Asset Building for Children: Creating a new civic savings platform for young people
Radical measures designed to free Britain's poor from the “debt serfdom” that has engulfed them in recent years are proposed today in a major new report aimed at reviving the savings culture.
The report highlights the chasm in assets that has opened up between rich and poor, pointing out that according to official figures, households at the top have 100 times the wealth of those at the bottom - numbers that dwarf differences in income.
It suggests that Britain has become more of a “plutocracy than a democracy” and warns that efforts to create a fair society with opportunity for all will founder unless urgent action is taken to address the asset gap.
The report, Asset Building for Children – Creating a new civic savings platform for young people, has been drawn up by Phillip Blond, Director of the think-tank ResPublica, who has emerged as a key policy guru to David Cameron and Sandra Gruescu, Head of the Children and Family Unit at ResPublica..
Key recommendations include:
• A new type of Asset Building for Children (ABC) account based on retaining the infrastructure of the Child Trust Funds scrapped by the new government
• A Reward Scheme to encourage saving with money off leisure facilities and new private sector incentives offered by the banks and saving providers
• An ABC Fund made up of voluntary donations by businesses, charities and well-off individuals to match ABC contributions from Britain's poorest households.
• Financial capability programme with the voluntary sector to improve financial literacy
The authors say in their hard-hitting report: “Too many Britons are trapped in a world of welfare and low wages, where owning little, they can change even less.
“And with minimal prospect of advancement for them or their children, it often appears as if we are creating and expanding a new servile class progressively and aggressively cut off from the world of assets and opportunity.
“These are the conditions that incubate the debt disease that has captured our culture (both public and private) and allowed our citizens to mortgage their futures and make fictional all their hopes and aspirations.
“Without assets, opportunity seldom knocks – wealth is what allows people to access opportunity and to advance up the social ladder. Locking people out of wealth and access to assets condemns them to debt serfdom where they must borrow to make ends meet and where futures are consumed by the demands of the present.
“If we are to create a genuinely free and fair society, then the language of equality and opportunity has to be matched by some chance of economic equity and some way that ordinary people can build a real stake in the world.
“We believe assets matter more than income, and we believe that asset inequality is the great driver of contemporary inequality and the true source of social immobility and debt dependence.
The report urges the Government to reverse its decision to scrap the infrastructure of Child Trust Funds, saying that while economic expediency can be used to justify ditching the half billion pound voucher scheme, there is no value in scrapping the principle that every British child should have a savings account.
The authors say that the Coalition should continue to set up the individual saving accounts for all young people, develop a ‘nudge policy' to boost savings and work with the voluntary sector to improve financial literacy. He concludes by saying that if these actions are taken then the coalition will, over time, help to create a more equal society.
The report argues that previous governments have failed to tackle asset inequality focusing on a narrow income threshold scheme. As a result asset inequality is worsening, with the top half of households now holding 91 per cent of all the UK's wealth and assets and the bottom half just nine per cent. This “ensures that the economic and social divides are maintained and indeed are passed on down the generations”.
The report says that the Government must shift its focus from income only policies and must concentrate on asset-building.
It argues that during its short life, the Child Trust Fund scheme has become the most successful savings initiative ever introduced in the UK. Covering 4.6 million children, in 2008/9 families saved around £2 billion in their Child Trust Fund accounts, with the average parental contribution amounting to £289 per year. He says that the Government should build on the success of this scheme rather, but take this opportunity to reform the inequalities that current exist.
As well as calling on the government to save the CTF infrastructure, the report sets out a radical set of policies aimed at encouraging savings in the poorest households.
The report recommends the creation of a new tax free savings account called an ABC account. That parents and carers would be encouraged to pay up to £1,200 per year into this account by a series of nudge polices, which might include discounts to local attractions and public transport.
It also recommends setting up an ABC fund to support Britain's 3.9 million children who are currently living in poverty. This fund would aim contribute up to £60 per year into each ABC account alongside parental contributions. This report prices this proposal at a maximum cost of £234 million, but says that voluntary contributions would struggle to attain this sum – reducing pensions tax relief or means testing child benefit, both of which benefit the already wealthy would however pay for this many times over, and this contributory element is vital if the ABC is to really help the poor
The authors add: “The Child Trust Fund scheme might be unaffordable in its' current form, but has been hugely beneficial to nearly five million children in helping them and their families to save. This is why I believe that the Government must keep the current savings infrastructure.
“Improving the historically low levels of savings in this country especially in the poorest households remains the most effective way to move our economy and society on from enduring wealth inequality; to restoring empowerment and citizenship and achieving a truly civic state. A new agenda of ownership extension is urgently needed. Implementing the ABC account and the ABC fund would be a good start.”
The main policies of Asset Building for Children include:
• A new type of child savings account or ABC account
• Every young person below the age of 18 on the 1st of April 2011 would have an ABC account opened in their name
• No restrictions on how the saving could be used once the young person turns 18
• A Reward Scheme to encourage saving including money off leisure centres
• An ABC Fund to match fund contributions from Britain's poorest household
• Allow children to share in the management of their account from 14 years of age
• Developing financial capability programme with the voluntary sector to improve financial literacy
• Using social media to encourage greater involvement in management of ABC accounts
Expert backing for ResPublica's report includes:
Professor Julian Le Grand, Professor of Social Policy at the London School of Economics and a supporter of the Save Child Savings Alliance, said:
“When it comes to social mobility, a lump sum asset is a lot more powerful than income in unlocking opportunities for youngsters as they enter adulthood. This is particularly vital for less well-off families to help give their children the best start to their adult lives. We must not allow what has been a successful start in fostering a savings culture for all to fall away from the most vulnerable in society.”
David White, Chief Executive of The Children's Mutual and a supporter of the Alliance, said:
"The Child Trust Fund ensured that every single newborn child in the UK had a savings account opened for them which they, and only they, could access at the age of 18. With ever increasing day-to-day demands on family savings and reports that university students face debts of £25,000 on graduation, it is critical that we explore ways to protect savings for our children. Whatever their background the next generation should not be forced to start adulthood saddled with debt or as a dependent drain on their parents."
For media inquiries, please contact Alistair Thompson of Media Intelligence Partners Ltd on 07970 162225 or 0203 008 8145 or Nick Wood on 07889 617003 or 0203 008 8146.