The effect of lockdown, the move to on-line working and the recession that we are experiencing will be felt most by those in manual jobs and on low incomes. The Government’s coffers have been spent and its next challenge is to reduce its deficit. On-going help will continue in the form of Universal Tax Credit and similar. What is needed is a future for these families which can be provided by a child’s equity bond. A similar scheme was created by Gordon Brown but it lacked commitment and scale.
My scheme would be a fund of £50,000 for every child born since, say 1st March 2020, funded by a loan of the same amount. Equity returns consistently exceed 4.5% (the figure used in my calculations, after allowing for inflation), and bond interest would be expected to be 0.5%. The funds would be invested in UK FTSE350 Tracker funds (to avoid cost and bias from advisers) and mature at age 18. Calculations indicate a fund of £27k at this date AFTER re-payment of the loan, which is secured only on the trust fund. Three months prior to maturity the beneficiary would have a discussion with a mentor, from say The Prince’s Trust, about how to use the funds: maybe for tertiary education or to start a business, perhaps to travel, a mixture or any other use. Timing of the disposal can also be discussed: no-one would have been advised to realise such an investment in say April 2020. The benefit of this is not only to give every child a start in life, which would benefit those from low-income families more than those from high income, but also:
1. It’s free, save for any shortfall should returns buck the trends of the last 100 years. To meet these returns takes time because investments go down as well as up. The timeframe is sufficient to smooth these out;
2. It shows, at first hand, that wealth resides, to a very large extent, in equities, investment in which is how the top 1% have got richer;
3. Seeing this at first hand it could also encourage more entrepreneurship. Business mentors could be provided to validate business plans, via the Department for Business, Energy and Industrial Strategy;
4. It is the same strategy that the Government is employing – increase wealth (GDP) so that debt as a % of GDP reduces, and there is more wealth with which to service the interest and re-pay the debt;
5. It may even improve the birth rate!