The idea behind a universal grant of basic capital (UBC) is simple. The state makes a one-off grant to every citizen. The grant is made at birth, at the age of majority, or at some later point in their young adult lives. The UBC may be the same for all, or a minimum amount plus a top-up for citizens who are on low incomes, have low wealth holdings or who are otherwise disadvantaged. It is financed either from general tax revenues or by a wealth tax, such as a tax on inheritances or on wealth-holdings.
UBC is a relatively old idea, originating with Thomas Paine, who proposed that everyone reaching the age of 21 should receive £15 out of a national fund financed from a tax on inheritances. I introduced it into modern policy discourse, proposing in a variety of publications in the 1990s that a grant of £10,000 should be awarded to every citizen on his or her attaining the age of majority, again funded by inheritance taxation (Nissan and Le Grand, 2000).
Another version of UBC was put forward in 2000 by Gavin Kelly, of the Institute of Public Policy Research (IPPR), a progressive policy think tank. Titled a ‘baby bond’, this was a grant awarded to every citizen at birth that would be invested in a savings account or in some other savings vehicle, the accumulated funds from which could be used by the recipient on attaining the age of 18 (Kelly and Lissauer, 2000). This version of the UBC idea formed the basis of the Child Trust Fund, a policy that was actually introduced in the United Kingdom in 2003. Sadly, it fell a victim to the financial crisis and was abolished in 2011.
Why a UBC?
Every young person on attaining the age of majority will do so with endowments of capital, but of different kinds. All will have human capital – physical and intellectual abilities and skills – acquired partly through their genes and partly through their upbringing and education. But only a few will have access to capital in the form of financial and property wealth, either directly through gifts or inheritance, or indirectly via the bank of Mum and Dad. With human capital, most governments try to ensure that everyone has the opportunity to acquire the skills and knowledge needed to enhance their stock through public education. But government policy rarely extends to financial and property capital. Yet inequality here is massive.
The Office of National Statistics provides data on the distribution of inheritance, gifts, and loans in Great Britain. Few young people received any capital gift or inheritance at all over the two years surveyed by the ONS: just 2% of those aged 16-24 received an inheritance, and 6% a gift or a loan. Things were better for the next age-group (25-34), with 4% receiving an inheritance and 11% a gift or a loan.
However, the inheritances were concentrated on those already wealthy. The wealthiest 20% of those aged 16-34 – with wealth defined before inheritance – were three times more likely to receive an inheritance than their counterparts in the bottom 20%. Further, the mean value of the amount the lucky recipients received in the wealthiest 20% (£92,100) was nearly eleven times larger than that received by recipients in the lowest 20% (£8,500). So, not only were there more people receiving inheritances among the already wealthy, the inheritances were substantially larger than those received by the least wealthy.
So, in terms of social justice alone, there seems to be a strong case for developing a UBC as a move towards a more equal distribution of the inheritance of wealth, particularly among the young. But there is an even stronger argument for a UBC in terms of encouraging good health and spreading prosperity.
This benefit arises from the impact that a UBC can have on people over their lifetime. Evidence from longitudinal studies show that young adults’ ownership of financial assets has a significant impact on their subsequent lives and livelihoods. The simple fact of owning assets at age 23 has been shown significantly to improve young people’s adult lives, increasing their employment, their earnings and even their general health and psychological well-being , at the ages of 33 and 42. These relationships generally remain even if the amount of asset-holding is small (£200-£1000), and when controlling for other possible determining factors, such as income, class, and personality type. [McKnight and Karagiannaki, 2013]. And they apply to both women and men.
How does UBC do this? There seems to be an ‘asset effect’, with the ownership of financial assets increasing both individuals’ sense of independence and their capacity for agency. This is likely to be beneficial both psychologically and materially. It helps give both confidence and capital to those who want to take a risk: to start a business, for instance. And, of course, it can be used to acquire other forms of capital, including human capital through helping pay for university, or property through putting a down payment on a house. In short, it can act as a springboard for young people, enabling them to acquire capital or wealth and thereby live adult lives that are healthier and more prosperous.
UBC and a Citizen’s Day
So there is a good case for a UBC scheme that awards a grant at the age of maturity. The importance and significance of the grant could be enhanced by awarding it through a public ceremony, rendering it more politically salient and less susceptible to being removed or reduced. If the grant was to be awarded at 18, coinciding with the age at which people can vote and the age they become eligible for jury service, it could be presented as part of a Citizen’s Day to be celebrated for each new citizen: a Day when a young person becomes a fully-fledged adult, endowed with both the rights and responsibilities that come from being a member of the national community.
Given the current demands on public expenditure, it will not be easy for any government to introduce UBC. But the problems it is intended to address – inequality in wealth and the absence of an ‘asset effect’ on long-term outcomes for the less well-off – will remain. It could be politically popular, especially if packaged with a Citizen’s Day. Even more importantly, it would be a powerful instrument to help the young, to revitalise the British economy and to rejuvenate the wider society.
This is a shortened and revised version of an article originally published in LSE Public Policy Review 2020.
About the author
Professor Sir Julian Le Grand is Professor of Social Policy at the Marshall Institute for Philanthropy and Social Entrepreneurship at the London School of Economics and Political Science. An economist by training, he is the author, co-author or editor of twenty books, and more than one hundred refereed journal articles and book chapters on economics, philosophy and public policy. Julian was awarded a knighthood in 2015 for services to social sciences and public service.
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