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The birth of a great notion

The headlines for last week&#39s pre-Budget report were dominated by the Treasury&#39s continued determination to roll out tax credits. The media concentrating on this is understandable. Gordon Brown seems determined to face down the calls from some Cabinet colleagues to res-train his tax-credit largesse and instead to concentrate on investment in public services.

Yet, while this issue has captured the headlines, there were other interesting developments that will be no less important in the long term. One of these which has escaped the headlines was the launch of a second consultation paper on the child trust fund, or “baby bond”, and the savings gateway.

The announcements on the child trust fund most catch the eye. The initial consultation on it was launched just before the last election.

The ambition of ensuring that all young adults hold assets was presented as a crucial plan of welfare reform. Implemented properly, it could help the Government achieve two massive steps.

First, it is plausible that it could play a significant role in ending financial exclusion.

Second, if anything even close to genuine equality of opportunity is to be created, then it is imperative that inequalities in wealth are addressed.

Ministers have said relatively little about the child trust fund over recent months. Yet there has been considerable ongoing work behind the scenes. The first consultation process has been completed and the Treasury has now advanced to the next stage of thinking.

The publication of what is a second consultation paper entitled Delivering Saving and Assets, was launched simultaneously with the pre-Budget report. It gives us a better idea of what the child trust fund will look like and how it will be implemented.

In taking the debate to the next level of detail before implementation this paper seems to be indicative of a rare determination on the Government&#39s behalf to get the policy right.

So how is the Govern-ment going to deliver saving and assets? Further consultation gives the private sector and others an opportunity to think hard about how to ensure the child trust fund can be effectively implemented.

The Treasury paper enlightens us on some important issues, yet it also leaves some major questions unanswered.

First, on what does it shed some light? One of the watchwords for thinking about the child trust fund that runs through this second consultation paper is simplicity.

The basic structure remains the same as originally suggested. The account will still be established at birth for all children. There will still be additional contributions at the ages of five, 11 and 16 and people will still have the ability to contribute themselves into the account.

However, last week&#39s paper tells us there will be no restrictions on what people can spend the funds on when they turn eighteen; that the child&#39s parents will not be able to access the funds while the child is growing up; and that the funds could be invested in a wide range of investment vehicles including those actively and passively managed.

The paper also makes a strong and welcome link between the child trust fund and financial education. The Treasury prom-ises that financial education will not simply be an adjunct to the child trust fund but instead a fundamental part of achieving the stated policy objectives.

Referring to the two aims we mentioned above – tackling financial exclusion and improving social mobility – it is clear that both of these will require close links between the child trust fund and education.

First, financial exclusion. Although the policy will ensure that all young adults have access to a bank account, this alone will not tackle financial exclusion.

To achieve this, the child trust fund should be used as a vehicle to increase financial literacy and capability.

Second, if we want to increase social mobility through greater equality of opportunity then (especially given that there will be no restrictions on the uses at 18), a close intertwining with financial education will be vital. It will increase the likelihood that young adults will invest or spend the asset in a way that contributes to improving their life chances.

So, in some respects Delivering Saving and Assets enlightens us. Yet, other important questions remain unanswered.

First, there were no costings for the proposals. Indeed, there were not even suggested values for the initial endowment and subsequent state contributions.

There is a danger that the structure of accounts will be implemented but insufficient money will be placed in the account.

Put simply, the funds accumulated by the end of 18 years must be sufficient to truly have an impact on life chances.

A second notable gap in the Government&#39s thinking is the lack of discussion about how the child trust fund might be phased in.

Even if it were to be started today for all new-born babies, it would be 18 years before young adults would be able genuinely to change their life opportunities.

If the policy is to be successful, it needs to produce a quick winner. Clearly, further thinking about the phased introduction of the child trust fund implementation is required.

There is much to be welcomed in the Treasury&#39s second consultation paper. The child trust fund has moved a step closer to implementation, at which point it will have a fundamental impact on young people&#39s life opportunities and will be instrumental in tackling social exclusion. Yet there are outstanding issues that need further thought before it can be said that the child trust fund is ready for implementation.

Will Paxton is a researcher for the Centre for Asset-Based Welfare, Institute for Public Policy Research

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