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.

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