Headlines: October 25th, 2001

A new report questions some of the aims and likely outcomes of the Government’s plans to introduce new measures to build savings for very young children.The Institute of Fiscal Studies has examined the plans to introduce two new ‘asset-based welfare’ policies during the current parliament – the Child Trust Fund and the Saving Gateway.

The former is planned to be in the form of a gift at birth from Government, which will be made available to spend in early adulthood. The Saving Gateway will give lower-income households a strong incentive to save by offering government matched funding against what is saved.

‘A Saving Gateway and a Child Trust Fund: Is asset-based welfare well fair?’ asks whether these new policies will help poor families more than extending existing welfare benefits.

The report pulls on new evidence from the British Household Panel Survey (BHPS), which shows that only a carefully targeted Saving Gateway could be a cost-effective method of creating new savers and savings. Evidence suggests that many lower income families already have some savings. If eligible for the Saving Gateway, such families could take advantage of the government match by simply transferring their resources.

It suggests instead a simple income test to open the gateway to far more people who currently do not save, such as students, pensioners and unemployed people.

It also recommends targeting the newly employed in a pilot, to see if this group’s behaviour could be changed if the opportunity of a change in fortunes was seized.

Further new BHPS evidence suggests that targeting accurately those genuinely poor will be a difficulty with the new Child Trust Fund. It points to plan to pay the first contribution to the fund many years before assets become available for expenditure. In that time, says the report, a family’s circumstances could have changed considerably.

The authors question whether giving a child and then locking it away for years will prove an effective incentive to start the saving habit.

“A Saving Gateway and a Child Trust Fund: Is asset-based welfare ‘well fair’?” will be available from the IFS at www.ifs.org.uk/pensions/abw.shtml .