Supporting families fairly

While focusing state benefits would improve the opportunities of the most disadvantaged, writes Lee Clark, the Child Trust Fund should remain available to all.

Times are financially challenging and the government has tough spending choices to make.  The Chancellor showed in his pre-budget report that he was prepared to make tough spending choices with resources continuing to be directed towards the family.

Since the onslaught of the current economic downturn, the responsibility for the state to provide a robust fair and just settlement for those families most in need of financial support has been magnified.  It is imperative to stop the gap widening further between those who genuinely need state support to survive and those for whom state support is spent on topping up their lifestyle.

Two experiences with residents of my hometown with polarised educational and social economic statuses illustrate for me the real need to focus our energy on redirection of the state’s resources.  I asked a 37 year-old married mother of two from an affluent background what she spent her child benefit on.  She told me it sat in a separate account and was used as a savings vehicle to pay for her family skiing holidays.

Compare this to a young lady of 23, the head of a lone parent family with two children under 5, who raised a familiar problem with me: “I continue to work, but I am only £40 a week better off than I would be on benefits.”  I can’t tell you if her figures were correct, but the sentiment of her argument is one we hear on a regular basis.  She is keen to retrain in order to move into permanent employment which will allow her to better provide for her family.

Child benefit is currently paid on a universal basis.  If the mother of two had put the child benefit payments into a kitty from day one, based on a current payment of £20 for the eldest child and assuming a net return of 3% after inflation, with no increases the kitty would be valued in the region of £25,000 and in excess of £40,000 for two children with a savings period of 15 years.

When child benefit payments were first introduced over 60 years I am sure the architects of the welfare state did not envisage a time when it would be used to top up the lifestyle of the middle class and pay for luxuries such as skiing holidays.  A more focused redirection of universal state benefits would help to improve the opportunities for many from the most disadvantaged backgrounds.

The core issue which needs to be addressed is the phasing out of universal payments paid on a regular basis and moving to a system of rolling means testing for child benefit.  However, crucially, the Child Trust Fund (CTF) should be exempted from this policy.  We are all aware of the fluid nature of financial circumstances that many families face, and the size of CTF liabilities is minimal when in comparison with other child benefit payments.

Four and a half years ago, the CTF was introduced as a long-term savings and investment account for children.  As well as providing a tax-free haven for children’s savings, the CTF was introduced to encourage saving as a habit and as a tool to improve financial literacy among the nation at large.

Because of the CTF, an entire generation of children is growing up with a financial asset regardless of their own socio-economic status.  The CTF’s value as a tool for financial literacy should not be underestimated, as economic wellbeing and financial capability is now offered as part of the national curriculum.  All this points to a better financial future for our children, not only providing a head start for many of the most disadvantaged but also valuable life skills in how to make the right decisions to manage their money.

In September, George Osborne announced the Conservative Party’s plans to restrict CTFs to households with an income of less than £16,040.  This would mean that thousands of hardworking families could miss out.  At the same time he continues to push forward with the extension of the benefits of inheritance tax for the privileged few.  This reveals the Conservatives’ clear lack of engagement with ordinary working families and clear support for those from the socio-economic backgrounds prevailing on their own front bench.

It would be a terrible mistake if universal access were to be removed from CTF, as we would lose a significant opportunity to encourage financial probity among parents and children.  Only with long-term commitment to CTF will we see the scheme deliver the dramatic socio-economic impact it promises for future generations.