Plan to give every child £1,000 state 'baby bond'

Every newborn should get a £1,000 "baby bond" from the Government to be invested until they reach 18, a left-leaning think-tank recommends in a report published today.

Every newborn should get a £1,000 "baby bond" from the Government to be invested until they reach 18, a left-leaning think-tank recommends in a report published today.

The proposal, which aims to overcome the great inequalities in life chances among young adults, is likely to get the backing of key cabinet members when the Labour Party draws up its next election manifesto. However, the Institute for Public Policy Research recommends its proposed baby bond should not be means tested, a view that is likely to prove more controversial.

The plan draws on United States pilot programmes to give young people with no savings a start on funding expensive higher education.

Wealth is distributed even more unequally than incomes. Half the UK population has less than £500 in savings and one-tenth has no savings at all, which means many find it hard to finance education or training, buy a house or start a business.

The proceeds of each person's baby bond, invested in an Opportunity Fund, could be used for any purpose to better the individual's life chances. A lump sum of £1,000 invested in shares in 1981 would have grown to about £3,500 by 1999 - enough to pay for three years' university tuition fees, put down a deposit on a flat or provide seed money for a small business.

Evidence from American studies shows that savings act as a cushion against hard times, and people with low or no savings are more likely to become ill or be unemployed. They are also less likely to have a good education or a stable marriage. "Individual ownership of assets has a crucial impact on life chances," the institute report says.

It argues that the Government should follow the initial £1,000 gift with extra payments for children of people on low incomes, matching every £1 invested in the bonds by family with up to £3 from the state.

Family, friends and businesses should also be able to contribute to a child's fund tax-free, giving even more of a boost to the youngster's start in adult life, suggests the report, called Ownership for All.

The annual cost of more than £720m (assuming 720,000 births a year) could be funded by abolishing top-rate tax relief on pension contributions, the report argues.

Gavin Kelly, one of the report's co-authors, said: "We want to move towards a more equal and socially stable society in which every young person has the necessary resources and opportunities to shape their lives. "

The Government has moved away from universal provision of benefits towards greater means-testing; but the report argues against means-testing the baby bond, saying universality would help to ensure widespread support.