The end of the Child Trust Fund

May 24, 2010 by
Filed under: Politics, Public policy, The RSA 

One less publicised area of agreement between the Coalition partners was the plan to hammer home that they had inherited an economy on the verge of Greek style collapse and public finances managed by the political equivalent of Sarah Ferguson. I can’t blame them. Every incoming Government trashes their predecessor’s record and the effective absence of an official opposition makes this an open goal Salomon Kalou would find it hard to miss. By the time he or she is elected, the next Labour leader will find they are running a party deeply associated in the public mind with economic irresponsibility.

So, as a former Labour insider, I have zero credibility in bemoaning any of the Conservative Liberal cuts that are now being announced. But still I can’t help but be sorry to see the abolition of the Child Trust Fund, a policy I had a small part in helping to get implemented. The Conservatives had intended to means test the fund but the Liberal Democrats have long championed its abolition so this is another important victory for Mr Clegg.

As I say, none of us linked to the discredited ‘New Labour junta’ are in a position right now to criticise, but here are some minor points of which I hope ministers were at least made aware before they made their decision:

While changes in tax and benefits have meant income inequality has remained roughly the same over the last decade, asset inequality has grown enormously. Indeed an RSA audience was recently told by the social geographer Danny Dorling that the ratio between the wealthiest 20% and the most asset-poor 20% in London now stands at an unprecedented 2000:1. By giving every child, including the poorest, some savings and topping this up, the CTF was trying to make a small contribution to reducing asset inequality

While the CTF is being abolished the massively more expensive tax reliefs on middle class savings – private pensions and ISAs – are staying in place.

Although the CTF was fairly new as a policy – no 18 year old would have been able to access their account for another ten years – the policy had been gradually growing in public awareness. Most significantly there was evidence of low income families topping up the accounts, excited that for the first time their own children might get the kind of nest egg other teenagers take for granted.

Asset based welfare (the generic name for polices like the CTF) have often managed to get support across the political spectrum. Left of centre parties like the redistribution while right of centre ones like encouraging thrift and self reliance. Pragmatists on both sides were impressed by the evidence that having savings seems to do more for poorer people’s self esteem and sense of resilience than having an equivalent increase in income.

So it’s sad personally to see something of which I was very proud disappear. But much more importantly it also means that we will have to continue to reconcile ourselves to a large minority of the British people living without the realistic aspiration of ever having savings they can rely on in adversity or draw on to make a dream come true.



  • Tim B

    Let me be sure I understand here – you are borrowing money to set up a trust fund for each child, who when he or she grows up is going to have to pay higher taxes to reduce the debt caused by the borrowing incurred to provide their trust fund.

    How is this helping them?

  • cyberdoyle

    shame a ‘quite’ good thing went, but we can’t afford it.
    There is nothing stopping people saving. Time the nanny state butted out a bit and people learn to stand on their own two feet. My parents saved halfpennies. We as kids saved sixpenences. My kids saved 20ps. My grandchildren save pound coins.
    If you want something you can save for it, rather than expecting the government to pay for everything from birth to death. I agree it was a good idea to start off a savings account. But it is too expensive when the country is virtually bankrupt. maybe the kids could loan it back to government and get a better rate of interest, cos currently they are earning nothing and their savings like their granny’s are losing money?

  • Mike Ashwell

    Some people used this well and some people just didn’t need it – I hope that something more equitable emerges . . . . . .

  • Dipper

    Was that the scheme whereby the government takes about £300 of my money, spends a load on administration, then gives £250 back to my children in a form they can’t touch and that pays all the interest to some fund manager?

    Apologies if this policy was close to your heart, but this was the policy that finally made me lose faith with the Labour government. Lots of expensive micro-management that achieved practically nothing.

  • Dipper

    .” the ratio between the wealthiest 20% and the most asset-poor 20% in London now stands at an unprecedented 2000:1.”

    Reducing this ration is easy. London is the residence of choice for many of the worlds rich, as it offers political stability, personal safety, and unrivalled culture and entertainment. Driving away those people would reduce the ratio but do nothing for the poor.

  • phil h

    Child Trust Fund – too small to amount to an asset, too universal to be cost effective. These expensive token gestures need to go. The “asset” is far smaller than the child’s share of national debt. It’s like being a parent with £250.00 still left on the credit card limit but still using the card to buy the child an x box at Christmas.
    Still can’t understand how intelligent people can’t see the seriousness of the deficit and debt and the need to make deep cuts-no wonder the last government is so discredited.
    To acquire assets without hand outs you need one or more of the following: insight, innovation, ability to take risk.

  • Brian Hughes

    Very few votes to be had in reducing inequality alas. The beneficiaries tend not to be the sorts of people who pontificate in newspapers and phone-ins or even on blogs. And no one will benefit from the Child Trust Fund for many years; long-term policies, who needs them?

    It’s a shame that means testing has got such a bad press. It’s worked really quite well with Pension Credits but, again, the 2m or so who have benefited are amongst the most inarticulate in the land. So we hear much more from high-rate taxpayers moaning that they get slightly less tax relief on their pension funds than they used to. Inequality continues into old-age, yeah even unto the grave….

  • Matthew Kalman

    I noticed that the ‘Red Tory’ folks also think it was a big mistake to get rid of Child Trust Funds:

    ‘Why Axing the Child Trust Fund is Wrong’

    I must find out what Philip Blond and co are really all about now things have swung their way a bit; hmmm, where’s my copy of Prospect with the article that launched it all…?


  • Livy

    The Lib Dems’ manifesto had plans to abolish tax relief on private pensions and were quite keen on a mansion tax at one point. That’s all gone, and they may have to field some uncomfortable questions on why they no longer favour cutbacks on measures which entice people on higher incomes to save.

    I dunno… There are cheap political points being scored all round on this. From here on it will (ostensibly) be about what kind of people are getting the money, and Conservatives have been kicking around ideas for scrapping what they consider to be ‘middle class’ welfare for some time; the deficit makes them look pragmatic rather than ideological. Means testing child benefit will be next.

    @Matt K: Cheers, I hadn’t seen that. Philip Blonde’s early stuff read like economically vacuous, socially pious garbage…but I’ll give this a shot.


  • nigel rayment

    @ Tim B, In answer to your question, I don’t think your summary does quite grasp the fundamental point of the CTF, which is that it was a behaviour change programme, intended to encourage a savings culture. I think it requires a more sophisticated costs/benefits analysis than you imply.

    @Matthew, sure New Labour got a lot wrong, but now is not the time for those ‘linked to the junta’ to hold off criticising the toxic attacks upon its finer achievements. I hope that was only rhetoric!

  • Tom

    Several of the commentators above seem to take a very simplistic view of the child trust fund. Not only does it act as an incentive to save more, but it’s also redistributional. It’s like saying we might as well stop paying tax credits, since they people who receive them will just end up paying more to pay back the national debt.

  • JamieC

    I would echo the points of the last two commentators. The CTF was a small measure but it was also one that represented a chance to change some of the behaviour which has got us into the current mess! In ensuring that all young people would have a pot of money when they reached 18, it opened up the potential that children from some strands of society would be able to access opportunities otherwise out of reach.

    I know that as a parent of a young child (he’s received his first payment but won’t see the second one now!) it has encouraged my wife and I to create a DD putting money into his account every month – over 18 years this will create a useful sum of money for him to access.

    I also think that the change in government does not mean that somehow we have to accept the new mantra that everything that preceded the arrival of the Dave and Nick show was flawed or wrong. The Labour Government ran out of steam it is true, but the first term in particular witnessed some of the most crucial positive changes to the fabric of this country seen in a generation at least. In recovering from the defeat Labour does need to recognise and accept responsibility for its failures, but that does not mean that it should ignore the successes as well.

  • Dipper

    “I don’t think your summary does quite grasp the fundamental point of the CTF, which is that it was a behaviour change programme, intended to encourage a savings culture.”

    Is that the role of Government? To change the citizens’ behaviour? And is giving somebody someone else’s savings really the best way to encourage saving? If savings culture is important, then why not reimburse the Equitable Life Pensioners? And why have Quantitative Easing which bales out borrowers at the expense of savers?

    New Labour’s means-tested benefits resulted in enormous marginal rates of taxation for low-paid workers, and meant working was financially pointless for many people. It was as though the government hated the idea of workers being independent and did everything they could to force people to depend on the state.

    The next leader of the Labour Party should have a big sign in their office that says “Make work worthwhile”. Without that commitment to supporting working people many will not trust Labour again.

  • Livy

    ..And the cheap political point-scoring continues…

    Whether or not you like the Child Trust Fund as a policy is largely irrelevant.

    The real story here is how quick the ConDems were to bin the one idea that was actually relatively inexpensive and should have satisfied them on ideological grounds. What strikes me about sceptics on the right is that so much of their commentary since the financial collapse has centred around their belief that its root cause was personal irresponsibility and the danger of taking on personal debt in the absence of long term savings.

    And fine, there’s something in that – but they can’t have it both ways.


    So if I understand you correctly, we’re paying people to be poor; individuals will always make better decisions for themselves than government could ever suggest they make; and you don’t like being bribed with your own money.

    “Is that the role of Government? To change the citizens’ behaviour?”

    OK…but that’s not the reason they gave for scrapping the CTF, is it? I think you raise an important question and it’s where the conversation needs to go, but I would have more respect for politicians sharing your view if they had more respect for our intelligence and revealed their real motivation for taking action against the least well off.

    The only reason to shy away from a battle of ideas is if you fear losing it.

    I’m not sure we can link this to QE, come on, there were bigger economic issues at play and nobody wanted fist fights in supermarkets over the last bar of soap. In any case – ridiculous as it sounds – you’re either happy printing money or happy while denying that it is enough.


  • Matthew Kalman

    Dipper wrote:

    “It was as though the government hated the idea of workers being independent and did everything they could to force people to depend on the state.”

    This has given me an idea: I think that we can perhaps measure ‘workers’ independence’ using some kind of cognitive assessment. (For example Prof Kegan’s Subject-Object Interview, which can spot if people are shifting from conventional/conformist modes of thinking, to ‘self-authoring’ ways of mind).

    We could then set ourselves the task of assessing which public policies have a positive effect of increasing ‘self-authoring’, and which ones merely solidify passivity, dependence and conformism.

    I’m not sure who if anyone is looking explicitly at the whether different political policies help or hinder adult development – though of course many people are doing this intuitively, and with a rather rough and ready tacit model of what healthy worker development – ‘fufilling our potential’ – might be.

    But there are well-thought out models of how health adults can grow, and well thought out ways of asessing changes.

    I did come across one natural experiment – in Brazil? – where one half of a community was given property deeds (and responsibility) for their dwellings, and others half carried on – squatting? – as before. The cultural and values shifts were very marked in the one that had property deeds. Something like that, anyway.

    As with Matthew Taylor’s 21st Century Enlightenment – which ought to include empirical assessment of the modernist mindset and beyond – I think policies like the CTF ought to be empirically assessed for whether they encourage healthy adult maturation.

    The OECD has said that it’s vital that worker become ‘self-authoring’ – in order to thrive in the 21st century knowledge economy.

    Let’s start finding out which policies most help this goal… asap!

    [That said, I’m jumping the gun a bit as “Make work worthwhile” is a vital recipe just to get more people our of impulsive, hedonistic and predatory modes and into everyday conventionality and ‘being nice’. This would make all the difference in the world, in some parts of society]

    Just thought of a another – rather worrying – issue. Dipper says New Labour almost didn’t want worker to be independent.

    If that worker ‘independence’ might encourage them to vote Tory, then Labour would much prefer dependence, sadly. Even though those independent workers will later grow into post-conventional modes – and perhaps vote Labour or LibDem…

    I do hope that fostering such cynical dependence – and a rigid ceiling on people’s potential – isn’t ever the result of Labour policies. But you sometimes wonder… (Maybe this is an unconscious effect?)

    Jeez, maybe Labour’s mass immigration policy was just Westminster Council’s ‘homes for votes’ jerrymandering policy, but now on a national scale… ;-)

    Matthew Kalman

  • Tim Worstall

    “the ratio between the wealthiest 20% and the most asset-poor 20% in London now stands at an unprecedented 2000:1.”

    That is absolute nonsense. As I pointed out when the Hills Report came out…..even though their claim was the much more modest 100:1 ratio of the top decile to the bottom.

    For we all have an asset which is worth a considerable sum: the welfare state. Take, for example, a bottom decile household. As the Hills report tells us they get some £10 k a year in benefits. In London such a household would more likely than not also have a council tenancy. The rent subsidy to one of those in Westminster is around £20 k a year (for a 3 bed house).

    OK, very rough figures but that’s £30 k a year in income, convert to an asset at NPV and that’s what, £500k in assets courtesy of said welfare state?

    For the gap to be 2000:1 we would therefore need the assets of the top 20% to average £1 billion. Given that the country has a number of billionaires that might just require the use of toes as well as fingers to tot up this is clearly not true.

    What has been measured is the market distribution of assets. But, just as we do with income, we must measure the asset distribution after the things we do to change the market distribution. And we do many things to change that market distribution, collectively those things being known as the welfare state.

    Dorling is simply wrong on this.

  • Livy

    Well it is nonsense, and it isn’t. You’re talking about the difference between income and wealth inequality. ‘Assets’ here are meant in the slightly more literal sense of property and liquidity; soaring house price inflation, disproportionately skewed in the South East, can help to account for that crazy stat.

    There is a public intuition that traditional methods of reducing inequality, redistributive efforts, are either insufficient or undesirable. In 1997, 64% agreed with the statement ‘government is responsible for reducing differences in income’, but this fell to 43% by 2004. Either…we don’t like inequality but don’t want to pay the price to fix it, or we don’t like it but don’t believe it can be fixed through traditional means.

    Tim, I read what you wrote on the Hills report and remember thinking it was pretty decent, and fair enough, things like the the NHS and social care are benefits in kind. The ‘deciles of poverty’ have fallen like a house of cards over the past century by way of these social endeavours, but slightly unnerving for lefties is the sense that there are a couple of mini pyramids at the bottom super-glued to the table.

    Behaviour changing programmes could be the acetone for dissolving that super glue.

  • Matthew Kalman

    Hi Livy,

    You wrote:

    “Either…we don’t like inequality but don’t want to pay the price to fix it, or we don’t like it but don’t believe it can be fixed through traditional means.”

    I suspect that your either/or choice could need to be expanded a bit…

    Wouldn’t a conservative or a libertarian or an intelligence researcher – like Charles Murray – say that a great deal of research shows that people are unequal in their educational capacity (and hence their later incomes etc).

    And a meritocratic society will only exacerbate these ‘natural’ differences, leading to increased (unhealthy) stratification.

    Though I’m not sure if it would count as a non-traditional ‘fix’ for inequality, his answer – if I’ve understood correctly – is to say that the best thing to do is to try to create a society where everyone can have a valued role, not where so many jobs and services are allowed to inadvertently become so cognitively complex that only people like… er…. RSA members can do them… ;-)

    Whatever the merits of all his other stuff, I quite like sound of the idea of deliberately creating a society where everyone can fit in and play a role (described in a chapter titled ‘A Place for Everyone’) – not least as liberal folk just tend to assert that Murray wanted some kind of Nazi ‘custodial state’ which confined low-IQ people in camps, or suchlike.

    Which is actually what he was warning *against*, not what he was advocating (Malcolm Gladwell apologised after misrepresenting Murray in this way).

    Someone needs to get Robert ‘In Over Our Heads’ Kegan and Charles Murray to think together about what this better society could look like – as they presumably come from very different political outlooks.

    Matthew K

  • nigel rayment

    This is when blogs are good. Thanks you Livy and Matthew K – I’m learning stuff here.

  • Livy

    Hey Matt, how’s tricks?

    …Didn’t you and I already have this exact same discussion on Gladwell, Murray, the bell curve etc..? If I recall, it finished with both of us emboldening our original views, so I don’t’ want to sound like a broken record here.

    I’m working (or supposed to be) right now, so I’ll have to get into this properly when I’m home. I like your comments though so appreciate the comeback.

    You absolutely love Robert Kegan, don’t you?

    …OK briefly…It all depends what you mean by ‘educational capacity’, and you certainly don’t need to sell me on the overblown regard for traditional academic ability and what it means for somebody’s role in society. The amount of people who have qualifications in getting qualifications is shocking; highly regarded universities have lecture theatres filled with students who roll their eyes when told to read something bound with paper rather than electrons and most graduates can’t seem to calculate VAT.

    “Exacerbating the ‘natural’ differences” happens, for sure.. But are we happy when a guy with a mensa membership is driving a bus while somebody else who believes “Trident nuclear missiles are not weapons of mass destruction” can be a Member of Parliament earning 4 times his salary?

  • matthewtaylor

    This is a great thread. Sorry I’ve been too distracted by 21CE to join in. Obviously I side with those who emphasise the scope for CTF to create a savings habit. Interestingly the papers today talk of a backlash against slightly higher tax rates for high earner private pensions savings (imposed by Labour days before leaving office). It will be interesting to see whether – having removed the incentive to low income saving – the Coalition is robust in being as tough on incentives for the well-off.