Baby bond 'will promote equality'

February 18, 2000

A proposed Opportunity Fund giving everyone Pounds 1,000 either at birth or age 18 to pay for education and training could mean cuts in benefits such as tax relief on private pensions.

It could also become a new element of Child Benefit if the government decided in future that this should be means-tested or taxed.

The proposals, contained in a report from the Institute for Public Policy Research, are designed to contribute to the government's policy of promoting "positive welfare" through greater equality in asset ownership.

The report, Ownership for All, presents three potential models, developed from studies and schemes being developed in the United States that have shown that asset ownership is linked to better education, health and entrepreneurship.

The first option would be for the creation of Individual Development Accounts, aimed exclusively at those on low incomes. This would offer matched funding for investment from individuals and third parties, such as companies or charities.

IDAs could be provided locally through the New Deal system or income-related benefits/tax credits, so that a means test could be applied using existing administration via the Benefits Agency or the Inland Revenue.

The problem with this approach would be that it might involve a fairly substantial administrative charge for a relatively small gain, the report says.

The preferred options are therefore for new Opportunity Funds providing a modest universal capital endowment, which might start at Pounds 1,000, either at birth or age 18.

These would involve a means-tested matched savings formula for those on low incomes and a universal preferential tax treatment for all contributions regardless of income.

The fund could be used for investment in education and training, to start a business, or to buy a first house.

Researchers who produced the report said that the "baby bond" option would open up the opportunity for matched funding to become an element to Child Benefit, if this was means-tested in future.

Gavin Kelly, one of the authors, said there was no suggestion that Child Benefit should be cut. But the scheme could cost the government an estimated Pounds 720 million a year and this money would have to be found from somewhere.

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