What About Proper Tax Free Savings for Children

Posted by David G. Evans

This is a followup to a previous post - "Do you really understand Tax Free Savings for Children?" which you can find hereWe have looked at the problems or shortcomings of the current system, what is available and why it seems to be skewed towards the wealthy. Now we take a look at what we think should be done.

 What Could Be Done To Help With Education Costs?

What we would suggest are changes in the tax system to encourage ordinary families to save towards important and socially beneficial services such as education.  It is interesting that we want to encourage younger generations to study at university, but are only prepared to lend them the money (at high interest rates) rather than subsidising or completely funding them as we have in the past. What brought about this change and are students bearing the cost of the mistakes of previous generations? As students are generally forced to turn to student loans to fund their education, HootLoot wonders what message are we passing about debt and borrowing? Do we want a society that is increasingly comfortable with higher levels of debt, particularly given the current local and global debt problems. Do we wonder why so many students are not paying back student loans? How can we make the situation better? 

Why Not Make It Easier, Earlier On

If education resources are strained, why don't we make it easier for those parents with the means to pursue private education for their children? This may sound like a statement to help those that don't need help, but the intention is quite the opposite. By encouraging those families at the margin of affordability to pursue private education, it would relieve pressure on the state system and government finances. A child in state funded education is a 100% liability of the state, whereas a child subsidised into the private section may only be a fraction of this (the rest paid by the parents). The net effect would be to free up resources for those more needy but financially unable to pursue the private route. Such a system could be implemented in a similar way to childcare vouchers through the earnings / tax system and be based on income levels with caps or cut off points.

What About A Proper Tax Free Education Fund?

Alternatively why not create a broader category of tax efficient savings for education. Parents could contribute from pre tax salary at any time, not just when the child is attending a specific institution. The tax benefit could be tapered with reduced benefit at higher marginal tax brackets, but still one the incentivises saving at all levels. This would be similar in style to the Section 529 college plans in the US, but instead available for all education (primary, secondary and tertiary). The money allocated would not be a loss or drain to society as it is being reinvested in our future productive capital (our children) and will be recouped through taxation. If used in primary and secondary education we have seen how it can be beneficial for all, including state finances. If used for tertiary education they it may make it a little easier for those families at the margin to deal with living costs that are not covered by student loans. 

 Will It Happen?

This is not something that is currently being actively discussed, which is a shame. Possibly because of the divide between those that can and cannot afford private schools. Possibly because we have passed the liability for university to the next generation so don't see it as our problem or liability. Possibly because the government is so focused on bringing down debt levels that anything that could reduce the tax take is not a subject for current discussion. The list goes on and on. However you want to explain it, the UK is currently facing an issue over the availability and quality of education for the current generation of students. In the future we may be facing our own student debt issue, comparable to that currently experienced in the U.S. Given the current economic and political environment, it is time to think outside the box and find solutions that work. It may be fiscally convenient, but it is not clear that this solution is the best solution.    


Some Further Reading: 





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