Baby bonds
Back in 1995, the Adam Smith Institute’s report The Fortune Account proposed a way of funding our precarious present pay-as-you-go pension and social-insurance system. As the report said:
“Transferring future generations into the new fully funded pensions and social insurance system is straightforward. The account is opened at birth in the name of the child, with the government paying in the first £1000 to start it off. The £1000 will grow, either by interest or capital appreciation, even while the child is growing up. The child’s account might well be topped up by payments made into it by other family members, free of tax up to the normal limits.”
“A succinct and readable paper from the Adam Smith Institute,” Bill Jamieson called it in his article “Welfare: Here is your starter for 1000” in the Sunday Telegraph on 31st December 1995. “The purpose of the ASI’s Fortune Account is to build up a nest-egg for retirement. But the account holder will also accumulate savings that can be drawn in periods of unemployment, disability or medical expenses.”
In the year 2,000, the left-leaning Institute for Public Policy Research called for a £1000 ‘baby bond’, with the same ideas in mind.
“But wait a minute,” commented Bill Jamieson in his column on 20th Feb 2000. “Is this not the same £1000 Fortune Account first advocated by the Adam Smith Institute five years ago? I wrote about it here in December 1995?” Well, yes.
Tony Blair's ‘baby bonds,’ officially known as Child Trust Funds (CTFs), were introduced in 2005 as a Labour government initiative aimed at promoting savings habits and reducing wealth inequality among young people in the UK.
Under this scheme, every child born between 1st September 2002 and 2nd January 2011 received a government voucher to start a tax-free savings account: £250 for most children and £500 for those from lower-income families. An additional payment of the same amount was made when the child turned seven. Parents, family, and friends could also contribute to these accounts.
The CTF program was discontinued by the coalition government in 2011 as part of broader austerity measures. Government contributions were reduced in August 2010 and ceased entirely by January 2011, with the aim of saving approximately £500 million annually.
Now, among the 1,000-plus pages of President Trump’s tax bill is a proposal that would put federal money into accounts for babies born during his second term. Initially dubbed “Money Accounts for Growth and Advancement” (MAGA), the savings proposal was recently renamed “Trump account.” Sen. Ted Cruz calls the $1,000 investments “transformative” for future generations.
Under Trump’s “big beautiful” bill, qualifying babies born between Jan. 1st, 2025 and Jan. 1st, 2029 would receive $1,000 in a Trump account opened by their parents or the Treasury. The proposal has been denounced by Polly Toynbee in the Guardian, of course. The Guardian does not want to turn children into little capitalists with investment portfolios.
Yes the purpose behind the ASI’s original proposal 30 years ago was that these Fortune Accounts, paid into over the years would ultimately replace the welfare state, making most people independent of the state for benefits and pensions. Given renewed interest in the idea from across the water, it could be time to revisit this and see if a modern version might have traction.
Madsen Pirie