Asset stripping: Will Junior ISAs replace Child Trust Funds?

This week, the Government launched Junior ISAs (Individual Saving Accounts for under 18s - JISA). JISAs are replacing Child Trust Funds (CTF) that were scrapped by the government in May last year. A new report by the Institute for Public Policy Research called Asset Stripping: Child Trust Funds and the Demist of the Assets Agenda asks whether these JISAs will be effective in getting families - especially low-to-middle income earners – to build assets for the future.     

The Child Trust Fund was a rare example of ‘asset-based welfare’ policy. Designed and implemented by the previous Labour Government, these policies offered opportunities for families to build assets that had never existed before. Universal and progressive in provision, the Child Trust Fund was unique and meant that every child in the UK would have an asset from birth.

On 24 May 2010, after only a few weeks in office, the Conservative–Liberal Democrat Coalition government announced that, as part of a package of measures designed to cut public spending by £6.2 billion, the Child Trust Fund (CTF) would be abolished, saving the government just over £500 million a year. As a result, children born in the UK in 2011 will no longer receive £250 at birth and a further £250 when they reach the age of seven (£500 for poorer families and disabled children).

Yet the scrapping of the CTF has been met with very little resistance from the public or policymakers. IPPR’s report analyses why it was so easy for the Coalition Government to abolish the CTF. It says that the previous Labour Government failed to build popular support for this agenda. There was a perception that there were no direct losers from scrapping the CTF. Other reasons, such as the present government’s approach to spending cuts and a lack of endorsement from the Liberal Democrats, also contributed to the policy’s demise. Long-term policies, like CTFs, require wide and diverse support from the public and from policymakers to survive political change –this simply did not exist.

The report also argues that key elements of the Child Trust Fund are absent in the Junior ISAs that are now replacing them and that without better savings vehicles too many low-to-middle income earners may continue to have inadequate savings.

The need for an assets agenda has not disappeared; arguably, it has only strengthened. There is a growing expectation that individuals will need to (at least partly) fund long-term services such as social care and pensions in partnership with government. And as tuition fees for higher education are also set to rise, it is clear that individuals and families are more likely to need additional savings and assets in the future. This, alongside long-standing issues of high levels of wealth inequality and low levels of savings among low and middle-income households, means that having an asset base is increasingly important.