Memorandum submitted by Child Poverty
The child trust fund (CTF) will benefit
some lower income households, however those families who are at
greatest risk of living in severe and persistent poverty also
face greater barriers to contributing to the CTF. Children who
would benefit most from having savings and assets may derive least
financial advantage from the scheme.
CTF will not assist in the eradication
of child poverty because it is available only to young people
when they reach the age of 18. The CTF offers no increase to the
incomes of poor families whilst their children are actually growing
up. Access to their CTF when they are 18 will not redress educational
disadvantages, stigma or social exclusion experienced during childhood.
Income adequacy is an essential pre-requisite
for the accummulation of assets, but there is little in the new
scheme to help low income families save for the future.
For families on very low incomes,
attempts to save will further sap inadequate incomespotentially
at the expense of essential spending on childrenand may
draw them into debt. Furthermore, low-income families could be
actively excluded from many financial services because high levels
of debt may result in a low credit score and/or because products
are not advertised in poorer areas.
Poorer children who move in and out
of poverty but fall just above the threshold for an additional
endowment, and whose parents cannot make extra contributions,
will receive least when they reach 18.
Given the marked disparities between
beneficiaries of the CTF in higher and lower income families,
it is unlikely to redress inequality or increase social mobility.
Asset-based welfare policy should
be explicitly redistributive. The state must ensure that both
inputs and outcomes are pro-poor. And yet the research base on
the efficacy of asset welfare is poor compared to other forms
of spending. It is important that the Government monitors saving
rates and fund growth amongst poor and socially excluded families,
and the impact this has on their current income and wealth levels.
The intention of this submission is to provide
a broad policy critique from a child poverty perspective. Our
specific recommendations and a full briefing on the child trust
fund can be downloaded from CPAG's website, http://www.cpag.org.uk/info/briefingspolicy/ChildTrustFundCPAGbriefingpaper.doc
1. As an organisation campaigning to eradicate
child poverty CPAG recognises the importance that the child trust
fund (CTF) holds within Government policy
and welcomes the progressive element within the endowments.
2. CPAG agrees that, in an increasingly
affluent society it is wholly unacceptable that low income families
and their children are excluded from the accummulation of capital
and from the sense of financial security and social and educational
aspiration that assets provide. For the UK's future social and
economic success it is crucial life chances are improved for the
poorest children and that the UK should become a more socially
3. However, we have reservations about a
scheme which we fear will not improve the financial position of
children living in poverty whilst they are childrena key
driver of lower aspirations.
4. The Government has improved the financial
situation for lower income families but there is a long way yet
to go before day-to-day incomes are sufficient for a scheme like
the CTF to work in the interests of the poorest families. A secure
and adequate income is an essential prerequisite for the accumulation
5. CPAG is concerned that families who are
at greatest risk of living in severe and persistent povertywho
would benefit most from having savings and assetsmay be
unable to contribute to the CTF.
3. CHILD POVERTY
6. The current Government has done much
to raise the profile of poverty and to develop and implement policy
to tackle it. Policies have reduced the child poverty rate, yet
latest official figures show that 3.5 million children28%lived
in a low income household in 2003-04. The
Government accepts that living in poverty is associated with both
a poorer experience of childhood and poorer outcomes. Tackling
child poverty must be the primary policy concern.
7. CPAG would like to emphasise that, although
the CTF is being presented as part of the Government's strategy
to eradicate child poverty
it will not benefit children; it is for people aged 18. We are
concerned that asset based welfare may be an unhelpful distraction
from crucial consideration of income adequacy.
8. Further progress on the reduction of
child poverty can only be attained if the incomes of the poorest
families and their children are increased by improving the value
of employment and increasing financial support for children and
their parents. 
9. Although CTF will benefit some lower
income households, families who are at greatest risk of living
in severe and persistent poverty are the least likely to be able
to make additional contributions to the CTF. Private contributions
of £1,200 per year will quickly overtake the £250 top
up aimed at the poorest.
10. Ongoing problems with the administration
of tax credits, and the much publicised inadequacies of the Social
continue to blight families' lives. CPAG believes that it would
be more appropriate and more effective to divert additional funds
and administrative time and energies to improving elements of
provision that are designed to support low income families rather
than on a scheme which may disproportionately benefit higher income
11. The research base on the efficacy of
asset welfare is poor compared to other forms of spending. It
is important that the Government monitors saving rates and fund
growth amongst poor and socially excluded families, and the impact
this has on their current income levels. Asset-based welfare policy
should be explicitly redistributive. The state must ensure that
both inputs and outcomes are pro-poor.
12. Although the Government will provide
additional endowments with more for poorer families, in order
to get the most out of the CTF families will have to take maximum
advantage of the opportunities to top up their child's fund.
13. It is not clear that the CTF will facilitate
social mobility. It may create wealth disparities which will compound
financial, social and educational inequalities and may exacerbate
problems with "transmitted" disadvantage and low social
mobility when children reach 18.
14. All investments carry a financial risk
that better-off families may be better able to cope with, but
may prove devastating for low income families who do not have
any financial security nets. Lower income families may not avail
themselves of potentially profitable but risky schemes.
15. The availability of equity based schemes
varies. Low-income families who are already excluded from financial
services which are usually directed at more profitable customers,
may be excluded from the best CTF schemes because of a poor credit
score, or products not being advertised in poorer areas.
5. INCOME ADEQUACY
16. There is a direct link between inadequate
incomes and a low accumulation of financial assets. And yet the
Government states that it might be more beneficial to invest in
asset-based welfare than increase income support or child tax
credit, on the grounds that assets have an "independent effect
on individuals' life chances and attitudes, above and beyond such
factors as their social class background of educational achievement."
as discussed above, this finding has been questioned by research
published by the Department for Work and Pensions
which suggests that income inadequacy currently acts as a powerful
barrier to equality of opportunity.
17. Although income adequacy is an essential
pre-requisite for the accummulation of assets, there is little
in the new scheme to help low income families save for the future.
Indeed, for families on very low incomes, attempts to save will
further sap inadequate incomes and may draw families into debt.
People living in low income households cannot, and should not
be expected to save out of incomes that are already too low to
6. SAVING ON
18. There are not only serious differentials
in potential financial outcomes from the CTF, but the process
of saving places a disproportionate burden upon parents from different
income levels. Although the maximum contribution of £1,200
constitutes a significant proportion of income in households reliant
upon income support, richer children are more likely than poorer
children to have relativessuch as grandparentswho
are in a position to contribute to their CTF without incurring
major financial hardships; poorer children tend not to have rich
19. The poorest children may actually be
damaged if their parents attempt to save out of inadequate incomes,
leaving less to spend on them throughout their childhood. It may
sap resources for current and ongoing family needs, which could
have a negative impact on children's health and levels of social
inclusion in the short term and upon educational outcomes in the
long term. It runs counter to policy to eradicate child poverty.
20. The Government argues that the CTF will
help to promote "inter-generational mobilityextending
to the children of lower-income families the opportunities that
might be taken for granted up the income ladder"
We fear that, for some families the CTF may consolidate or exacerbate
existing financial inequalities.
21. The main financial beneficiaries of
the CTF will almost certainly be better-off families for whom
the accummulation of assetsbe they stocks and shares or
housingis already more common. Such families need little
incentive to save, nor are they short of the finances necessary
to do so. There will also be disparities amongst low-income families,
some of whom may have relatives who can contribute, others who
22. The poorest and most disadvantaged childrenwho
would derive particular advantages from having access to savings
and assets when they become 18, but whose parents cannot contribute
to the CTFwill find themselves significantly worse off
relative to their peer group when they receive their CTF. We are
also concerned that the CTF may be targeted when a child reaches
18 (for example for university top up fees or rental deposits)
which raises the question of what happens to those whose funds
are worth less lower the typical value.
8. SOCIAL STIGMA
23. The Government argues that "the
CTF could also be used to link into broader social concerns such
as civic responsibility, community service or educational achievement."
believes the CTF will be particularly effective in boosting aspirations
amongst poorer children who are severely disadvantaged by social
and financial exclusion. However, if poorer children are aware
that their CTF is doing significantly worse than their richer
school friends, it may have a negative impact on their self-esteem,
their educational attainment levels and generate lower expectations
of themselves generally. It could lead to children being stigmatised
and bullied in schoolsparticularly if teachers discuss
CTFs insensitively as part of "financial education"
and children compare how their CTF is doing in both the classroom
CPAG is the leading charity campaigning for
the abolition of poverty among children and young people in the
UK and for the improvement of the lives of low income families.
CPAG aims to: raise awareness of the extent, nature and impact
of poverty; bring about positive income policy changes for families
with children in poverty; and enable those eligible for benefits
and tax credits to have access to their full entitlement.
2 Child Poverty Review, (HM Treasury, 2004, para 4.40. Back
National Statistics, Households below average incomes an analysis
of the income distribution 1994-05 to 2003-04, Department for
Work and Pensions, 2005. Back
Child Poverty Review, HM Treasury, 2004, para 4.40. Back
Steps towards this are detailed in CPAG, Ten steps to a society
free of child poverty, 2005. Back
See for example Howard, M, Lump Sums Roles for the Social Fund
in Ending Child Poverty, (Child Poverty Action Group, Family Welfare
Association and One Parent Families, 2003); see also a recent
National Audit Office analysis, NAO, Helping those in financial
hardship: the running of the Social Fund, HC 179 Session 2004-05,
January 2005. Back
See Haurant, "Child trust funds `will benefit better off'
in The Guardian, 15 December, 2003 "Child trust funds . .
. may in fact be of most use to well-off parents, MPs concluded
See, for example, Stephen McKay and Elaine Kempson, Savings
and life events, DWP research report 194, 2003. This report
"investigated how the level of savings affects people's later
living standards and opportunities", and considered the "asset
effect" identified, for example, by J Brynner and W Paxton
(The asset effect, Institute for Public Policy Research, 2001).
The researchers "found no reliable effects of assets on life
outcomes", p 63. Back
Emmerson, C, Wakfield, M The Saving Gateway and the Child trust
fund: Is Asset-based welfare "well fair"? Institute
for Fiscal Studies, Commentary 85, 2001 p10. Back
Stephen McKay and Elaine Kempson, Savings and life events
(DWP research report 194, 2003). Back
Savings and Assets for All, HM Treasury, 2001, p 1. Back
Savings and Assets for all, HM Treasury, 2001, p 19. Back