In order to break what Sir Keith Joseph described as ‘the cycle of deprivation’ young people need a combination of life skills – predominantly financial capability – and some resources with which to set out on adult life. Our proposal sets out a solution designed to achieve both these objectives, rewarding those who take the initiative to help themselves.
Background
Polarisation of wealth and opportunity is a problem throughout society, but particularly for younger generations.
David Willetts addressed this very effectively in his book ‘The Pinch’. He argues that society is now more than ever characterised by horizontal relationships within generations rather than vertical relationship between generations, which are becoming stretched and fragmented. As medical science and healthier living has contributed to much longer lives and the average age of child-bearing has increased, the gap between generations has become even more extended.
He also shows how the post war baby boomer generation has reaped so much of the rewards, through a combination of property ownership, pensions and public spending: leaving a legacy of debt which will now have to be serviced by the young.
Immigration has also contributed to the generational disparity of wealth: immigrants are generally poor on arrival in the United Kingdom, and statistics show larger number of children and young people, and a higher birth rate. This has increased significantly the proportion of young people from disadvantaged backgrounds. In some areas of the country this has resulted in quite serious segregation, with all the toxic ingredients for spawning discontent and extremism.
Meanwhile private wealth is concentrated in the old. While employment opportunities have increased sharply for the over 65s over the past 10 years, for 18 to 24 year olds they have flat-lined. Self-employment is a very significant way of working now, but it favours middle age upwards with business experience. Meanwhile young people graduate from university with a great burden of student debt on their shoulders.
If this situation is not to result in societal and economic instability, something must be done to re-balance the scales to provide more opportunity and resources for the disadvantaged young.
Incentivised Learning
Incentivised learning, operated at a national level and offered to young people most in need, would provide the way out of this impasse, and the funds to enable it could be at least partly hypothecated from the tax levied each year on inheritance. Essentially incentivised learning would reward young people who made the effort to progress through a structured programme of building their life skills with small but meaningful tranches of capital to provide a resource base for starting adult life.
The terms would be carefully constructed, being focused on young people from poorer families: those in receipt of Child Tax Credit (c. 16% of the population). This would benefit c. 150,000 young people in each annual cohort. Incentivised learning would be offered in the years immediately before adulthood in order to give some experience of stewardship of capital as ‘financial education by experience’. If 10% of the current HMRC receipts of Inheritance tax (2016/17: £4.8bn) were applied in this way, the average receipts per young person would be about £10,000.
The objective of building assets generally for young people is an established concept: the Child Trust Fund attempted to do this, but there was no incentive element, no reward for the young person’s effort. The scheme was also far from egalitarian as it relied on family contributions, not re-distribution, for its main effect. As a result children from well-off homes were bound to benefit substantially more.
The Share Foundation’s experience
However the Child Trust Fund did provide a platform for identifying children most in need – those looked-after by the state - and set them up with a capital account: so The Share Foundation was established to work with the Child Trust Fund structure on a voluntary basis. This led to its being appointed to operate the Junior ISA scheme for Looked After young people throughout the United Kingdom on behalf of the Department for Education. As a result they have now introduced a truly incentivised learning programme for young people in care (the ‘Stepladder of Achievement’) as part of that scheme, which is now being widened to include Child Trust Funds held for young people in care in Autumn 2017.
In the ‘Stepladder of Achievement’, measured progress with specific steps towards maturity – literacy, numeracy, financial capability and self-discipline - are rewarded by capital contributions to the individual’s Junior ISA account, which are accessible on reaching adulthood. In this way the young person develops the ability to achieve their potential in addition to earning the resources which can help them make it a reality.
The three ingredients necessary for this to be achieved - a positive attitude, life skills, and some resources – are therefore provided for young people in care aged 15-17 by the Stepladder of Achievement.
There are six incentivised learning steps in the Stepladder, which in total contribute the relatively modest sum of £1,500 to a young person's Junior ISA: literacy (£150), numeracy (£150), initial financial education (£200), 250 words on ‘my plans for the future’ (an indicator of attitude change) (£250), the 8-week Managing My Money course (£350), and mentoring to help find a job or a place in higher education (£400).
At completion there is a Certificate of Participation and, of course, the young person has access to their Junior ISA money at 18.
Proposal for a scheme to provide significantly wider benefit
As the evidence builds that this does indeed achieve results, it is proposed that the Government should introduce the programme for 15-17 year olds in all families in receipt of Child Tax Credit. If a young person aged over 15 did not have a Junior ISA on registering for the programme, one would be opened with an initial, say, £200 for the first step - but of course all those aged between 6 and 15 have a Child Trust Fund in any case.
With an annual cohort of c. 150,000 young people in this situation, and estimating that at least a third of these young people will complete the Stepladder in order to earn what should be a rather more significant incentive than that applied at The Share Foundation, the aggregate cost to the Exchequer would still be a small fraction of inheritance tax receipts each year.
Meanwhile the involvement of mentoring volunteers to work with these young people, helping them through the steps and showing interest in their progress, would help bind society together, repairing the damage caused by family fragmentation and the challenge presented by immigration.
This kind of inter-generational support for the disadvantaged young places no burden on natural inheritance within families: indeed it may suggest better ways to make that inheritance process more effective itself. However it does offer society a more stable future, based on social integration and inter-generational equity.
Gavin Oldham
The Share Foundation, & also Chairman of Share plc/The Share Centre
September 2017