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Savings, debt and assets
Wealth, funding and investment practice

Own goal: a progressive agenda for assets must fit the bigger picture, or risk self-defeat

Myriad policies have been pursued in the name of building a society of stakeholders. But in this essay – the fourth and final piece in his series – Tom Clark reviews the many questions such rhetoric always leaves hanging.

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It happens to be exactly 100 years since a modernising Tory MP, Noel Skelton, coined the phrase a ‘property-owning democracy’ in a series of articles in the Spectator. In the century that followed, as well as being a winning slogan for his own party, that phrase – or close variants – were also embraced by the postwar Liberal party, the nascent Plaid Cymru and successive generations Labour revisionists, as well as popping up in the philosophy of John Rawls.

The lofty ambitions of the turn-of-the-millennium ‘asset-based welfare’ impulse, highlighted in the first piece in this series, can thus be thought of as one more in a long line of ‘asset-spreading’ agendas. The durability of ‘property-owning democracy’ type-rhetoric is revealing in two ways.

The first is that the promise of an economy in which ‘the many’ have a ‘stake’ has immediate and ranging appeal. While officials may be detained by the thorny questions of evidence I dedicated my second piece to, politicians running for election have often felt that this is good turf to be on, purely as a matter of instinct.

The second point is that this sort of language is suspiciously elastic. It can stretch across times and places, sprawl across different political tribes and ideologies – and be wrapped around very different concrete plans. For Skelton, the focus was on independent agricultural smallholdings, ‘industrial co-partnery’ and ‘profit-sharing’. Later generations of Conservatives switched the emphasis from building up wealth in the workplace to building wealth in the home, rationalising first mass home-building, and later mass home sell-offs in terms of the property-owning democracy. The Thatcherites also touted the subsidised sale of public corporations as a way of democratising capital. For left liberals, by contrast, employee-owned enterprises and consumer co-operatives are a better route to that goal. For increasing numbers of contemporary Greens, the way to get there is very different again: nurturing assets that can be collectively owned and sustainably managed by whole communities.

In sum, similar – and similarly grand – language can get pinned onto policies aimed at solving entirely different problems, which pull in very different directions. In figuring out exactly where research and policy can most usefully press to advance a new ownership agenda for the 2020s, we need to be alert to this conflation – and untangle the strands.

Policy versus politics

Another thing to disentangle is sound public policy and smart politics. The two are not always the same thing in this area, but can sometimes pull in different directions.

On the policy side, there is building evidence for the independent importance of various ‘asset effects’: affecting child development, mental health, opportunity and more. The fact that we have recently learned, to take just one example, that people with minimal savings are prone to wake up worrying at night more than twice as often as those with meaningful rainy-day funds provides additional reason to think of poverty not merely as defined by low income, but also – to borrow from corporate parlance – in ‘balance sheet’ terms. In sum, the asset-based welfare enthusiasts of 20 years ago were on to something.

But the political lesson that we uncovered in reviewing their initiatives was that it was very difficult to make generalised fixes for ‘asset poverty’ stick. The plug was pulled on the Child Trust Fund, the Saving Gateway and, in the US, on federally-funded Individual Development Accounts – all without any electoral price being paid.

Against this backdrop, if we want to pursue the goal of widening ownership again, but next time in a way that lasts, it will be important to be much clearer with voters about exactly which problem we are trying to solve – and how. Clarity, then, is of the essence. It follows that one precondition for making the reality of asset poverty treatable is to make the sprawling subject of ownership tractable.

With that aim in mind, the rest of this final essay teases out various research and policy questions about assets and wealth, and clusters them under four broad headings. In doing so, I draw once again on many hours of conversations I’ve had in the course of writing the series, with people who have often disagreed, but who have nonetheless all thought long and hard about the role of assets in social justice.

The cash point

Looking at more than one survey, we have found that something like a quarter of adults in the UK have either negligible savings or negative net financial worth, with debts exceeding liquid assets. This makes an everyday mishap like a broken boiler, a sickening dog or a car breakdown traumatic and, potentially, a trapdoor to unmanageable debt. Moreover, even in months where nothing unexpected actually goes wrong, living a life without any buffer means there’s always reason to worry – which explains the chilling mental health effects we’ve reported. We can conclude with confidence that we would live in a happier and more tranquil society if everybody had access to emergency funds.

That said, there is a raft of questions about the most effective way to further that ideal. How, for example, to design a policy to support those with no savings which doesn’t penalise those who’ve scrimped to build up a buffer of their own? One solution to that dilemma are ‘matched’ savings schemes for those on low income, but can these be designed without short-changing those so pressed that they cannot save anything at all? What priority to give to such schemes as against debt relief for those who are already way behind on their bills (a fast-swelling group, according to JRF research), or indeed debt advice to prevent even more people heading the same way? How, within the social security system, to weigh the urgent need to restore something like the old social fund ‘crisis loans’ for the penniless against reforming the punishing capital rules in Universal Credit which hit those poorer people who do have meaningful savings, by imputing a wildly unrealistic interest income accruing at around 20 percentage points above inflation?

So there is a lot of detail to work through, but some things are already clear. One is that the overall pattern of existing ‘tax expenditures’ and subsidies for liquid assets are hugely skewed towards the well-off, who can max out generous ISA allowances and other loopholes. Another is that even pretty modest levels of savings offer appreciable protection against insecurity and anxiety. Which implies that even a modest rebalancing of these resources towards those with no current buffer could make a big difference.

Homes and pensions

Zoom out, and set cash savings alongside pensions and property, and they suddenly look like one very small corner of the big picture on wealth. Crucial as liquid assets may be, people with substantial resources typically keep far more of them in property and dedicated retirement funds. Many others, of course, are abjectly lacking in both these things as well as cash. And increasingly so.

The current interest-rate spike threatens a lot of homebuyers with serious hardship, and commands terrific political attention. But unless it persists or triggers an almighty property crash, deeper tides will continue to be more consequential.

Over the 21st century so far, there has been a ‘swing’ between tenure categories of over 10 percentage points across the working-age population, away from homebuying and towards private rental. That represents a large growth in the proportion of citizens who are not building up any property stake during work life. At the same time, there is rising concern that decades of progress on pensions could be reversed among the next cohort of retirees. Away from the public sector, the traditional ‘final salary’ schemes on which the last two generations of progress were built have overwhelmingly closed, and – on some measures – only one low earner in 100 is saving adequately for retirement.

One big positive in the pension field is, thanks to the successful ‘auto-enrolment’ accounts now held by most employees, the basic architecture exists to ramp up savings if – a big if, after long years of squeezed pay – we can find an affordable way to ramp up contribution rates. Spreading housing wealth would require more innovation, especially because the most obvious fixes – like subsidies for first-time buyers – could self-defeat by pushing up prices, and thereby merely enrich existing owners.

Building homes is one part of the solution, especially if – as the Labour party has recently floated – land can be acquired cheaply so that the effect is not merely to puff-up wealth for the original property-holders. Beyond that, what scope is there for expanding shared-ownership schemes? Might there be a way to allow long-term renters to acquire some portion of the equity in the property they live in – or, at least, the right to acquire it on favourable terms? Would landlords respond with a stampede of sales? And if they did, would that necessarily be a bad thing, if it lowered prices to the point where more renters could think about buying?

Thinking big – and paying for it

These sort of ideas on housing are disruptive, but then – according to some of those I’ve spoken to for these pieces – the reason why the last asset-based welfare drive ultimately fizzled out unmourned is precisely because its measures were too small, and not disruptive enough.

On the political left, there was always a critique of the Child Trust Fund which saw it as irredeemably individualistic and charged it with making a fetish of personal financial agency, in an effort to square welfare policy with the requirements of the UK’s City-dominated economy. But even without adopting that sort of ideological lens, we can now see that the grander original hopes for the policy – about raising a generation of free and independent self-starters – were simply overwhelmed by larger realities.

As the deposits required for a home in parts of the country have swollen from a few thousand to several tens of thousands, the £2,000 or so that might be available from a mature baby bond seems by the by. Likewise, as average debt on graduation rockets towards £50,000, the accounts seem decidedly marginal to an individual’s decisions about investing in their own skills. Starting a business was another hoped-for use of subsidised asset accounts in both Britain and the US, but barring an unlikely return to the relative financial calm of the world before the banking crisis of 2007-08, most would-be entrepreneurs would want a bigger buffer today.

One possible conclusion is that it’s no use expecting transformation from a particular assets policy without grappling with the broader landscape it fits into. Another take is that the problem was simply one of scale. Thomas Piketty, the world’s leading economist of inequality, has proposed giving all twenty-somethings not the few-hundred-pound payments of the child trust fund, but €120,000 as a capital grant, explicitly redistributed via sweeping new taxes on wealth and inheritance.

All this feels very remote from the politics of a country where the opposition is currently ducking the idea of asking big wealth to contribute any more tax, and the prime minister is actually playing with cutting inheritance tax. Yet hopes of fairness and opportunity still turn on getting meaningful assets into the hands of youngsters who are not going to get them from Britain’s burgeoning but profoundly skewed cascade of bequests. And it remains hard to see how this could ever be affordable without some rationalisation and increase in the levies on established wealth.

This raises a host of technical questions about closing loopholes and whether to shift, for example, towards taxing recipients of gifts or bequests (as is common practice across the OECD) rather than staking everything on the donor, at the point of death. But reformers face political as well as technical questions, about how most effectively to challenge entrenched wealth – and develop the argument that the logic of centuries of shared social progress is some sort of social inheritance.

Common wealth

Perhaps the most disruptive questions of all concern what should count as ‘wealth’. Earlier in the series I noted a more-than-doubling in the value of private wealth relative to income was steadily rearranging a social order defined by ‘what you earn’ into one where position is more about ‘what you own’.

That, surely, can’t be a social advance. Nor does burgeoning wealth rank as economic progress if it reflects, not the creation of new and truly productive assets, but rather homeowners talking each other into believing their houses are worth twice as much as before – or indeed, electronically-minted ‘quantitative easing’ currency sloshing into financial markets and puffing up the value of pre-existing securities.

A radical reform agenda for wealth might be less about ‘more’ than ‘better’. It cannot be neutral on the form that wealth takes, seeing a world of difference between, on the one hand, a fossilised right to extract a stream of rents or repayments from some other person, and the means of producing something of extra value that wouldn’t otherwise exist. It cannot be neutral, either, between ‘assets’ that can support sustainable life on this earth and those that hasten its unravelling.

This sort of agenda is edging forward iteratively, advancing through opportunistic experiments rather than high theory. Radical stewardship of philanthropic endowments is another important arena. My colleague Jonathan Levy recently reported on a Boston-based scheme, one of many worldwide, for ‘non-extractive’ finance. Jonathan explains how loans for activists and entrepreneurs from marginalised groups are structured in special ways, to virtually guarantee that the net effect will be net wealth flowing into, rather than out of, a community. Through capped repayments, enhanced control rights and a preferential claim on returns, local citizens might be emboldened to take a chance on building up local assets in ways that would otherwise feel too risky.

This is just one way in which that portion of wealth that is already notionally held for the common good is increasingly being asked whether it is enough to sit back and rest passively in random stocks, before ‘deploying the proceeds’ for benign purpose. Or whether, instead, it needs to be sweating itself in the cause of progress at every stage. JRF itself has just this week staged a conference on the ‘next frontiers’ on harnessing philanthropic funds for the good.

A much older question, but one now being pressed with new urgency, is the appropriate balance between individually and collectively owned wealth. During the long ‘neoliberal’ age it lost salience. That is a slippery phrase which some charge with being empty, but as I’ve argued elsewhere one distinct feature of public policy after the 1980s was the deepening of private property rights, with 'new enclosures' affecting disparate aspects of life from intellectual property to housing. The institutional architecture of those years is now creaking under a weight of problems as varied as polluted waterways, unaffordable housing and climate change. Where broad social consequences flow from the way a particular asset is run, there is at least an argument for holding rather more of it in communal hands, so that more of those affected can have a say.

How, precisely, to do that is another question. Take the question of housing as an example of the options. One approach is traditional state management and provision, which – to take the example of the housing sector – might mean more council homes. Another now familiar approach might be ramping up the contribution of (and support to) social housing associations. But it might also be possible for less-familiar institutions to hold land for collective purpose. The strides made towards land reform in Scotland since devolution involving community trusts are one powerful example here, which have already inspired demands for community rights-to-buy and development in England and beyond.

Such questions might seem a long way from the pressing problems of the that quarter of Britons with nothing in the bank for when the boiler blows, but – as I hope I have shown – at least one reason why the last generation of asset-based welfare did not endure was the failure to make sure it fitted within a bigger picture.

Just as one person’s asset is another’s liability, questions about investments and capital buff up against each other. Which is why, for public policy and research alike, wealth is such a rich subject.

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