Speeches given at the Child Trust Fund 16th Birthday party at the House of Commons on Thursday 6th September 2018
A warm welcome, and thank you for joining us for this great celebration. There’s people from a great variety of backgrounds: government , including HMRC and DfE, educators, account providers, investors – and teenagers!
On 1st September, as the oldest Child Trust Fund recipient reached 16 years of age, a period of 11 years started during which over six million young people throughout the United Kingdom can benefit substantially. Let’s just put that number in context: it’s more than the population of Scotland, and about six times as many Junior ISAs as have been opened over the past eight years.
These fortunate teenagers already own their accounts, although huge numbers don’t know it: over one million accounts are ‘addressee gone away’: that’s roughly the same as the population of Wales.
The Child Trust Fund is one of the biggest opportunities, and challenges, in the field of personal finance today. As the centrepiece of Gordon Brown’s plan to encourage asset-based welfare, its objective is to establish a savings habit among children: providing a cushion of financial assets as they embark on adult life, and enabling them to be confident in the management of their finances. The scheme was designed to be both universal and progressive, and the Treasury minister who introduced it was Ruth Kelly, who went on to become Secretary of State for Education, and who’ll be speaking just after me.
Our analysis shows the current status of the Child Trust Fund in three key demographic segments: the wealthy, the middle and the poor. The numbers for the scheme for looked-after children now administered by The Share Foundation, are small in comparison.
The opportunity remains there to achieve those original aims. For over five million young people the best way to do this is for them to take responsibility for their account – as they are allowed to do - for the two years before they can access their money at 18, and to learn financial awareness first hand. Will parents and guardians enable them to do this, and will schools encourage it?
However there’s a challenge too. This is to re-link the huge numbers of ‘Addressee Gone Away’ - lost - Child Trust Funds. Over one million accounts are lost to the young person to whom they belong, almost entirely among the accounts which were opened on their behalf by HM Revenue and Customs, because parents/guardians had not done so within the first year of their birth.
There were 1.74 million accounts opened in this way and, in the case of families in receipt of Child Tax Credit, virtually all accounts were opened this way. What solutions can we put in place so that these young people do not continue to lose out?
The Share Centre and The Share Foundation have started a major campaign to re-link these lost Child Trust Funds using this poster, 20,000 of which have been sent to the 7,000 secondary schools throughout the United Kingdom, linked to HMRC’s ‘Find my Child Trust Fund’ facility.
But we need to do much more than this to re-link young people from the poorest homes.
Nearly 37% of the accounts for the most disadvantaged families – those in receipt of Child Tax Credit - are ‘Addressee Gone Away’. For these most disadvantaged young people that’s about 440,000 lost accounts now worth nearly £0.75 billion, including over £400 million from Government contributions.
Following its success in reconciling the Child Trust Fund scheme for children in care, The Share Foundation has put forward a proposal to Government to address this specific area which it hopes will receive attention in the November budget.
For those unfamiliar with The Share Foundation, we operate the Junior ISA and Child Trust Fund schemes for children and young people in care on behalf of the Department for Education, throughout the United Kingdom. As part of our work we have introduced an incentivised learning programme for young people in care, the ‘Stepladder of Achievement’.
The Share Foundation’s short video for local authorities explains how it works.
So we’re now asking the Government to introduce a similar programme to ‘Stepladder’ for 15-17 year olds in all families in receipt of Child Tax Credit. Publicised through the DWP benefits system, it would reward young people who make the effort to progress with additional money and, if the young person’s Child Trust Fund is ‘addressee gone away’ - as nearly 40% are - we’ll find the account as part of the programme.
We’re determined to ensure that the Child Trust Fund not only delivers its opportunity for financial capability, but that it also does so across all young people - including the most disadvantaged. Indeed at this stage we feel that it would be appropriate for the Department for Education to take more direct oversight of the scheme in conjunction with HM Treasury - as it is a tool for education for all young people, and schools should be playing a vital role in making it come alive.
After a decade of relative neglect, the years ahead are vital for achieving the original purpose of the Child Trust Fund, which affects so many young people.
And I am personally determined to ensure that, working with my colleagues in The Share Centre and The Share Foundation and beyond, the scheme does indeed make a significant contribution to breaking the cycle of deprivation in the United Kingdom, and to helping all young people to develop their potential in adult life.
Many thanks to the Share Foundation for organising this event today.
At the time it was introduced, the Child Trust Fund was seen as a new an imaginative way of encouraging all children and their parents to save for the future. It was to be both universal – a financial contribution from the Government for each child born from 1 September 2002 – and progressive – with a greater endowment for children from poorer backgrounds, with subsequent endowments when the child turned 7, 11 and 14.
The intention was that children would see their endowments grow over time, add their own contributions over time (or have them added to by friends and family), start to plan their future and then be able to invest in their talents and ideas when they turned 18.
Why was it so important?
Because wealth or assets are in many ways even more important in determining your life chances than income - as your total wealth better captures the resources that you have access to at any one time.
And not only that, but asset ownership or property ownership bring other important benefits to individuals – assets act as a financial cushion for when things go wrong, they enable you to cope more easily with large one-off costs such as a washing machine breaking down or a child needing a new school uniform. The result is that people feel able to take extra risks, such as starting a new business or undertaking more education or training.
One piece of evidence that I am very struck by comes from the National Child Development Study. This shows that adults aged 23 in 1981 who had received at least £5,000 at the time of the survey were twice as likely to be in self-employment as those who hadn’t received an inheritance (controlling for other factors. Indeed, research based on the same survey in 2001 suggested that holding a mere £300-£600 had a positive impact on health, the labour market and educational attainment.
Nothing on the scale of the Child Trust Fund had been tried before anywhere else in the world. I strongly believed then, and still believe now, that welfare policy cannot just be seen as meeting immediate needs – but that a longer-term view needs to be taken. Behaviour needs to be changed, confidence promoted and people’s individual talents backed.
So the Child Trust Fund was replaced by the Junior ISA under the Coalition Government, who were desperately seeking to find savings to bring down the rising debt burden. But one reason we are here today is to emphasise the fact that the need is still there. Wealth inequality fell for much of the 20th century, it is now rising again, and is set to rise further.
According to a recent report by the IPPR (Wealth in the 21st Century, Inequalities and Drivers, 2017):
Wealth inequality is twice as great as income inequality. The wealthiest 10 per cent of households own 45 per cent of the nation’s wealth, while the least wealthy half of all households own just 9 per cent.
The next generation is set to have less wealth, largely due to housing inequalities. Fewer than half of ‘millennials’ (those born between 1981 and 2000) are expected to own their own home by the age of 45, based on current trends. Every generation since the post-war ‘baby boomers’ has accumulated less wealth than the generation before them had at the same age.
Among the least wealthy half of Britain, the average household has on average just £3,200 of net financial, property and pension wealth. This compares to the £1.32m held on average by the top 10 per cent. The total wealth of the top 10 per cent of households is 875 times the total wealth of the poorest 10 per cent.
The need for action is stark. And for those interested in asset-based welfare we need to note that with over six million young people already benefiting from ChildTrust Funds - the next 10-15 years will be crucial in providing evidence that this model can work.