let us not be detained by the argument that this was a financial necessity. Despite being one of the most effective pro-savings policies ever introduced by a UK government, the policy is inexpensive. It could easily have been preserved with government contributions reduced but with a clear commitment to raise them back to present levels as financial circumstances allowed.

When the policy was first introduced, my wife, Kathy, discussed it with children in her classes at school - teenagers in a comprehensive school in Oxfordshire. The children were surprised and enthralled at the idea that the government might invest some money on their behalf. (They understood they were too old to benefit, but they had the ability to empathise with those future children who would benefit from the policy.)

My son's CTF will continue.

But I think it is a great shame that so many other parents and children in the future will not receive this simple act of affirmation. And that so many of these children will consequently lack the capital to launch ambitiously into their adult life.

The Lib Dems have had fair warning that abolition of the CTF is a deeply illiberal policy. I have argued this case in a range of contexts from multiple Next Left posts to academic articles in Public Policy Research and British Politics. The CTF was anticipated by policy thinking in the Liberals and SDP in the 1980s. It emerged out of academic efforts to think through the institutional implications of liberal egalitarianism of the kind articulated by John Rawls, Ronald Dworkin and Bruce Ackerman. It finally went some way to satisfy the call for the universalisation of asset ownership which we can trace back through generations of Liberals to the radical republicans of the Chartist movement and back further to Tom Paine.

I think it fair to say that at no point in these years have I received a single adequate reply to the arguments I have made against the Lib Dem policy.

Overwhelmingly, the response has been either silence - as when Nick Clegg ignored an open letter I sent to him on the subject - or embarassed acknowledgement that something was wrong. In private, Lib Dem policy wonks would look a bit bemused and sort of accept that, yes, perhaps, maybe the party's policy of abolishing the CTF wasn't right, but the party had to stick with it to 'make the figures add up' and that, 'after the election', there would be a rethink.

Some rethink.

When I have spoken at fringe events at Lib Dem conferences on this subject, I have found the audiences thoughtful and responsive. I have never had a sense that opposition to the CTF was a popular policy with the rank and file. The audiences I spoke to took my criticisms seriously.

And when I have challenged Lib Dem canvassers on the doorstep about the policy, I have met with a wall of ignorance: 'Oh, I didn't know we were doing that, I'll have to go away and look it up...' (canvasser hastily retreats...)

The CTF was one of the great liberal achievements of New Labour.

How sad that one of the first acts of the Liberal Democrats in government is to abolish it. What a self-inflicted wound to that old venerable Liberal ambition of creating a society based on 'Ownership for All'.

17 comments:

Paul said...

Excellent post Stuart.

I've heard rumours that David Laws made some remark to the effect that children would have to rely on their own trust funds [ie rather than the state's] from now on. If this is true, coming out of the mouth of a former investment banker sitting on a large pile of wealth to pass on it very much has the feel of adding gross insult to injury.

motsuka said...

The comment attributed to David Laws reminds me of a (New Yorker?) cartoon that used to hang on Jerry Cohen's wall in which a rich man meets and refuses a beggar's request with the words "Go inherit your own wealth!"

Mantiq said...

Great post but it hurts to read this.

I moved away from Labour during the Iraq war and I only started coming back very recently when I began to realise the services of Gordon Brown for this country. This is indeed one of his great endeavours for which I am already starting to miss him. My baby is nearly 7 months now. We first received the health in pregnancy grant for £190 and after his birth we received the Child Trust Fund. I can tell you it was one of the only times I felt the state was with us. It's not many times you feel the Governments' presence in your life in a positive way. It showed the commitment and personal relationship of the Government with your individual family. The new coalition seems as though it wants to disown you in that respect. This is a mistake, not only for the fact the families will miss out but also because people already mistrust the state for "not doing anything for me." Sadly, any future children I have will not benefit from this.

I can tell you that there were few times when I was more disheartened than seeing Tony Blair's behaviour when it came to foreign policy. On the other hand, some of the things that Gordon Brown did in terms of domestic policy bring a smile to the face.

People will soon start to regret the fact they voted Tory. I think admiration for Gordon Brown will only grow now that the media propaganda against him is settling, and that the true face of the Tory-Lib coalition is being unveiled.

Stuart White said...

Thanks all.

Mantiq: you hit something right on the head when you talk about how affirming the policy is - or was. Its a way in which the state says: 'We think you count - and to prove it we're giving you some cash to invest in your future.' That symbolic aspect of the policy was really important - and not in the least understood by the policy's critics.

STOTTYCAKE said...

Fantastic-got rid of useless CTF. Some parents may be responsible-in which case they will make sure their child saves for the future. Other children, will, when 18, have a great party and we will have all paid for it. We have to get real and start realising that we cannot afford all these extras until we have cleared our debts. Our children are going to have to pay higher taxes for years as a result of irresponsible spending by the last government-and in case you think I'm biased-I was a card carrying Labour party member until I found out how much we are in debt due to overspending on such things as CTF.

Tim Bailey said...

I'm not from the UK, and I've never heard of the CTF until now. So, the government outlay really was just GBP500 or GPB1000 in total? And this has been axed for budget-balancing reasons? By a party purporting to be Liberal Democrats?

What the hell is going on over there?

Ambitious Mamas said...

I am a Lib Dem supporter who is finding it hard to understand why CTF has been abolished. As an asset based policy instrument it would have done much for social mobility in giving young people some sort of financial means to begin life with. At the very least could it not have been means tested to obtain the maximum benefit of the policy objective-social investment as a way of tackling economic and social well being?

Sunder Katwala said...

Stuart

Thanks for the post. I very much liked Mantiq's comment, which also captured how this was a pro-family policy in a real and concrete sense, as well as an "opportunity for all" policy aimed at encouraging individual responsibility.

I was struck by the government saying that it will save £520 million by fully abolishing the scheme, only £5 million a year being administration costs.

The Guardian quotes David Laws saying this:

"As the chancellor indicated, we will pass legislation to end child trust fund payments and this will save £320m in 2010 and 2011, rising to £520m in 2011-12.

"From this August we will reduce contributions at birth and stop all contributions at age seven. And from January 2011 we will stop all contributions at birth. I know that this will be a disappointment to some parents but we need to be honest about what we are doing."

He said it was a "deception" to suggest that young people were being made richer by the scheme.

"By ending payments into this scheme we will also save the £5m annual cost of administering it."

Tim said...

Dear Stuart

There are many liberal reasons why we in the LibDems supported getting rid of the CTF.

First, it is someone fictitious to "give" people £500 or some such, while increasing the debt by the same amount (+1% to cover the admin costs). The debt, after all, has to be paid back by the same people. If you like, I will give your kids £500 now, if you agree to send me £505.

Second, asset based welfare is only a viable policy is the asset is meaningful. £500 is not going to transform anyone's life.

Third, we know that the biggest obstacle to kids from poor backgrounds doing well economically is not that someone fails to give them £500 once, but that after 13 years of well-intentioned Labour governments schools still fail these kids over and over again. Let us have a properly funded pupil premium. £0.5bn on that would be money well spent.

As a liberal, my only regret is that CTF abolition is not retrospective. My daughter got her seven year old's top-up recently. I wish the state would confiscate it, and reduce the debt that she and her peers will have to pay.

Best wishes, as ever -

Tim

Tim Bailey said...

I wonder if something like the CTF could be funded by abolishing the monarchy and confiscating their assets for a purely public use (such as a trust for youth turning age of majority)?

Just sayin'...

Chris Brooke said...

Hi, Tim,

You give three reasons here to explain Lib Dem opposition to the CTF, but I'm not sure how strong any of them are.

It's true that the policy is being abolished now, in the context of the present deficit. But the Lib Dems also called for the abolition of the CTF in their 2005 manifesto, when public finances were not under anything like the present strain. The Tories may have consented to go beyond their manifesto commitment and consider the abolition of the CTF because of present circumstances. But the Lib Dem opposition seems to run deeper than that - and, as Stuart has argued for a while, this continues to be puzzling, insofar as the policy clearly exemplifies the values implicit in a deep strand of the Liberal Party's political thought throughout the twentieth century.

You say that "asset based welfare is only a viable policy is the asset is meaningful", and that "£500 is not going to transform anyone's life". It's true that the CTF isn't on the scale of, e.g., the Ackerman 'stakeholder society' proposals (which remain utopian). But - first - the asset is going to be considerably more than £500 by the time the child reaches 18, partly because the people who need the asset the most will have been getting the further £500 supplement, and partly because of the options for others to invest in the child's trust fund. And - second - it's odd to complain of a modest policy (which the CTF is) that it only delivers modest outcomes. A modest outcome, if it's worthwhile, is still far better than no outcome at all.

Third, you mention the possibilities of additional funding for schools. But I wonder whether this is to mix up policy areas. The CTF is about providing state support for young adults; pupil premiums and the like are aimed at children. If you think, in general, that resources aimed at the former should be redirected to the latter, then perhaps that's got something to be said for it -- but it's an odd argument for a Liberal Democrat to make, since the party was also committed in its manifesto to phasing out higher education tuition fees, in effect granting a large additional state subsidy to students (who are much more likely to be from comparatively well off backgrounds) at the expense of the beneficiaries of the CTF (who are much more likely to be comparatively less well off backgrounds).

All this is simply to recycle Themes from Stuart White, of course, so it's worth pausing at the end of this long comment to salute Stuart's excellent work over the years on - and on behalf of - the Child Trust Fund, as we share his deep disappointment at the policy's premature demise.

Stuart White said...

Chris: many thanks!

sanbikinoraion said...

Stuart,

You mention Bruce Ackerman but leave out Anne Alstott, who *literally* co-wrote the book on the subject with him. Why is that?

Stuart White said...

sanbikinoraion: when I wrote the above I was thinking about liberal egalitarianism as a general philsophy and I had in mind what I see as the 'big three' works of contemporary liberal egalitarianism: Rawls' A Theory of Justice, Dworkin's Sovereign Virtue and earlier, related essays, and Ackerman's Social Justice in the Liberal State. But of course you are right that the book that set out a concrete plan for a 'stakeholder grant', rather than just defending the philosophical principles behind it, was co-authored by Bruce Ackerman and Anne Alstott.

Quinn said...

Tim said...

"If you like, I will give your kids £500 now, if you agree to send me £505."

Thanks, but since £500 after 18 years of investment is likely to be worth more than £505, I think I'll decline your kind offer.

But if you could see your way clear to give me the £250 that my 7 year old received but which my 3 year old will be denied, then many thanks.

Daragh McDowell said...

I'm a Lib Dem voter and disappointed by the scrapping of CTF - I certainly know plenty of people for whom the knowledge that their children will have a stepping stone towards financial independence at age 18 would be welcome.

BUT - its crisis time. I'm afraid the last team threw so much money away that we don't have enough even for great programmes like this. So I'm disappointed that the money isn't there, but my disappointment is with Brown, not Laws.

Stuart White said...

Daragh: I'm sorry but your comment is just an evasion of responsibility.

The CTF only costs around £350 million at present and it would have been possible to cut spending on it by up to 50% and still preserve the policy in its essentials. And many people were offering the government detailed plans on precisely how to do that. To pay for the remaining CTF the government could easily have scaled back on the very generous subsidies it gives to other forms of saving, e.g., ISAs and personal pensions. Or do any one of sundry other things....