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A consumer&#39s view

The Government&#39s proposals to introduce child trust funds and the savings gateway will provide a welcome boost to IFAs who will, no doubt, find wealthier clients wanting advice on where to put this free handout from the Government.

The irony is that, as always, those who will do well will be the wealthy rather than the poor. But that was ever the case.

Autif has come up with some very sensible suggestions which, hopefully, the Government will take on board. First, and most important, is the recommendation that equities as well as bonds and deposits be allowed as an eligible investment.

As Autif points out, the 18-year timescale before which the child can access the cash makes equities an ideal investment for these monies. It would also make sense to adopt Autif&#39s other suggestion, to offer child trust funds within an Isa wrapper which would also encourage the child to continue saving – CGT-free – after the age of 18.

But will the introduction of child trust funds have the desired effect and encourage individuals to take greater financial responsibility for their own affairs? There is not much evidence to suggest that it will.

Recent research points to the fact that the abolition of student grants and the introduction of student loans has lead to a wide acceptance of debt as inevitable.

All the current research reveals that, far from saving, most young people today regard debt as normal and are not prepared to wait for what parents might once have considered luxuries, such as new cars, hi-fis, mobile phones and the like, and are quite prepared to buy on credit.

But what is far more worrying, not to say irritating, is the patronising and condescending tone of the Government&#39s paper, Savings and Assets for All.

When I read the comments from Will Paxton, the researcher from the Institute for Public Policy Research Centre for Asset Based Welfare, it is difficult not to wonder what planet he is on.

“By linking savings to welfare provision and giving those on much lower incomes an incentive to save and accumulate assets, we can promote financial inclusion, enc- ouraging the sense of financial confidence and security that savings can bring.”

This is the Nanny State gone mad. And what is “financial inclusion” anyway when you do not have any money?

You do not have to be a researcher at the IPPR to work out that the reason that half the population do not have any savings at all is because they are poor and cannot afford to live comfortably, let alone save.

And who keeps them poor? Largely, the Govern-ment itself with its confiscatory tax policy which taxes individuals with incomes below subsistence levels.

It is outrageous that people with incomes as low as £10,000 a year pay any tax at all. Yet they pay over £30 a week in tax and National Insurance deductions.

Gordon Brown&#39s policy of deducting income tax with one hand and giving it back with the other – as tax credits for pensioners, child trust funds and the like – has no other purpose than a cynical desire to make people feel grateful for these handouts – which is their own money anyway – and keep them voting for the “generous” New Labour Party.

And will it work? Highly unlikely. Back in the early 90s, when the economy was deep in recession, a journalist provoked much mirth and derision by suggesting, tongue in cheek, that the way to stimulate the economy, which was proving singularly unresponsive to interest rate cuts, was for the Government to give every student £10,000.

The theory was that students are poor and needy and they would go out and spend the £10,000. This would create a big surge in demand and the economy would rapidly recover. Nobody doubted the thesis but it was obvious that such a move would be politically unacceptable.

The Government might like to remind itself of this before going ahead with its scheme to give money to children under the proposals for child trust funds.

Far from encouraging youngsters to save, the likelihood is that, as soon as they get access to the funds, they will go out and spend it. Good on them too. It is their money anyway – or at least their parents&#39 money, extorted in tax they could not afford to pay.


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