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Savings, debt and assets

Capital idea? The mysterious case of the stalled conversation about assets and poverty

In this blog, the first of four, Tom Clark looks at the role of assets and ownership in tackling poverty – and asks why this important topic slid off the political agenda.

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Sometimes conversations are abruptly brought to an end by events. In the last couple of years, for example, any suggestions that we might not need to worry about inflation any more, or questions about the limits of Vladimir Putin’s ambitions in Ukraine have, quite simply, been overtaken. The sudden interruption of the vibrant discussion of the 2000s about the role of assets and ownership in tackling poverty is, by contrast, baffling.

Amid burgeoning research evidence of a positive ‘asset effect’ from the 1990s onwards, there was great interest in reforms which subsidised the savings of poorer families on both sides of the Atlantic, and for a number of years the UK state set aside a nest egg for every newborn. In the years that followed, you might have expected this impulse would only gather strength. After all, in 2014 Thomas Piketty’s unlikely global best-seller, Capital in the 21st Century, powerfully underlined the specific importance of wealth as distinct from income inequality. New studies have continued to underline particular and beneficial ‘asset effects’ on well-being, child development and economic outcomes. Meanwhile, the official data only points to a further widening of the yawning underlying wealth gap in the UK.

Instead, however, the reforms of the 2000s were quietly unwound – with scarcely a murmur of protest. The traditional slant of subsidies for assets like homes, pensions and savings towards the better-off, continues and in the recent Budget the chancellor found the resources to entirely remove the lifetime cap on the allowable size of a tax-privileged pension pot. Yet even in progressive public policy circles, while there is certainly interest in taxing the rich, you nowadays hear relatively little about assets for ‘the rest’.

Conversation restarter: a short series of blogs

This post is the first of four which represent a modest effort to address this silence. It recaps the big picture case for caring about asset ownership that resonated in the 2000s, and also reflects on the mystery of why – despite its seeming importance – that discussion petered out. The next post ‘wealth of evidence’ sums up in a more granular way what we know about the distribution of assets and just how many citizens have next to nothing, and the consequences of that. The third, ‘depleted assets’, homes in on what we can draw from the experience of specific abandoned asset policies. The fourth and final one, ‘own goal’, reflects on whether and how it might be worth refreshing and returning to the agenda.

To keep things crisp, these pieces use quotations sparingly, but we’ve been in correspondence and conversation with many of those who were integral to the asset-based welfare initiative of the 2000s, including both enthusiasts and sceptics about the idea of a fresh drive for more inclusive ownership, as well as other thinkers in very different fields. In particular, should thank: Ben Ansell, Julian Baggini, Alissa Goodman, Jane Gingrich, Gavin Kelly, Stewart Lansley, Geoff Mulgan, Louise Overton, Nick Pearce, Sonia Sodha and Stuart White. While none have any responsibility for the inevitable errors and oversights in this mini-series, I intend to pilfer freely from their insights throughout the series.  

Early 2000s: idealistic thinking

The singular buzz among policy wonks around what was called ‘asset-based welfare’ is now hard to recall. The early 2000s were an era of relative abundance, in which domestic politics confronted few truly hard choices – a lot of the arguments were managerial and incremental in nature: about exactly how fast spending on service X needed to rise, exactly how many people really needed tax credits, and exactly which freedoms were appropriate for academy schools and foundation hospitals.

In the assets debate, by contrast, the talk was less of Key Performance Indicators than of Thomas Paine. The radical 18th century conscience of American and French revolutionaries was the first to dream up capital endowments to free poor young adults from ‘becoming burdens on society’, and instead empower them to ‘begin the world’ as ‘useful and profitable citizens’.

The modern-day asset impulse was, like Paine, transatlantic in character. And Michael Sherraden, the American social policy guru whose 1991 book Assets and the Poor kick-started the turn-of-the-millennium debate, was almost as audacious in his tone. He demanded a paradigm shift from traditional welfare, whose narrowing focus on snapshot income had ‘impeded rather than promoted investment’ on the part of recipients, with a shift to ‘a policy based on asset-accumulation’, which would give everyone the means and the confidence to build the platform they needed for an independent future.

All this chimed perfectly with bigger picture political economy ideas of the time, such as the idea of a ‘stakeholder’ society. It fitted, too, with reigning assumptions of the day that the liberal economy bequeathed by the 1980s was here to stay, but that public policy needed to find new ways to ensure everyone could be included within it. In the 1990s, even as Bill Clinton’s Washington was embracing a wrong-headed drive to “end welfare as we know it,” it was also finding Federal funding to chip in to so-called Individual Development Accounts (IDAs), which were supposed to help families held back by poverty to fund study, businesses and home purchases.  

Tony Blair’s Whitehall soon caught the assets bug. Old radio interviews give a flavour the exceptional enthusiasm in parts of the administration: the former Education Secretary David Blunkett recalled reviewing the emerging evidence “absolutely staggered by the difference that having some assets, some stake, made to individuals”. Reminiscing in 2011, Gavin Kelly, the ordinarily-measured thinktanker-turned-No-10-policy-brain who drove the policy through, looked back on the “idealistic notion” of a policy that could begin to forge a “Britain [that] would be a very different and better country if every young person grew up knowing that when they come of age that they would have something behind them to let them get a decent start in life”.

Insiders recall how the assets-drive had to chart a course between the nit-picking questions and gentle scepticism of some parts of the New Labour family, and the zeal of others who saw this as the first building block of a ‘new New Jerusalem’. After Gordon Brown’s Treasury and Tony Blair’s No 10 had both been persuaded it was ‘their’ brilliant idea, it ultimately slid through with relative ease.

A fourth pillar to the welfare state

The 2001 Labour manifesto contained the grand promise to ‘to add a fourth pillar to the welfare state’: assets. There was a specific commitment to a universal child trust fund, and a vaguer promise to strengthen support to help poorer groups save. Once that manifesto had secured a mandate, both pledges were honoured, the latter through two trials of the ‘saving gateway’, eventually fully primed to go as a nationwide scheme. But neither initiative was to last. So 20 years on, the question must be: what went wrong?

Out of money?

The obvious answer is lack of money: after the 2008 financial crisis following the collapse of investment bank Lehman Brothers, the Government was deep in the red. Then, when the administration changed in 2010, there was a scramble for economies – new-fangled assets schemes were very simply an obvious outlay to cut back, and a soft target. And just as the tide had moved towards assets initiatives on both sides of the Atlantic in the 2000s at once, so it would also turn against them on both in the 2010s. Somewhere amid the perennial Capitol Hill budget wrangling, and shortly before the big Trump tax cuts, all federal funding for the Assets for Independence Programme, through which Washington subsidised schemes like IDAs, was cut in 2017.

But ‘we ran out of money’ is an explanation that raises more questions than it settles. For even when the finances are tight, there are always political choices, and on both sides of the Atlantic there were concurrent decisions not to cut a whole host of other things, pension entitlements for example. Even within the broad field of state support for assets an awful lot of things survived, including America’s generous tax treatment of mortgages and college loans, and – in Britain – upfront relief on pensions contributions and tax-free capital gains on family homes. Indeed, the austerity years saw whacking great increases in ISA allowances and a new savings allowance that meant there was no income tax to pay on the interest even for many with substantial funds in the bank. Assets, then, have continued to be supported: what’s faded is the ambition of assets for all.

Too vague to connect with voters?

So the question remains why the ‘asset-based’ efforts to give more people a ‘stake’ in the economy never achieved the sort of stake in the political settlement that would have made it hard to dislodge. Part of the answer, which we’ll get to in the next two posts on the detailed evidence and the policies tried, might be that the initiative was simply too vague. Few voters, after all, worry about ‘assets’ in the abstract. If the real issues that matter to people are, housing, higher education or funding for business start-ups, then policies directly targeting these things might be more effective and also better-supported at the ballot box.

Overwhelmed by a bleak bigger picture?

Another plausible part of the answer could be that the initiatives were simply overwhelmed by the grim wider context for households since 2008. It’s hard to argue that supporting people today who have few assets to acquire a few thousand pounds towards education or homebuying will transform anything much in the face of high university fees (which mean that students are anyway fated to leave education in heavy debt) and high house prices and mortgage deposit demands (which together imply young people would need several times more in order to take that first figurative ‘step on the ladder’). In our final post we’ll return to the question of whether – in today’s testing world – any assets agenda would have to be far bolder before it could credibly claim to achieve anything much.

At the same time, among people with the least assets, it is always tough – and sometimes dangerous or plain wrong – to suggest that the priority can or should be anything other than immediate consumption. Especially amid the sort of poverty crisis we are living through at this moment.

The unloved finance factor

These are deep ‘policy’ problems which later posts will return to. But it’s just worth registering here how heavily the original ‘asset-based’ impetus bore the hallmarks of its times – times that have decidedly passed. Much like the parlance on ‘human capital’ and ‘social capital’, the rhetoric of taking a ‘balance sheet’ view of family finances resonated more naturally before the financial crisis than it has done since.

In the early 2000s, before it was clear how many of the financiers’ contracts were dangerously disguising rather than managing risk, crude textbook economics was heavily and often uncritically leaned on for making sense of society and its problems. Politicians cultivated connections with banks and financial services firms, which were seen as successful and not yet as mistrusted as they would soon become. If a policy like the Private Finance Initiative (PFI) suited finance, that was seen as a plus. Subsidising a mass of savings and individual pension accounts for private management was likewise welcomed as an opportunity for the sector, not sniffed at as an opportunity for profiteering. It is a remarkable sign of how far the mood has changed that the current Conservative government’s modest ‘help to save’ programme is something ‘you can only open with the Government-backed bank NS&I’, whereas an officially-stated purpose of the earlier Labour Saving Gateway was ‘encouraging people to engage with mainstream financial services’.

Security becomes top political priority

Yet another difference between then and now is the political premium – which grew stronger after the financial crisis – on security above all else. In a world of rising anxiety about everything from the future of work to climate and international relations, the desire for a reliable base of income might be relatively sharper than that for an asset that can be used to pursue thrilling but risky dreams. This is a speculative thought, but one that might help explain the shift of progressive energy away from the asset-based ideas of the 2000s and towards the Universal Basic Income.

A new conversation for today

In sum, it feels just as plausible that the last-millennial drive for asset-based welfare spluttered out in the way it did because its era had passed, as much as because the public sector was broke: less a case of ‘out of money’ than ‘out of time’. As we think through whether the agenda is worth renewing in some form, it will be essential to tailor both the design of any policy and especially the language around it for the present, and not the past.

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