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Asset Building for Children: Creating a new civic savings platform for young people

Publication Details

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 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 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 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
  • Sandra Gruescu

    Contributing Author

    Dr Sandra Gruescu led ResPublica’s work around children and families policy from January 2010 until August 2011.  She co-authored ‘Asset Building for Children’ with Phillip Blond, published in Autumn 2010. She was previously a senior research fellow at the Social...

    Sandra Gruescu
  • Phillip Blond

    Director

    Phillip is an internationally recognised political thinker and social and economic commentator. He bridges the gap between politics and practice, offering strategic consultation and policy formation to governments, businesses and organisations across the world. He founded ResPublica in 2009 and...

    Phillip Blond