Case Study on the Impact of IOE Research That Underpinned The

Case study on the impact of IOE research that underpinned the Child Trust Fund scheme November 2011 Case study on the impact of IOE research that underpinned the Child Trust Fund scheme

School of Economics revived the idea. Why this research is highly Who conducted this He summed up his proposal in one significant research? sentence: “You take the wealth of one This case study focuses on research generation, use it to fertilise the wealth The research was that played a pivotal role in the of the next.” 2 carried out by establishment of the last Labour Professor John Bynner, government’s Child Trust Fund, the Just over 10 years ago, however, the the then director world’s first universal children’s savings Institute for Public Policy Research of the Centre for scheme. The fund is a long-term tax- (IPPR) developed a related model Longitudinal Studies, free savings initiative for UK children that was more politically palatable Institute of Education, born between September 1, 2002 -- ‘baby bonds’ that the government University of London. and January 2, 2011. Its designers would give to each child at birth. The He was supported by aimed to ensure that every young thinking behind this scheme came research officer Sofia person had some savings at the age partly from the United States where Despotidou. of 18. They also hoped to encourage Michael Sherraden, of the University children to become savers and gain an of Michigan, had been advocating Who provided the understanding of personal finance. ‘asset-based welfare’. His argument funding? was that the poor can build significant The Department The scheme, which has been described assets with the right jump start. He also as “arguably the most innovative social for Education and contended that assets change people’s Employment funded policy implemented under the post- perspectives: “While incomes feed 1997 Labour governments” (Prabhakar the research. It paid people’s stomachs, assets change their the Institute of 2010), was scrapped by the coalition heads” (Sherraden 1991). Government in January 2011. However, Education £8,985 for the five-week analysis it has left a very substantial legacy – in The IPPR’s proposals might not have the form of nest eggs that will benefit of data gathered by been adopted, however, without the the National Child 5 million children. From 2020 it is evidence supplied by the IOE research estimated that 18-year-olds covered by Development Study, featured in this case study. John Bynner, which is following the scheme will inherit a combined sum assisted by Sofia Despotidou, analysed 1 the lives of a cohort of £2.5 billion. data produced by the National Child of British people born Development Study and found that in one week in March Background having even very modest savings at age 1958. Thomas Paine, author of The Rights 23 had a range of beneficial economic, of Man, proposed what can be seen social and health effects 10 years later as the original forerunner of the (Bynner and Despotidou 2001). This Child Trust Fund. In Agrarian Justice, helped to persuade Labour ministers to a pamphlet published in 1797, he proceed with the trust fund scheme. called for a national fund, provided through inheritance tax, which would This initiative was promised in the pay £15 to every 21-year-old in Labour Party’s 2001 election manifesto England. Two hundred years later, in and was eventually launched in January 1989, Julian Le Grand of the London 2005. Under the original scheme all children born after September 2002

1 The Child Trust Fund scheme

received a voucher3 which their parents age 33, taking account of earlier could use to start a savings account that circumstances, achievements6 their child would not be able to access and personality factors?7 until the age of 184. All families initially 2. Does the size of the asset matter received a £250 voucher, while children (is there a threshold level of from low-income households qualified asset that can affect a person’s for an extra £250. wellbeing and behaviour)?

The Labour government subsequently Research method decided to pay another £250 into trust Bynner and Despotidou analysed data fund accounts at age 7. The oldest gathered on 11,400 members of the children in the scheme – those who National Child Development Study, turned seven between September 1, which is managed by the Centre 2009, and July 31, 2010 – received that for Longitudinal Studies8, Institute extra payment. Children in low-income of Education. At the time of their families also got a further £250 on their research (1999-2000) the cohort had seventh birthday. However, the coalition been surveyed at birth, and ages 7, Government ended all age 7 payments 11, 16, 23 and 33. The research related after July 31, 2010. The birth payment of information on savings, any investments £250 was reduced to £50 after August or inheritance (over £500) – collected 3, 2010. The scheme was then closed during the age 23 interview – to to children born after January 2, 2011 outcomes at 33. as part of the Government’s spending cuts.5 The researchers considered whether asset-holding had affected a range of How the study was conducted occupational, health, citizenship and family outcomes at age 33. Among the Research questions outcomes examined were: John Bynner set out to answer two principal questions: • years in full-time employment; years unemployed; years at 1. Do assets (savings, investments home (mainly women caring for and inheritance) acquired by the families); self-employed9 or not age of 23 predict outcomes at 2 Case study on the impact of IOE research

at age 33 predictable. The researchers had Perhaps unsurprisingly, • marital stability; general health thought that the more savings a young the study found that people status; smoking/non-smoking adult had, the stronger the asset effect with savings seemed to • inclination to vote; interest would be. In other words, the more have better life chances in politics; degree of political money that people had, the more likely and be happier than those without assets cynicism they were to be happy, and the less • number of books a cohort likely they were to be unemployed. They member’s first child had access found that this was not the case. to; how often they read to their child. What seemed to matter most was that a person had modest savings First stage of research: The statistical of about £200 at 23 (note that these analysis10 began with examining the figures relate to savings in 1981 – this individual impacts of different types equates to about £600 today). For of assets – savings, investments and example, men with less than £200 inheritance. More than four in five savings were much more likely to cohort members (82%) had savings experience unemployment than those at age 23, whereas only just over with more savings, even when other one in ten had investments (11%) factors were taken into consideration. or an inheritance (12%). Although Moreover, above the £200 threshold investments and inheritance had the amount of assets held appeared evident effects11, they were not as to have no bearing on the likelihood impressive as the savings effects. of being unemployed. There was a The researchers therefore focused similar, though weaker, association particularly on savings. These had a between women’s savings at 23 and persistent relationship with all the unemployment at 33. With women, outcomes tested that was independent savings of only £100 to £200 were of the cohort members’ circumstances associated with reduced chances of at birth, such as their family’s social being unemployed. Men’s belief in the class, and the ages that their father and work ethic – but not women’s – was also mother left full-time education. positively related to savings.

Second stage: They then considered Men’s general health was positively other outcomes that could conceivably associated with assets too. However, be affected by assets, such as there appeared to be no asset effect parenting,12 and examined the value of on women’s health once qualifications, the asset needed for a positive effect to earnings and home ownership were be observed. considered. People with assets at age 23 were less likely to be smokers Third stage: Finally, the researchers at 33. There also appeared to be an reverted to looking at the effects of association between depression savings and investments separately, and savings, and rough thresholds again attempting to ensure that the could again be identified. The risk of apparent asset effect was not simply depression among men dropped as masking a more fundamental cause, savings increased from £200 to £1,400, such as social class. They did this but the very wealthy appeared to by including other data on home be more depressed. For women, the ownership and earnings at age 33. picture was less clear, but those with savings of £100 or more were at less risk of becoming depressed. What the research discovered Perhaps unsurprisingly, the study found Men and women with savings at 23 that people with savings seemed to were also less likely to experience have better life chances and be happier marital breakdown by 33. Those with than those without assets. Another assets were most likely to be anti-racist key finding was, however, much less

3 The Child Trust Fund scheme

and to have trust in the political system. the trust fund policy, attended this However, the amount of assets a person meeting, as did key advisers from the had at 23 appeared to have no effect Prime Minister’s Office. Bynner also gave on their inclination to vote13 and their a presentation on his research to the parenting behaviour14. Savings and Assets for All seminar held at 11 Downing Street on July 18, 2001.15 The study’s conclusions The researchers argued that several The project’s impact conclusions could be drawn from these The IOE research influenced the results. First, assets appear to protect Westminster politicians and policy against unemployment and poor advisers who initiated the trust fund physical and mental wellbeing. The scheme. It has also helped to shape size of asset, once a threshold of a few policy thinking on asset-based welfare hundred pounds has been reached, in other countries. does not seem to matter as much as having it. This suggests that the benefit Influence on UK government thinking of assets may be as much psychological Gavin Kelly, the policy’s chief designer, as economic. It is possible that having was research director at the IPPR when savings, as opposed to being in debt the proposals were originally mooted. during the early twenties, provides a He underlined the importance of degree of confidence, and feeling of the IOE research in persuading the self-worth, that underpins some of the government to launch ‘baby bonds’ in effects identified. Conversely, being in a BBC Radio 4 interview with Guardian debt at this age has negative effects on journalist Polly Toynbee in September a person’s wellbeing. This is perhaps the 2011.16 most important result of all to emerge “It was a rather idealistic notion in from the research. some ways, that Britain would be a very

different and better country if every young Dissemination person grew up knowing that when John Bynner was called to a meeting at they come of age that they would have the No 10 Strategy Unit in early 2000 to something behind them to let them get a answer questions about his research. decent start in life. We also did it though Gavin Kelly, the principal architect of because we had hard, hard evidence that

4 Case study on the impact of IOE research

this intuition actually was real. We did a whether someone has a stake, and it big study with the Institute of Education doesn’t have to be a massive stake.” looking at what happened to those young David Blunkett also testified to the adults who started off in life with a small importance of the IOE research in capital sum, a pot of assets if you like, at helping to shape the scheme in a 2003 their disposal compared to those who lecture18 in which he expanded on his didn’t ... It was a very powerful effect and thinking about asset-based welfare.

one which was much more powerful than “There was a clear failure to see how a frankly we had expected to find and so we fairer and wider distribution of assets were driven on by that finding -- and by could underpin our social justice what we saw happening more generally aspirations and renew engagement with in terms of asset inequality.” our democracy. That has now begun to

change. During my period as Secretary Six years earlier, in another Radio 4 of State for Education and Employment, interview17, David Blunkett, the former I commissioned longitudinal research19 Education Secretary, had also confirmed which provided powerful evidence for that the research had a significant the importance of asset ownership. It impact on Ministers’ thinking. showed that people with assets, such as “We were absolutely staggered by the savings and investments, are less likely to difference that having some assets, some be unemployed or suffer poor mental or stake, made to individuals, not just in physical health, and are more likely to be terms of that start in life as adults at the politically aware.” age of 18 but throughout life, a difference obviously in terms of security and stability, The impact of the Bynner research on but also actually their willingness to government thinking had, however, engage with life. That stake transforms been acknowledged as early as 2001 not only their interest in themselves, in – in Savings and Assets for All20, a green employment, in education but aspiration paper which sought agreement on the for their children, a willingness to broad principles behind the Child Trust participate in wider community events, Fund scheme. This document referred to all those things materially affected by the IOE study and said: “… this powerful

5 The Child Trust Fund scheme

new evidence suggests that having Coda access to at least limited financial assets Critics of the Child Trust Fund scheme can have a marked impact on people’s have argued that it is too expensive economic and social wellbeing”. -- the projected cost in 2011/12 was

£520 million.22 It is not only the cost of Influence on other UK policy thinking the scheme that has triggered debate, John Bynner’s findings have also been however. The very idea of an asset- cited in high-profile policy documents effect remains controversial (Prabhakar such as Unleashing aspiration, the 2009 2009). Some have questioned whether report of the panel on fair access to the it was really assets which caused the professions21 chaired by Alan Milburn changes in behaviour and the different MP, who subsequently became the outcomes that Bynner identified. It coalition Government’s ‘social mobility can be argued, for example, that good tsar’. health allows people to accumulate “There is good evidence, for example, that assets, rather than the other way round. access to moderate amounts of financial capital at an early age can have major The research evidence on this issue impacts on later life outcomes: is relatively scant and somewhat A small amount of capital (between £300 contradictory. Although some studies and £600) at age 23 is associated with back the existence of an asset-effect better outcomes later in life.” (Sherraden 2002), other research contests these findings (McKay and Overseas influence Kempson 2003). However, recently Policy-makers and think tanks from published research at the London countries including the United States, School of Economics, building on John France and New Zealand have shown Bynner’s work, found faults in McKay interest in learning from the UK’s baby and Kempson’s study. This new research, bonds ‘experience’ (Prabhakar, Lloyd which also used data from the National and Mulheirn 2010). Some of the Child Development Study, concluded Men and women with documents that have emerged from that there is an asset effect (McKnight savings at 23 were also less these deliberations refer to the findings 2011). It found that assets have likely to experience marital breakdown by 33. Those with of the IOE study (Bennett et al 2008). positive effects on wages, employment assets were most likely to be The first major Canadian book on asset- prospects, general health and in anti-racist and to have trust based policy (Robson and Nares, 2006) reducing malaise. These assets do not in the political system. also contains the following passage: generally need to be larger than £600 “… work in the United Kingdom … found (the equivalent of £200 in 1981). a ‘persistent effect of assets on a number of outcomes, which were impervious to This debate is likely to continue but a wide range of controls’, and ‘the assets- two things are not disputed. First, the effect was sustained, with employment, research by John Bynner and Sofia psychological health, belief in the political Despotidou played a crucial role in the system and values, all appearing to Blair government’s decision to introduce be enhanced by assets’.” (Bynner and the Child Trust Fund. Secondly, millions Despotidou 2001) of children have benefited materially from the scheme. We will now have to The IOE research is also referred to wait until the nest eggs begin to hatch in reports on assets-based policies in 2020 before we can begin to assess prepared for international organisations the full extent of the advantages that such as the World Bank (Sherraden these savings will confer on them. 2006), the European Commission (Hubert 2010) and the Organisation for Economic Co-operation and Development (Mendelson 2007).

6 Further Reading / Notes

Further Reading Notes

BENNETT, J., QUEZADA, E.C., LAWTON, K. and 1 COLLINSON, P., “Scrapping child trust funds PERUN, P. (2008) The UK Child Trust Fund: A would only benefit the well-off, say analysts”, the Successful Launch, IPPR and the Initiative on Guardian, May 22, 2010. Financial Security at the Aspen Institute. 2 WILLIAMS, Z.,“Why we cannot afford to raid the BYNNER, J. and DESPOTIDOU, S. (2001) The Effects Child Trust Fund piggy bank”, the Guardian, May of Assets on Life Chances. London: Centre for 2, 2010. Longitudinal Studies, Institute for Education. 3 The voucher was issued after a parent had BYNNER, J. and PAXTON, W. (2001) The Asset-effect. registered for child benefit London: Institute for Public Policy Research. 4 Young people with CTF accounts will, HUBERT, A. (2010). Empowering People, Driving however, be encouraged to manage their fund Change: Social Innovation in the European Union. themselves from age 16. For more information Bureau of European Policy Advisers. on how these accounts operate see http:// www.direct.gov.uk/en/MoneyTaxAndBenefits/ McKAY, S. and KEMPSON, E. (2003) Savings and Life ChildBenefitandChildTrustFund/ChildTrustFund/ Events, DWP Report 94. London, Department of index.htm Work and Pensions. 5 The Child Trust Fund was terminated by the McKNIGHT, A. (2011) Estimates of the asset- Savings Accounts and Health in Pregnancy effect: the search for a causal effect of assets on Grant Act 2010. The Government has, however, adult health and employment outcomes, CASE announced that from November 1, 2011, paper 149, Centre for Analysis of Social Exclusion Junior ISAs will be available for those families (London School of Economics). with children who miss out on a Child Trust Fund account, including those born before the MENDELSON, M. (2007) “Asset-based Social scheme was introduced. These savings will also Programs: A Critical Analysis of Current Initiatives”, be locked in until a young person turns 18. The presented to the OECD seminar “Life risks, life Government also announced earlier this year course and social policy”, Paris, May 31-June 1, that it would fund a new system of savings 2007. accounts for children in care.

PRABHAKAR, R., LLOYD, J. and MULHEIRN, I. 6 The researchers took into consideration cohort (2010) The Future of Child Trust Funds: Proposals for members’ highest qualification, maths ability at Reform, Social Market Foundation. age 11 and the age at which they left full-time education. PRABHAKAR, R. (2009) “The Development of Asset-based Welfare: The Case of the Child Trust 7 The analysis also included information on their Fund in the UK”, Policy and Politics, 37(1), pp. attitudes to education at 16. 129–143. 8 The Centre for Longitudinal Studies is ROBSON, J. and NARES, P. (2006) Wealth and an Economic and Social Research Council Wellbeing/Ownership and Opportunity: New (ESRC) Resource Centre. It provides support Directions in Social Policy for Canada, SEDI. and facilities for researchers using the three internationally-renowned birth cohort studies: SHERRADEN, M. (1991) Assets and the Poor: A New the NCDS, the 1970 British Cohort Study and American Welfare Policy. Armonk, NY: M.E. Sharpe. the Millennium Cohort Study. CLS also conducts research using the birth cohort study data, with SHERRADEN, M. (2006) Schemes to Boost Small a special interest in family life and parenting, Savings: Lessons and Directions, family economics, youth life course transitions Presented at a conference, “Access to finance: and basic skills. The Centre is supported by a building inclusive financial systems”, consortium of funders led by the ESRC. World Bank, Washington, DC, May 30-31, 2006.

i The Child Trust Fund scheme

9 ‘Self-employed’ was sub-divided into manual 21 Cabinet Office (2009: “Unleashing Aspiration: and non-manual. The Final Report of the Panel on Fair Access to the Professions”. London: Cabinet Office. 10 The multivariate statistical technique of Ordinary Least Squares regression was used. The 22 Speech by the Chief Secretary to the Treasury, unstandardised regression coefficients estimated David Laws MP, May 24, 2010 http://www.hm- by the technique give the proportional increase treasury.gov.uk/press_06_10.htm in each dependent variable (outcome) for a single unit change in each explanatory variable (assets and controls).

11 Men with investments were less likely to have been unemployed and more likely to be self-employed. They were also more likely to rate themselves as generally healthy and to have a strong interest in politics. Women with investments tended to have a strong interest in politics and were less likely than other women to express political cynicism.

12 Parenting behaviour was measured in a sub- sample of 1,700 cohort members at age 37.

13 For both men and women it was investments, rather than savings, that were the more powerful predictor of interest in politics.

14 Parenting was more strongly related to a person’s qualifications.

15 The full text of John Bynner’s Downing Street presentation can be found at http://www.smith- institute.org.uk/file/PensionsSavingsandAssets. pdf

16 The Class Ceiling (Episode 2), broadcast on BBC Radio 4, September 8, 2011.

17 David Blunkett was interviewed by Stephanie Flanders for Radio 4’s Analysis programme, “The Asset Effect”, broadcast on August 18, 2005.

18 “Civil renewal: a new agenda”, the CSV Edith Kahn Memorial Lecture, June 11, 2003.

19 The footnotes to the lecture make it clear that David Blunkett was referring to the Bynner research.

20 HM Treasury (2001a). Savings and assets for all: the modernisation of Britain’s tax and benefit system, Number eight. London: HM Treasury.