Below is the text of the speech made by David Blunkett, the then Secretary of State for Work and Pensions, on the Asset State on 5th July 2005.
Today the UK has the highest employment rate of any of the G8 countries. Unemployment is at a 30 year low and there are more people in jobs than ever before. A foundation of economic stability combined with investment in the New Deal and Jobcentre Plus has made this possible – beginning to tailor support to the individual and to break down barriers to work for many who had previously been written off.
In 1997, one in five families had no-one in work and one in three children were growing up in poverty. By supporting people in work and providing financial security for those who can’t work, we have now lifted over 2 million children and nearly 2 million pensioners out of abject poverty. Already we have taken major steps in tackling poverty and in building assets and social capital.
But in a world where longer healthier lives mean that the ratio of people in work for every person in retirement is set to halve in the next 50 years, we simply can not afford to be denied the skills and contributions of all those who can and want to work. The nature of the working life must change – as must the presumptions people make about that and the way in which we deal with it.
For too long the welfare state has been a safety net into which people fell and remained. I want it to become a ladder – supporting and enabling people to lift themselves up – to realise their potential and fulfil their ambitions.
We need to go further in breaking down barriers to work and tackling poverty. We need to address the modern world of the 21st Century where people can have 10 jobs in a career rather than 1; and where increasingly people’s assets are going to be as, if not more, important than people’s income – something that’s crucial for following generations as well as for current quality of life.
If we are to prevent future poverty as opposed to ameliorating it, the support we provide to enable people to build assets – both at an individual and a community level – will be absolutely crucial. If we duck this issue – we deal only with the immediate issue of an individual’s disposable income rather than the growing asset divide.
Recent years have seen an ownership revolution – from business and share ownership to homes.
Since 1997, household net wealth has grown by around 50% in real terms – with total household assets, including savings, pensions, life insurance and housing, standing at over £6 trillion.
The growth in home ownership has been particularly striking. In the 1950s, only 30% of British people owned their own homes; 70% rented. Today 70% own their own homes and 30% are renting. There are 18 million owner occupied houses, with a million new homeowners since 1997. This amounts to a 9 per cent rise in the numbers of homes owned and, encouragingly, the increase has been greatest in the least prosperous regions.
While 70% is comparable to many other English-speaking countries and significantly higher than the owner-occupation rates in European countries such as France (56%) and Germany (41%) – it is well below that of several Eastern and Southern European countries such as Portugal, Greece, Slovenia and Hungary, all of which have ownership rates above 75%.
When in April, Gordon Brown announced a new shared equity offer for thousands of new homebuyers, he said that it was time to see Britain as a wealth-owning democracy and a beacon for the world.
The Deputy Prime Minister’s Five Year Plan “Homes for All” set out the Government’s intention to assist at least 80,000 households into home ownership by 2010 as well as providing opportunity for up to 300,000 social housing tenants to buy a stake in their home. The Government has now confirmed that it hopes to increase the former by a further 20-30,000 following negotiations with private lenders, making it up to 110,000 in all.
Assets policies can offer unparalleled opportunity in the fight to prevent future poverty – stopping people falling into poverty when circumstances change and by enabling families to build inter-generational stepping stones out of poverty. Rather than merely being forced to depend on income support and other passive social policies that ameliorate poverty, assets provide a break to poverty in the future.
Just imagine the change in the next thirty years when Grandparents, aunts and uncles pass on their assets to the next generation in a way that was never possible before.
But as well as opportunity there is also danger. For those who are asset-poor will become ever entrenched in their poverty and ever further from the asset-rich.
We face a new equality challenge. There are still major issues of income inequality – but physical assets and financial holdings, share and bank balances, all provide the backcloth to the divide of the future.
As do non-material assets such as education and social capital. This can range from family and friends to the kind of communities people live in – both geographically and in terms of shared interests, concerns and aspirations.
There is also evidence that assets change behaviour with people thinking and acting differently when they are owning or accumulating assets.
Longitudinal studies show the value of holding assets. Research by John Bynner at the Institute of Education, using the National Child Development Study, found that holding assets in early adulthood led to better health outcomes, superior labour market performance and greater marital stability.
Assets and wealth ownership can provide security for people during times of change as well as significant positive psychological effects which can lead to improved life outcomes.
As Michael Sharraden said “Incomes feed people’s stomachs, assets change their minds.” My take on this is that income equals decency as a society but assets equal expectancy and self-determination in society.
Assets help the individual determine his or her own route out of poverty – as with, for example, individual development accounts in the US helping people to build resources to start a business or buy a car.
In this country the Child Trust Fund offers a first stepping stone to self-reliance and a stake in the world for those without inherited assets or substantial family income.
As early as 20th May, nearly half a million Child Trust Fund accounts had been opened out of 1.7 million vouchers sent out. We need to explore and exploit the potential of the Child Trust Fund to promote financial awareness and asset-building from a very young age.
The introduction of the Savings Gateway was also explicitly aimed at helping individuals and families build assets. In the initial Saving Gateway pilot, established in 2002, the Government matched individual’s savings pound-for-pound up to a limit and provided tailored financial advice and education to participants. The final evaluation report confirmed that matching can encourage genuinely new savers and new saving. The evidence showed that participants doubled their saving with minimal substitution from existing savings.
A new, larger £15 million pilot was announced in last year’s Pre-Budget Report. The accounts will run for 18 months and the first are already open. Halifax bank is providing banking facilities in six areas and the pilot will test alternative matching rates, different monthly contribution limits, the effect of an initial endowment and the support of a wider range of community financial education bodies. It will also be made available to a wider range of income groups than the first pilot and will inform the development of matching as a central pillar in the Government’s strategy for promoting saving and asset ownership.
We are committed to ensuring that the benefit system encourages households to save appropriately – and particularly for those on lower incomes. From April 2006, the threshold above which savings begin to reduce eligibility for Income Support, Jobseekers’ Allowance, Housing Benefit and Council Tax Benefit will be raised from £3000 to £6000. And the upper capital thresholds for Income Support and Jobseekers’ Allowance will increase from £8,000 to £16,000.
But access to mainstream financial services is restricted for many people on low incomes, imposing costs on those who can least afford them and preventing people from getting started on the savings ladder.
The scale of the challenge that faces us is highlighted by the fact that currently someone in a poor area is eight times less likely to start-up a business than someone from a wealthy area.
The Government’s strategy for promoting financial inclusion established a Financial Inclusion Fund of £120 million over three years to support access to banking, affordable credit and money advice.
In December 2004, the banks and Government agreed to work together towards the goal of halving the number of adults in households without a bank account – and to demonstrating significant progress in that direction within 2 years.
Together we need to look at further steps to build individual and family assets – but we also need to build assets for neighbourhoods and communities.
Futurebuilders is an innovative programme to assist front line voluntary and community organisations to build their capacity to increase the scale and scope of their public service delivery.
The fund – which has been allocated £125 million for the first three years and now a further £90 million for the subsequent two years – focuses on those services where either the private sector has shown little interest or the public sector has had difficulty in delivering effective services, but where the voluntary and community sector has the potential to bring added value.
Run by Futurebuilders England, a not for profit organisation located outside Government, Futurebuilders will invest in a minimum of 225 exemplar schemes and work towards creating a step-change in community sector service delivery, leading to greater self-sustainability for organisations and providing a longer term source of investment finance for service delivery for the sector.
The Adventure Capital Fund also plays an important role in helping to build assets held by community rooted and accountable organisations, as part of a wider asset building agenda.
ABL is a development trust in Bradford and the only building, in the worst affected area, not to be burned down in the riots of 2001. With an investment from the Adventure Capital Fund coupled with a commercial mortgage and pressure on the local authority, ABL has gone from having virtually no assets to having a managed workspace – incubating and supporting hundreds of businesses, worth £3.5m. The building produces revenues of £40,000 which are distributed as small grants to build social capital at a local level and heal the divisions of the past.
The Adventure Capital Fund has also invested in some credit unions, which play a key role in the wider agenda of building financial assets amongst the very poorest.
In Speke, Liverpool – the second poorest ward in the UK – the Riverside credit union received a grant and loan not only to build a more professional service, but also to increase its ability to attract wealthier savers. For example, a local GP was so impressed by the health benefits for his patients that he and his partners decided to bank with the credit unions, injecting capital that almost matched the initial investment.
It’s also important to see commercial financial institutions playing their role in the community. For example in Sheffield, Barclays have provided the core funding for the development of a community finance organisation called “Financial Inclusion Services Yorkshire.” The project involves a Community Development Finance Institution (CDFI), and a local credit union working in partnership and is being led by a former member of Barclays staff as part of their community placement programme.
Voluntary and Community organisations make a significant contribution to communities both through the direct services they deliver but also through their contribution to building social capital. The “ChangeUp” programme is funding the development of the support services for these frontline voluntary and community sector organisations so that they can successfully achieve their objectives for communities.
It’s incumbent on us all to work across and outside Government – including considering the concept of a community audit of investment in an area and how people can shape or control these resources for long term gain rather than immediate service delivery.
I’m also keen to look at how we can develop the social fund. In the short term, changes to the budgeting loan scheme from next April, supported by additional funding of £210 million over 3 years will give greater consistency and transparency in access to budgeting loans and will strengthen the contribution that the Social Fund can make to affordable credit.
In the longer term, we can not stop there, but must look more widely at whether the fund should be operated by Government or whether there is scope for greater partnership arrangements with third sector lenders. Social Fund reform could also link to the Savings Gateway and the wider financial inclusion agenda – so people build assets, become more financially confident and do not need to rely on emergency payments from the State in the future. Crucially this would entail looking at how to assist people with planning for the depreciation of the household goods and essential equipment purchased through the loans.
But even taking all this into account, the divide between a smaller number of have nots and a larger number of those sharing in prosperity, poses a real challenge. It isn’t the Galbraith 30-30-40 but it could well be the 10-75-15 – with as high as 15% excluded from society and prosperity. A dangerous potential persistent excluded minority – where generational disadvantage is passed not only from generation to generation – but through the community itself.
Those who can, leave; those who can find an alternative place for their child’s education do so; those who can’t – sink into ever greater despair. That is the reality for some neighbourhoods. Our task now is to snap open the trap: Through Surestart; through decent high quality education; through the immediate amelioration of poverty and our Welfare to Work programmes; and through fundamental regeneration programmes to provide a lasting legacy rather than an ephemeral pick-me-up where professionals arrive to do good but leave on the first tram as the programmes come to an end over the next two years.
We haven’t finished demolishing the evils that Beveridge identified in 1942 – namely want, idleness, ignorance, squalor and disease – which a new welfare state had to confront.
But it’s a different form of cliff-edge that we are talking about now. It’s a cliff-edge of taking individuals out of dependence on amelioration and into greater self-determination; taking communities out of the dilemma of time-limited funding and establishing an asset-base for the future.
I want the reform of the Welfare State to be a crucial element in both addressing this central issue and in focussing minds on a different role for the state than has been necessary over the last 60 years.
Reform of Incapacity Benefit and Housing Benefit require active welfare policies to help people on the road to greater self-determination. At the heart of pension reform has to be giving everyone the opportunity to build assets for the future.
Welfare policy needs to get much better at preparing people for difficult times or transitions in their lives.
Collectively we must examine how we face the asset and aspiration gap at home – just as we are concentrating rightly at the G8 on the much bigger, much more difficult and more dangerous gap worldwide.
Together we must work to bridge the gap between the asset-rich and the asset-less. Together, Government and the financial services industry must work with individuals, families and communities to unlock the potential of an asset state and build a future of welfare that does our part here in the UK to make poverty history.