Covid-19 and the Child Trust Fund.
| Author | Prabhakar, Rajiv |
| Position | PRESENT POLITICS |
Young people are likely to bear much of the economic fall-out from COVID-19. Survey data soon after the shutdown of the UK economy in March 2020 suggested that 18-24 year olds (excluding students) were more likely than other age groups to have been either furloughed or lost their jobs because of COVID-19. (1) One third of 18-24 year olds lost their jobs or were furloughed; this is around ten percentage points higher than then next most badly hit age group (60-64 year olds). Experience from previous recessions, such as the aftermath of the 2007-2008 global financial crisis, shows that the effects are most severe for those students that have recently left full-time education. (2) We should be concerned about the 'scarring' effects of COVID-19 for the future pay and employment prospects of young people.
Emergency income payments have been part of the global response to COVID-19. In the United States, emergency direct payments of $1200 are provided to each person and up to $500 for each child up to sixteen (although these are tapered off for those on high incomes and no payments are made for those with an income of $99,000 a year). In the UK, Chancellor Rishi Sunak announced financial support for furloughed employees: the government provided a taxable grant that paid 80 per cent of the wages plus employer National Insurance and pension contributions. Similar support was given to the self-employed. These schemes ran for the summer before being gradually wound down.
There is a previous case of targeting special help for young people. The Blair government provided a [pounds sterling]250 endowment (or [pounds sterling]500 for those from low-income backgrounds) into an eighteen-year account for all babies born from 1 September 2002. Originally, family and friends could save up to [pounds sterling]1200 a year into these accounts. In September 2020, the first generation of Child Trust Funds began to mature.
New Child Trust Funds were an early casualty of the Conservative-Liberal Democrat coalition government's austerity cuts to public spending in 2010. However, existing Child Trust Funds (or replacement Junior ISAs) could be used to channel emergency payments to the Class of 2020. Payments into these accounts would revisit earlier conceptions of the Child Trust Fund as a capital grant rather than a savings scheme. These might be funded by taxation on wealth rather than extra borrowing, to avoid recipients paying for them through higher taxes later in life.
One practical challenge to using Child Trust Funds in this way is that there are a large number of dormant accounts. Estimates from 2017 suggest that there may be around 700,000 dormant accounts, out of a total of around 6.1 million Child Trust Funds. But the UK government also provides help in finding 'lost' accounts. The central advantage of using Child Trust Funds for this purpose is that the infrastructure of accounts for young people is already in place.
Another possible objection is that payments would only go to those turning eighteen and so would exclude other young people. But there is a case for help at this particular point, when the decision to continue in education or training, or to leave and try to get a job, is made.
The rise and fall of the Child Trust Fund
The fate of the Child Trust Fund mirrors the rise and fall of 'New Labour'. In the run-up to the 2001 general election, Tony Blair was looking for high-profile proposals to put in Labour's manifesto. Around that time, two centre-left think tanks, the Fabian Society and Institute for Public Policy Research (ippr), both published pamphlets proposing a capital grant for young people. (3) The fact that two different think tanks proposed a similar idea seemed to catch Blair's attention.
Although the authors of the Fabian Society and ippr pamphlets each proposed an endowment for young people, there were important differences between these schemes. These differences reflected the different strands of thought that fed into the Child Trust Fund.
Basic capital
The Fabian Society's proposal drew on a 'basic capital' tradition that stressed the importance of...
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