Past assets: Lessons from New Labour’s asset‐based welfare strategy

This article is co-authored with George Bangham, a researcher at the Resolution Foundation. It originally appeared in IPPR Progressive Review, published by Wiley.

The pioneering British economist James Meade wrote half a century ago that “an unequal distribution of property means an unequal distribution of power, even if it is prevented from becoming too unequal a distribution of income”. At the time, this idea seemed self‐evident to many, yet it sat outside the mainstream of political and policy thinking.

Past governments have sought to tax concentrations of wealth — though generally far less than earned income — but very few have actively aimed to change the distribution of ownership of financial assets. Yet that was, to some degree at least, what the Blair/Brown government sought to do with its ‘asset‐based welfare’ agenda. It was, depending on your vantage point, either remarkably bold (the first advanced government to attempt a universal policy of this type) or risibly modest (the sums involved were small in the context of Labour‐era spending programmes). Either way, it is a programme that should be learned from today as a new generation of ideas on changing patterns of ownership in Britain come to the fore.

The Labour government announced the Child Trust Fund (CTF) and Savings Gateway (SG) in April 2001 and, a few weeks later, the party’s general election manifesto committed them to introducing the policies in the following parliament. The CTF would provide all children born from September 2001 onwards with a sum of money to be invested at birth, topped up at age seven, and then accessed at 18, with poor children receiving more support than the rest. Meanwhile, the SG promised matched savings accounts for adults on low incomes.

Both polices involved the state acting to extend a material stake in society to all children and more disadvantaged adults (though, unlike recent proposals from the Labour Party, neither was about employee ownership stakes in a person’s own place of work). They are far less well‐remembered today than Labour’s dramatically larger‐scale tax credits programmes, or the creation of new public services such as Sure Start. But at the time they were an important and novel part of the Labour government’s social policy repertoire, and gained considerable attention not just in the UK but around the OECD.

After the 2010 election and formation of the Coalition government both measures were, however, summarily axed. Where did this policy agenda originate from, and why did it rise, then fall, so quickly? And what, if any, are the political economy lessons that emerge from this episode, not least for those advocating a new generation of asset‐based policies?

The intellectual spark for the asset agenda was two‐fold — one based on theory, the other on empiricism. The former took the form of a much‐overlooked strand of left political economy that saw part of the state’s responsibility for setting the rules of the game of capitalism as ensuring — among other things — universal access to capital.

This line of thought has many different parents, and versions of it can be traced back to Tom Paine in the 18th century, James Meade in mid‐20th century Britain, or the American market‐socialist John Roemer over more recent decades. It is a current of thought that has largely been overlooked in the UK where late 20th century progressive political economy was pre‐occupied either with nationalisation or the Croslandite counter with its emphasis on planning and regulation. A ‘new politics of ownership’, which sought to foreground both the distribution and institutional form of private ownership, went largely unexplored.[1] Initiatives during the last Labour government like asset‐based welfare, and the (also ill‐fated) Company Law Review,[2] turned out to be the exceptions that proved the rule.

The second source of this agenda, which was more in‐keeping with the zeitgeist of the late 1990s, derived in part from American social policy, which had been highlighting evidence of the positive effect of asset‐ownership on various other social and economic outcomes.[3] This insight, combined with the fact that two‐thirds of all UK adults aged 35–44 had less than £500 in savings or financial assets in the late 1990s, together with the rapid growth in public resources being spent on middle‐class tax reliefs for asset accumulation, helped create political appetite for new policy thinking on how to spread financial wealth.

“For the first time in Britain’s history all of the children in a particular cohort would grow up knowing they had a (modest) nest‐egg in their name”

In the run up to the 2001 election, the Labour government presented asset‐based welfare as a new ‘fourth pillar’ of the welfare state (after work, income and public services).[4] In doing so, it drew on work undertaken at the IPPR where the idea of a ‘baby bond’, along with matched savings accounts, was first developed.[5] And it highlighted new UK research showing that asset‐holding was associated with greater independence, resilience following unexpected life events and improved educational and the labour market performance (controlling for a wide range of socio‐economic characteristics).[6]

During Labour’s second term there was a series of consultations covering questions of policy design — how much would the state transfer, at what age, who could run these accounts, what could they charge, what happened when parents failed to open accounts, and so on. The Child Trust Fund was finally launched in the 2003 Budget with accounts going live in early 2005 (although children born from September 2002 onwards were eligible). Five years on, when the new Coalition government announced it was to be axed as part of their first Budget, more than 6 million accounts had been opened. For the first time in Britain’s history all of the children in a particular cohort would grow up knowing they had a (modest) nest‐egg in their name.

The Savings Gateway was developed at a different pace. Its basic offer was a tax‐advantaged savings scheme, open to low income households in receipt of benefits and/or tax credits, in which government would match up to 50p in every £1 contributed by participants. It was carefully and patiently trialled and evaluated between 2002 and 2007.[7] Despite encouraging results it had still not been rolled out nationally by the time of the 2010 election (the Labour manifesto pledged to do so).

Looking back at this era, some political and policy lessons stand out. One issue was the lack of any early winners. The Child Trust Fund did not create any immediate direct beneficiaries — its first winners won’t gain access to their funds until September 2020. By any standards, a near two‐decade lag from initial announcement to the creation of real beneficiaries is a long stretch.

This in turn related to a second issue: timing. The background work took place from late 1999 through to 2001 when New Labour was in its pomp and the fading of the Blair‐Brown era was a long way off. Yet the implementation challenges meant that the policy didn’t materialise until the end of Labour’s second term, when its popularity was declining, but a sense of impending mortality (which occurred in the third term) was yet to sink in. The policy therefore benefited neither from sufficient time to really bed in nor a sense of the urgent need to secure a broad‐based consensus behind for it to survive a change in government (in contrast, say, to the Turner Commission on Pensions, which was developed with a view to the changing political cycle).

This points to a third shortcoming which concerned the lack of attention given to crafting a broad coalition. The ingredients of the policy emerged from think‐tanks [8] and it was further baked inside Whitehall. It didn’t have deep roots within civil society or the wider policy‐community. Poverty campaigners were initially suspicious (though that faded with time) as it wasn’t part of their ‘income’ agenda. The pensions industry was concerned about generous savings incentives being created for a non‐pension product which, they thought, may threaten their status at the top of the savings hierarchy. Meanwhile, purist tax‐economists were committed — contra James Meade — to the view that ‘wealth didn’t really matter’ in the sense that it was really just a reflection of the accumulation of income, which was the proper focus of policy. The manner in which the CTF was gestated within government and then launched on an unsuspecting world did little to persuade, less still bind in, these groups. And, unlike many other Labour era social programmes, there was no new ‘workforce’ delivering it — and reliant on its continued existence — as it made sense to roll it out via existing financial service companies. It was certainly a policy with friends in high‐places inside government — and it won immediate support across a swathe of the media (managing to unite the Guardian and the Sun in strong support even as it annoyed the Independent and Telegraph). But it would have benefited greatly from patiently winning a broader range of allies.

What, if anything, does this any of this suggest about the future? It’s clear that if there is ever to be another generation of asset‐based policies it is likely to be both easier, and far harder, than last time.

It will be far harder for a new generation of asset‐based policies as the fiscal winds have shifted. When the Child Trust Fund was being developed, the government was running a surplus, and public debt was below 30 per cent of GDP.[9] Today, the degradation of our working‐age welfare system and the running down of the public realm, together with the fiscal headwinds imposed by demography and Brexit, all mean that future governments are going to face severe spending pressures. In that context, making the case for resources to be spent on long‐term asset‐building initiatives will be very hard going. There is going to be a long queue of priorities and it’s hard to see asset‐building anywhere near the front of it.

It may also be harder — at least for any policy with universalist aspirations — because what was already a semi‐sceptical political sentiment when it came to universalism appears to have hardened. The most striking aspect of the means‐testing of universal child benefit remains the lack of any meaningful resistance: it was a popular move. The hostile reception in some quarters to recent proposals for universal inheritance policies by the Resolution Foundation and IPPR are a reminder of this.[10]

Yet, in other respects, next time — if there is a next time — it may be easier, at least in some respects. The importance of the distribution of wealth to the legitimacy of democratic capitalism and the maintenance of some sort of generational equity is now a far easier, and more urgent, argument to make then it was in the seemingly benign late 1990s. It would strike a chord now in a way it didn’t then.

And it’s possible that some attitudes may evolve in a helpful direction. At some point, even the British public’s noted resistance to bearing down on inherited wealth may start to shift. Despite the total stock of UK wealth increasing from 2.5 times national income in the 1970s to almost seven times today, most inherited wealth will be passed on to younger people who already have wealth of their own, with already‐wealthy millennials set to inherit more than four times as much as those with no property.[11] At the same time, wealth and inheritance taxes are steadily losing their bite, with the revenue yielded staying flat as a share of GDP despite escalating wealth in recent decades, and the threshold below which assets can be passed to relatives tax‐free set to rise to £1 million by 2020. Eventually, the public’s indulgent mood towards the taxing of these gains may turn to indignation.

A new generation of asset policies could, and most likely would have to, be presented in a way that Labour conspicuously failed to do last time: as part of a bigger story about inequality in wealth in contemporary Britain. More concretely, it would most likely have to be linked to a tax reform which pays for any spending and symbolises the redistribution of opportunity. The recent Resolution Foundation proposal for a citizen’s inheritance, for example, linked the policy to sweeping overhaul of inheritance tax, recognising that each policy would be more palatable to the public in the presence of the other. Back then, ‘asset‐based welfare’ was a bolt‐on to the wider Labour social agenda and funded out of a rising tide of revenue. Next time the funding of the programme will likely be a headline feature.

Despite all these differences, today’s advocates of citizen’s wealth funds and the like can still take another lesson from this experiment. Yes, political narratives and broad coalitions matter, but so too do details. They always do in government. Though the extensive trialling of the Savings Gateway did not help the survival of the policy — evidence counts for little in the face of an ideological onslaught — it did win converts and place the idea of pro‐poor matching into the policy bloodstream. That is one reason why — a decade on — it is about to be resurrected.[12]There is plenty of as yet unharvested evidence that could help shape future policies in this area — not least in the form of the natural experiment of how the Child Trust Fund impact on its recipients’ lives when they begin to get access to their accounts in 2020. This needs to be interrogated.

Two decades on, the case for an asset‐based agenda is stronger now than it was in the Blair era. A new generation must come up with a better model more suitable to today’s needs. There are plenty of lessons — for good and ill — to learn from the last Labour government’s approach. But the notion that the state has a role in ensuring that everyone in capitalism has access to capital is an idea with a future not just a past.


1 Gamble A and Kelly G (2016) ‘The New Politics of Ownership’, New Left Review I/220, Nov‐Dec 1996.

2 See review in Ferran E (2005) ‘Company Law Reform in the UK: A Progress Report’, ECGI Working Paper Series. See National Archives website for a timeline of Company Law Review Consultation Documents and the 2005 Company Law Reform White Paper.‐law/company‐and‐partnership‐law/company‐law/publications‐archive

3 Sherraden M (1991) Assets and the Poor: A New American Welfare Policy, Routledge

4 HM Government (2001) Savings and Assets for All: The modernisation of Britain’s Tax and Benefit system.

5 Disclosure: one of the authors of this piece authored the baby bond proposal then moved into government to develop it into the Child Trust Fund and Savings Gateway proposals. Kelly G and Lissauer R (2001) Ownership for All, IPPR. HM Treasury (2001) Delivering Saving and Assets: The modernisation of Britain’s Tax and Benefit system.

6 Bynner J and Despotidou S (2000) Effects of Assets on Life Chances, Centre for Longitudinal Studies, Institute of Education. This research used data from the National Child Development Study, and was commissioned by David Blunkett and his advisor Nick Pearce who were early advocates of this agenda. David Blunkett later told BBC Radio 4 Analysis that this research left him “absolutely staggered by the difference that having some assets… made to individuals not just… at the age of eighteen but throughout life”. See: Flanders S (2005) ‘Analysis: The Asset Effect’, BBC Radio 4.

7 For instance: Kempson E, McKay S and Collard S (2005) Incentives to Save: Encouraging saving among low‐income households, University of Bristol for HM Treasury. Emmerson C, Tetlow G and Wakefield M (2007) Final evaluation of the Saving Gateway 2 pilot, Institute for Fiscal Studies.

8 Le Grand J and Nissan D (2000) A Capital Idea: Start‐up grants for young people, Fabian Society

9 ONS time series ID: RUTO.

10 Bangham G (2018) The New Wealth of Our Nation: the case for a citizen’s inheritance, Resolution Foundation. Roberts C and Lawrence M (2018) Our Common Wealth: A Citizens’ Wealth Fund for the UK, IPPR.

11 Gardiner L (2017) The million dollar be‐question: inheritances, gifts, and their implications for generational living standards, Resolution Foundation.

12 Kelly G (2016) ‘Welcome back, Help to Save — what took you so long? (And what should we learn from this saga?)’, Medium.

Gavin is chair of the Resolution Foundation and chair of the Living Wage Commission. He writes here in a personal capacity.