Poverty is about more than just scanty income; it is also about a lack of assets.
In the United States, there is a longstanding interest in the distribution of assets and wealth, as well as the traditional focus on income. Until recently the United Kingdom would have been considered a poor relation in debates on asset-based welfare. However, all this has changed with the current U.K. governments proposal for a universal grant to children, inevitably called a baby bond.
For about a decade academics, community groups, and politicians have been interested in the potential for building poor peoples assets. They have pointed to inequality in asset distribution and the regressive nature of traditional government policies that encourage asset ownership.
Assets can have an independent effect on peoples welfare and life chances. Having assets to draw on can give access to opportunities, such as opening a business or getting a higher education, that are largely the preserve of the middle class and wealthy people. Assets, it is argued, allow people to take control of their own lives.
A possible solution is a universal asset-based welfare policy, enforced by the government. Though similar schemes have been proposed in the United States, none has succeeded or as yet stands much chance of being adopted.
In the United Kingdom the government has announced a universal Child Trust Fund. This is to be an account opened for every child at birth into which an initial endowment is placed. The endowment would be means-tested, with $710.75 at birth for low-income parents and an additional $142.15 when the child reaches the ages of 6, 11, and 16; wealthier children would get $355.38 at birth and an additional $71.10 at the same ages.
Given the electoral system and the present popularity of Tony Blairs Labor Party, this proposal will almost certainly be adopted within a few years.
The Child Trust Fund would start children early on the path to learning about saving and planning for the future, thus contributing to a savings culture. The proposal could even be integrated with school-based financial education.
On top of being able to influence peoples behavior, a Child Trust Fund would grow into a potentially significant asset by the time the child turns 18 or 21. It would give children a pot of money at their coming of age to invest in their own futures.
Because funds build up over years, with the help of compound interest and additional deposits, sizable sums could accumulate, making a real difference in what opportunities are open to all children.
Though the Child Trust Fund would not have a matched savings element, the government also announced a Savings Gateway. Though its details are sketchy, the gateway would have a matched savings element.
The funds accumulated in a Savings Gateway could be invested in a number of ways. They could go into a personal or occupational pension, an Individual Saving Account (a short-term, tax-efficient savings vehicle), or a Child Trust Fund account. Thus, the two savings vehicles could be seen as linked in an overall strategy to increase the savings of low-income people.
Reaction to the proposals in the media and among the public has generally been positive. However, some skeptical voices have spoken. Many of these have come from the poverty lobby.
A central concern has been the premise that the poor are able to save. And indeed if they are able, should they be saving, or should they be spending now in order to avoid poverty? The experience in the United States and some empirical evidence from the United Kingdom suggest that these are not necessarily the right questions.
However, it is clear that income-based policy and asset-based policy must be developed in tandem. It is axiomatic that people will require sufficient income to save in the first place.
Suspicion has also arisen that developing individual accounts and giving people the responsibility of saving in these accounts could, in the long run, replace current welfare provisions.
The Labor Party can be crystal-clear about the additionally of its policy, but a political risk remains that future governments would use it as a replacement for current funding or programs.
The U.K. governments announcement of a Child Trust Fund moves the debate about inequality and poverty forward.
Though the United States is far ahead of the United Kingdom in many respects, in this debate the Child Trust Funds universal nature makes it a novel and innovative policy development. The U.K. proposals owe much to U.S. practitioners and academics. As the debate continues, it seems likely that learning from different international experiences will continue to be important.
Mr. Paxton is a researcher at Institute for Public Policy Research in London.