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Assets, equality and the crisis

Rajiv Prabhakar


Building an egalitarian property-owning democracy could form part of a renewed Keynesian political economy. This entails crafting policies that attack wealth inequality directly.


The global recession has revived the fortunes of Keynesian political economy. ‘Keynesian social democracy’ was influential in both ideas and policy for much of the period in Britain after the end of the Second World War. However, this approach was eclipsed by the rise of free market ideology and policy since the 1970s (Marquand, 2008). Current events have, however, raised the profile of Keynesian ideas.

In his General Theory of Employment, Interest and Money, Keynes wrote that the ‘outstanding faults of the economic society in which we live are its failure to provide for full employment and its arbitrary and inequitable distribution of wealth and incomes’ (Keynes, 1936, 372). Building an egalitarian property-owning democracy was an important theme of a later generation of reformist thinkers such as Anthony Crosland and James Meade.

In this article I suggest that measures such as these could form part of a renewed Keynesian political economy and as such assets are still relevant today. However, such a stance would mean a change in the present direction of government policy, with more weight on tackling wealth inequality rather than stimulating a savings habit.


New Labour and asset-based welfare: kick-starting a savings habit?

Asset-based welfare is one of the most innovative parts of the Labour government’s social policy agenda. Asset-based welfare suggests that the individual ownership of assets such as savings is an important part of individual welfare (Sherraden, 19991; Paxton, 2003).

The Labour government has led the world with the introduction of a Child Trust Fund (CTF) which provides all babies born from September 2002 with a £250 or £500 grant from government, with the higher endowment going to children from lower-income backgrounds. These grants are supposed to be placed in special accounts that are locked for 18 years. Up to £1,200 can be saved into these accounts each year. At age seven, the government places a £250 or £500 top-up in these accounts (HM Treasury, 2003; 2006). The government has added to this agenda with the announcement of a Saving Gateway policy which provides for the introduction of special savings accounts for those on low incomes from 2010. Government will match 50p for every £1 saved in these two-year accounts. Up to £300 government contribution is available after a person has been saving for two years. The match is only available for those months that a person has been saving.

The dominant way that the Labour government has shaped asset policy is as a way of encouraging saving among the population (Finlayson, 2008; Watson, 2008). The ‘CTF is a vital element in the Government savings strategy which aims to ensure that a range of savings products is available to suit people at all stages in their lives’ (HM Treasury, 2003, 1). The titles of the initial consultation documents Saving and Assets for All and Delivering Saving and Assets highlight the connection between assets and saving (HM Treasury, 2001a; 2001b).

However, this rationale has suffered because of recent events on financial markets. One report noted that a third of a billion pounds has been wiped off the value of Child Trust Funds owing to falls in share markets during 2008 (BBC News, 2008). Liberal Democrat shadow chancellor Vince Cable remarked that:

the irony of this whole exercise is that a scheme that was primarily designed to encourage people to think about long-term savings, may have exactly the opposite effect. Because if – for the first time in their lives – people have actually saved money and they've saved it through this scheme and they've lost a lot, the lesson they're going to learn is this is not a very sensible thing to do. (reported in BBC News, 2008)

Does financial turmoil undermine the case for asset-based welfare? Is asset-based welfare an irrelevance in the face of current financial events or worse a cause of present problems? The current financial crisis has affected many areas of economic activity, not just assets. Closures of prominent high street stores in Britain such as Woolworths as well as bail-outs requested by the US car industry highlight the general risks facing the economy. Problems are not unique to assets and so remarks about assets should be made in the context of general economic challenges.

However, on the specific point about the CTF, the effect on saving remains an open question. Falls in stock-markets have had a negative impact on those CTFs containing investments in equities. The overall impact on saving remains to be seen. CTFs are a long-term policy, and the first accounts do not mature until 2020. Savings might pick-up as the financial crisis subsides.


Progressive conservatism: ‘recapitalising the poor’

The right have also showed interest in assets. Demos is hosting a ‘progressive conservatism’ project that explores how conservative means might achieve progressive ends, a key theme of which is ‘recapitalising the poor’, that is, providing people with assets.

At the launch of this project, Phillip Blond called for a ‘new conservative agenda of ownership extension and security … a new popular philosophy of asset extension and stakeholder equity capitalism is required’ (Blond, 2009, 6). Blond notes that in 1976 the bottom half of the population owned 12 per cent of the nation’s liquid wealth, while by 2003 this had fallen to 1 per cent. Conversely, the proportion held by the top 10 per cent increased from 57 per cent to 71 per cent in the same period. Blond argues for a recapitalisation of the poor to counter this tendency. David Cameron echoed this idea in a speech proclaiming that it was time to: ‘spread opportunity and wealth more equally through society and that will mean ... recapitalising the poor rather than just the banks’ (Cameron, 2009).

Max Wind-Cowie (2009) provides the most detailed picture to date of what this recapitalisation might mean in practice. He argues that a progressive conservative approach is built on three core assumptions. First, a ‘something for something’ approach where state help is matched by a duty by people to help themselves. Second, children should have a fair start with action to tackle unequal starting points in life. Third, ownership is good because it has positive effects on behaviour and gives people a stake in their society.

Wind-Cowie rejects, however, a programme of redistribution to reduce existing wealth inequalities:

Progressive conservatives reject both the current settlement and any attempt to undermine the concept of ownership through a massive and ongoing redistribution of privately held assets. Instead they look to the status quo and ask how it might be used differently, in order to redistribute from the state to the individual, and from a person (through their welfare entitlements) to themselves. (Wind-Cowie, 2009, 18)

To recapitalise people, Wind-Cowie prefers to divert resources from existing programmes rather than redistribute from the wealthy. This can be seen in the policy ideas outlined in his pamphlet. One proposal is to capitalise housing benefit. Wind-Cowie says that housing benefit is used to pay for rent and so is ultimately ‘dead money’ as it does not help people acquire a stake in their home. He argues that allowing people to capitalise housing benefit will help them buy such a stake. Another idea is to divert part of poorer people’s taxes and use this for programmes to help them save. He suggests that for people aged between 16 and the state pension age, half of the income tax of those who earn less than £15,000 a year should be ring-fenced to help them save into a pension policy of their choice.

This reluctance to redistribute features as one of the most prominent policy commitments of Cameron’s Conservatives. George Osborne’s promise at the 2007 Conservative party conference to raise the threshold of paying inheritance tax from its then level of £300,000 to £1 million is seen as a key reason why Gordon Brown did not call a snap general election in that year (Prabhakar, Rowlingson and White, 2008). Osborne repeated this pledge in a recent speech on June 9 2009 on Britain’s new economic model (Osborne, 2009a). An earlier Conservative party policy review headed by John Redwood recommended abolishing inheritance tax altogether (Economic Competitiveness Policy Group, 2007).

Progressive conservatives propose to recapitalise people by weakening forms of public help that social democrats are likely to regard as valuable. Housing benefit will be curtailed, and ring-fencing part of the tax receipts of poorer people will reduce revenues available for public services elsewhere. Although Wind-Cowie does not suggest that assets should be a complete replacement for income benefits and public services, his proposals nevertheless mean a rebalancing of public spending from the latter to the former. Others may place more weight on ensuring that assets do not eat into income benefits and public services (Lister, 2006).


Economic arguments for attacking wealth inequality

The global recession has revived interest in Keynes’s ideas (Hutton, 2008; Clarke, 2009; Skidelsky, 2009). Perhaps the most well-known part of Keynes’s arguments concerns the importance of spending for employment and growth. Spending can boost employment through a ‘multiplier effect’ where the employment stimulated by initial expenditure is magnified or multiplied by further spending that the initial outlay gives rise to (e.g. newly employed workers who then spend their wages in shops). In a recession, it is important to stimulate employment through spending.

Keynes criticised wealth inequality as part of this argument, identifying excessive thrift as one of the problems with inequality:

only in conditions of full employment is a low propensity to consume conducive to the growth of capital ... Thus our argument leads towards the conclusion that in contemporary conditions the growth of wealth so far from being dependent on the abstinence of the rich, as is commonly supposed, is more likely to be impeded by it. One of the chief social justifications of greater inequality of wealth is, therefore, removed. (Keynes, 1936, 373)

The wealthy have a low propensity to consume out of their income and wealth. To stimulate spending, Keynes suggests that it would be better to redistribute wealth to those who would be more likely to spend money. This is particularly important when the economy is operating below full employment.

Keynes also questioned whether inequality represents the best use of economic resources. Inequality means that the returns to economic resources come through rent. Keynes suggested that it would be better for growth if the part played by rent was reduced. This could allow, for example, a greater role for innovation:

The owners of capital can obtain interest because capital is scarce, just as the owner of land can obtain rent because land is scarce. But whilst there may be intrinsic reasons for the scarcity of land, there are no intrinsic reasons for the scarcity of capital ... I see, therefore, the rentier aspect of capital as a transitional phase which will disappear when it has done its work. (Keynes, 1936, 376)

More recently, some have argued that inequality is the main cause of the current recession. According to World Bank economist Branco Milanovic, fortunes meant that the rich had large surpluses left over after their consumption wants and needs were met, their search for profitable investment options leading to increasingly reckless investments; while lack of wealth meant that the middle classes relied more heavily on credit markets to pay for their lifestyle. The credit boom and the collapse of highly risky investments combined to cause the financial crisis (Milanovic, 2009) (1).

These arguments are part of a broader tradition that emphasises the importance of equality for economic growth and social development (Meade, 1964; Glyn and Miliband, 1994; Wilkinson and Pickett, 2009). There is room for debate about which argument provides the best economic case for wealth equality today. Thus, the character of any renewed Keynesianism is a topic for further discussion. The main point, however, is to insist on the significance of equality for the economy.


Policy implications

Keynes did not outline detailed policy proposals in his General Theory: ‘It would need a volume of a different character from this one to indicate even in outline the practical measures in which they might be gradually clothed’ (Keynes, 1936, 383). Part of a renewed Keynesian approach might explore measures for reducing wealth inequality.

One type of policy that Keynes showed interest in within his General Theory was inheritance tax. Transfers of wealth allow inequality to be transmitted across generations. Rich parents can beget rich children. Taxing such transfers can help reduce wealth inequality. Martin O’Neill has argued in these pages that such a tax should form part of any just system of taxation (O’Neill, 2007). He says that both left and right should in fact support taxing wealth. For example, neo-liberals should support a wealth tax because it help creates a level playing field within free markets. One of the options that O’Neill considers for the future is having a capital receipts tax where a tax is placed on the amount received by individuals.

Providing people with assets forms a second way of addressing wealth inequality. Centre-left commentators have often combined both, proposing to use a wealth tax to pay for assets. An important part of revisionist socialist thought during the 1950s and 1960s supported creating an egalitarian property-owning democracy. Figures such as Douglas Jay, Hugh Gaitskell, Anthony Crosland, Hugh Dalton, Roy Jenkins and James Meade were interested in spreading ownership throughout society (Jackson, 2005).

More recently, Julian Le Grand and David Nissan provide an example of spreading assets in their proposal that all young people should be provided with a £10,000 grant once they turn eighteen. The purpose of this grant is to provide young people with access to a substantial stock of capital. This grant is then intended to help them accumulate further capital. This includes paying for training, starting a business or putting a deposit on a home. This implies orienting public policy to encourage the acquisition of human and non-human capital. Le Grand and Nissan propose a wealth tax to pay for these grants. They note that the current taxation of inheritances in Britain is unfair, with rich people being able to exploit loopholes to avoid paying the tax. They estimate that grants would be paid to around 650,000 individuals a year, and that a 12.5 per cent tax on inheritances would be needed to pay for these grants (Le Grand and Nissan, 2000).

Many of these proposals were developed in good economic times, with rising growth and employment. One might argue that this shows that, as with today, asset-based welfare is a policy for good economic times (2). However, the Keynesian emphasis on equality for economies below full employment highlight a counter-argument that can be developed that shows that assets may be more relevant in trying economic conditions.



Developing a neo-Keynesian approach would suggest a shift in the current shape of asset-based welfare. In particular, spending not saving is likely to be important for dealing with the recession today, and this undermines the emphasis government places between assets and saving. This entails crafting policies that attack wealth inequality more directly, rather than focusing on efforts to encourage a savings culture.

Care should be taken to avoid overstating the difference between wealth equality and savings. Savings form one type of capital, and helping those without assets to accumulate savings can build up their stocks of wealth. Savings can provide people with a financial cushion that helps them cope with poverty (Lister, 2006).

Nevertheless, a distinction can be drawn between assets as wealth and savings. It has been noted that the modest size of the Child Trust Fund endowment means that it is unlikely to have much impact on reducing levels of wealth inequality in Britain (Emmerson and Wakefield, 2001). Focusing on wealth inequality means the provision of a more generous initial endowment, perhaps funded through some form of wealth tax.

At the time of writing, the future of the Child Trust Fund looks uncertain. George Osborne has announced that a future Conservative government would scale it back to the poorest third of families as well as those children with disabilities (Osborne, 2009b). Of course, harsh economic times mean that all spending programmes come under scrutiny. However, the progressive credentials of progressive conservatism can be questioned if it means cutting inheritance tax that would benefit the very wealthiest in our society while also restricting an asset that goes to all children.


The research in this paper comes from a grant received from the Economic and Social Research Council on ‘The Assets Agenda: transferring knowledge on assets, financial education and wealth inequality’ (RES – 189 – 25- 0002). I am very grateful for financial assistance received from the Economic and Social Research Council. Thanks also for helpful comments received from Martin McIvor and an anonymous reviewer on an earlier version of this paper. All remaining errors are my own.



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1. Thanks to the reviewer for this reference.

2. I am grateful to the anonymous reviewer for this historical point.