Me, Vince Cable, and the Child Trust Fund

For some unknown reason I find myself this afternoon on a panel at the National Housing Federation’s Leaders Forum. It’s not hard to see why they chose the other panellists: Lord Falconer, former housing minister and now Chair of a major housing association, Professor Christine Whitehead, housing expert from the London School of Economics and none other than Vince ‘Oracle’ Cable. But why me?

Fortunately it’s a Question Time format. I’ll just have to hope I don’t have to answer first until the joke question at the end: ‘assuming the recession reduces us all to penury what is the one possession you would want to take with you to the poorhouse?’. The answer, of course, would be my socialist-realist painting of ‘Comrade Sister’ Harriet Harman triumphantly leading the post election Labour Party into the wilderness.

I might try to persuade Vince that the LibDems are wrong to want to abolish the Child Trust Fund (only partly because it’s the one genuinely important and useful thing I have ever contributed to). So far, four million accounts have been opened up, many of them by families who would never have previously thought they had the ability or the reason to save. I would have thought if any party stood for the principles of the Trust Fund - inclusion, equity and family thrift - it would have been the LibDems. Latest statistics show that families are increasing their top up into the Trust Fund despite the recession, which reinforces the argument that the CTF encourages the saving habit.

Families with Trust Fund accounts can choose a safer or two more risky options for investment and, with the stock market tanking, the ones who chose the former will be thanking their lucky stars. This will include the lazy and disorganised, as those who fail to open an account themselves have one opened for them by the Treasury. Having said which, the first Trust Funds don’t mature until 2020 by which time even this downturn should be history.

As the equivalent on this afternoon’s panel of the ‘celebrity’ guest on Question Time who is allowed to be idiosyncratic (or simply idiotic), I feel liberated to speculate wildly. It seems to me that one of the effects of the recession is to destroy all the gains made on asset values (on stocks, shares and property) over the last decade. Yesterday the US stock market returned to its 1997 level wiping out the full effects of the last cycle.

The lesson I take from all this is that we should make it a policy objective that average economy wide increases in asset values stay broadly in line with GDP growth. Because GDP rises faster than inflation this still means there are reasons to invest and save, quite apart from the need for us to put money aside for rainy days and our retirement. As the RSA Tomorrow’s Investor project has shown simple indexation of saving could reduce pension fund fees significantly and make saving safer. And as behavioural economists have shown, speculators – whether private individuals or city whizz kids – rarely perform consistently better then the market as a whole.

If policy explicitly aimed at indexing assets to the overall growth of the economy, and if policies like the CTF and the new pension system increased the proportion of us holding assets, we would all benefit from the country’s prosperity and suffer together when we failed. This sounds good for the economy and good for social solidarity.