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Comment: Lifetime ISA – there’s a big part of the ‘next generation’ it will do little for. By Prof Josephine Maltby

Tuesday, March 22nd, 2016

By Prof Josephine Maltby Chair in Accounting at Sheffield University Management School. Originally published on The Conversation.

The mission statement for the 2016 budget delivered by George Osborne is to “put the next generation first” – a group he referenced 18 times in his speech.

The new lifetime ISA is fundamental to achieving this. Osborne touted it as “a completely new flexible way for the next generation to save”. But a closer look at the terms and conditions of the new ISA shows there are many it will not benefit.

So, what is it?

Starting in April 2017, savers aged between 18 and 40 who open the new lifetime ISA and put in up to £4,000 a year will get a 25% top-up from the government until they reach 50. That means a maximum of £128,000 in personal savings that will be topped up to £160,000 if you start at 18 and continue for the 32 years the ISA is available.

After the first 12 months of saving, investors can use the lifetime ISA balance to buy a house, provided it is a first-time purchase that costs no more than £450,000. And balances from the current Help-to-Buy ISA can be transferred across. After the age of 60, savers can withdraw funds “for retirement” free of tax. It is not clear whether that means the saver has to actually retire or just needs to be over 60.

Any withdrawals by savers under 60 who aren’t buying a house (unless they are terminally ill) will have the government top-up (plus any interest on it) deducted, and also suffer a 5% tax charge.


It is questionable how useful this new lifetime ISA is for the next generation. First off, it is not very flexible. Savers needing to draw money out before they reach 60 will be penalised if it is not being withdrawn for a first-time house purchase (or terminal illness). There is a dearth of opportunities for short or medium-term saving, and the budget offers no solution.

The Treasury’s own Policy Costings are also vague about what it will cost. The Treasury admits that:

The main source of uncertainty is the behavioural impact, because the cost of the top-up is extremely sensitive to it. In particular, assumptions are made about: the number of people choosing to use the lifetime ISA; how much they choose to save; and when they choose to withdraw.

There is little information that can be used to inform these assumptions and the behaviour is dependent on a variety of other factors, which amplifies the uncertainty.

Based on these uncertainties, the Treasury says it could cost £850m to service these ISA savings by 2021 – but this might be less or it might be more.

It all depends on the number of next generation members who can afford to use it. The £4,000-a-year maximum would be challenging for people on the median household disposable income, which for 2014-15 was £25,600 according to the Office for National Statistics.

On the other hand, as the Office for Budget Responsibility (OBR), the UK’s fiscal watchdog, points out, wealthy parents could give their over-18 offspring an annual £4,000 for the ISA, attracting the £1,000 a year top-up.

Knock-on effects

The lifetime ISA joins up with the Help-to-Buy Scheme, currently viewed as having boosted UK property prices – by an average of £8,250 according to a 2015 Shelter study. The OBR warns that the new ISA will only increase demand for the relatively fixed supply of UK housing. It estimates that this could lead to an additional 0.3% increase in house prices.

Up, up and away – house prices, that is.

The ISA has another possible function, as a first step in a move towards an ISA-based regime for pensions. Instead of getting tax relief on pension contributions (as you do now), people using a pensions ISA would contribute from income after tax, but get their retirement income from it tax free.

Critics claim that this change may deter savers, as well as creating confusion while the new auto-enrolment scheme is still bedding down. The Association of British Insurers has been very cautious in welcoming the new ISA, commenting that it “must not be a back door to a pensions ISA”. But there is agreement in the industry that the new ISA is a likely step in that direction.

The new lifetime ISA also looks like a move toward asset-based welfare. This is where welfare policies are made not simply because they are helpful for as many people as possible – like social housing or nationalised health services. The lifetime ISA is aimed at a particular set of relatively affluent individuals who can afford to save for the long term.

Many of the next generation will never be able to save; some won’t be able to start at 18 (and maybe not even at 40) and some won’t be able to leave a lot of money in an ISA for the long term. George Osborne’s new lifetime ISA has little to offer those members of the next generation.

The Conversation

This article was originally published on The Conversation. Read the original article.

Leading accounting Professor honoured

Wednesday, March 9th, 2016


Fourty-two leading social scientists have been conferred as Fellows of the Academy of Social Sciences, including Management School Chair in Accounting and Finance Professor Josephine Maltby.

Fellows are drawn from across the spectrum of academia, practitioners, and policymakers and have been recognised after a process of peer review for the excellence and impact of their work in the social sciences. This includes thought leadership based on innovative research, the application of evidence for policy, the adoption of social science insights in practice and sustained advocacy that has improved the public understanding of issues where social science can make a contribution in higher education, government, and everyday life.

Josephine has an international reputation for her work on women as savers and investors and in the history of the accounting profession. Recent pieces for The Conversation have investigated savings history and charity finances. She also maintains relations with businesses such as Ratesetter, a P2P lending company for whom later this week she will discuss women and investment on an invited panel – click here to read more about the event.

The Academy of Social Sciences is Britain’s national academy of academics, learned societies and practitioners representing nearly 90,000 social scientists.

Comment: Accounting for Kids Company – why charities’ books must add up. By Prof Josephine Maltby

Friday, February 12th, 2016

This article was originally published by on The Conversation by Prof Josephine Maltby. Read the original article.

The collapse of the charity Kids Company has attracted a huge amount of attention – not least as a result of the drama involved. Investigations into what went wrong have brought forth stories of teenagers queuing up to pick up envelopes of money from the charity that they promptly spent on drugs.

Reports also emerged that the charity claimed its closure would lead to riots and attacks on government buildings. And transcripts can be read of a long and rowdy session of the public administration and constitutional affairs committee of MPs, which investigated the closure of the charity and took evidence from Camila Batmanghelidjh, Kids Company’s founder:

Camila Batmanghelidjh: I would like to ask you on what basis you have decided that this is a failing charity. Because if it is on the basis –

Chair: Because it has gone bust.

The less dramatic story, and the more worrying one, is about financial control in Kids Company and the value placed on financial literacy across the charity sector.

Kids Company produced annual accounts which it duly deposited with the Charity Commission, the charity regulator. It went through the proper audit process every quarter, every year – something Alan Yentob, chair of the charity’s trustees, frequently mentioned in his evidence to the MP inquiry. However, the fact that every year referred to Kids Company’s shortage of reserves, and potential cash flow problems, seems to have been outweighed by the copious data making claims for its successes.

In 2013, for instance, its annual report (pdf) featured data on the problems of “750 exceptionally vulnerable young people” who had been successfully helped by the charity, and another 200 under-14s, one in four of whom had no tables and/or chairs in their houses. Kids Company was also very vocal in claiming that it supported “some 36,000 children, young people and vulnerable adults”. But this has been disputed, as only 1,900 cases have been passed onto London local authorities since its collapse.

MPs have asked questions of Kids Company founder Camila Batmanghelidjh and the charity’s chairman of trustees, Alan Yentob.
PA Wire

Even if all of Kids Company’s impressive data were true, the reader of the accounts has nothing to measure them against. How were these sample groups selected? What was the evidence for these problems? Is this better or worse than other charities, or than what might be expected of Kids Company? Reports of Kids Company’s good deeds were heeded over its financial viability, as indicated by exchanges between the government and senior civil servants.

Judging results

What has attracted less attention than the apparent overstatement of clients was the reluctance of Kids Company to let its results be monitored. The National Audit Office (NAO), tasked with certifying the accounts of all government departments, commented that the government had “relied heavily on Kids Company’s self-assessments to monitor its performance”. Until 2013, the key performance indicators that the NAO requested did not appear in Kids Company’s quarterly monitoring reports.

This improved in 2013-15 when the government specified some “delivery expectations”. As the NAO reported, Kids Company outperformed to a startling degree: “Against a target of 1,347 interventions in 2013-14, they delivered 30,217 interventions.” But how successful were the interventions in improving outcomes? There was no pre-arranged standard for measuring success so the government could not monitor it.

When the MPs inquiry asked Kids Company’s auditor about the charity’s reserves – how much he thought would be a safe level – he suggested six months of expenditure or roughly £12m would be an appropriate level. In its last available balance sheet for 2013, the last available, Kids Company shows its unrestricted reserves were just £434,282 in 2013, with a further £1.3m in restricted reserves and designated funds – about enough money to keep it going for a fortnight.

The trustees stated in the 2013 report that they were aware reserves needed to increase, but that their “business model is to spend money according to need, which is consistently growing. We aspire to build up our reserves when circumstances allow”. It seems that they deferred the aspiration for too long.

Causes vs accounts

Some have accused a focus on accounting as a distraction from worthy causes. Some decisions, it is argued, should not be made on the basis of purely financial costs and benefits. How can individual welfare or happiness – and the contribution of charity – be valued in monetary terms? Financial accounting is just a reductive simplification of the work charities do, treating people’s welfare as an expense to be contained. On this basis, we should not criticise Kids Company for its financial collapse – the work it did was invaluable.

But the alternative to measuring and monitoring charity performance is not the free flow of support to the deserving. It is the loss of resources that could potentially have been better managed and better used elsewhere. Kids Company received a total of £46m of public funding – £42m in central government grants, £2m from local authorities and £2m from lottery organisations – between 2000 and August 2015, when it filed for insolvency.

If Kids Company had been accountable, run by trustees who understood the financial risks they were taking, and monitored by funders against measurable outcomes, it might not have gone bust.

Comment: Lessons from history – why the push for savings for all is wide of the mark. By Prof Josephine Maltby

Thursday, December 17th, 2015

This article was originally published on The Conversation. Read the original article.

As predicted the US Federal Reserve has raised interest rates after nearly a decade, which means a slightly better rate of return for savers. Meanwhile in the UK, the Bank of England has kept the benchmark rate at a rock-bottom 0.5% for the 81st month in a row. All the while there are calls from policymakers and politicians for a grand vision for saving. People should take responsibility, the argument goes, for their own welfare.

And the state needs them to believe it. Otherwise, it’s claimed, a combination of factors – longer life expectancy and financial illiteracy – will create an impossible burden.

UK pensions are currently undergoing an apparently endless set of reviews and alterations. The steady rise in the age of qualification for state pension, the chance to use pension savings as a bank account, and the introduction of auto-enrolment at all workplaces by 2018 are all aimed at increasing savings for retirement.

And there may be more to come. Both Iain Duncan Smith, the work and pensions minister, and the prime minister David Cameron, called for a rethink of social security – potentially a move to a system where people would “save from day one”, along the lines of Singapore’s Central Provident Fund. This would involve making mandatory deposits into a fund to be used as needed, in times of sickness or unemployment.

Iain Duncan Smith wants us to be better savers.
EPA/Facundo Arrizabalaga

The calls for saving, with strong government support, are not new. They go back to the birth of the savings bank movement at the beginning of the 19th century. In the period after the French Revolution the British elite was worried about economic crisis, unemployment and labour unrest. Organisations like friendly societies and early trades unions brought working men and women together to defend their interests. Savings banks run by local elites (the vicar, the squire, the factory owner) were conceived as a solution to social and political anxiety. Promoting savings to the lower classes was aimed at cutting the “enormous” cost of the poor rates charged by parishes.

The movement took off with support from the two main parties, the Liberals and Conservatives, and from the churches. By 1861 there were 645 banks in cities, towns and villages nationwide. Savings were good for everyone, they claimed. The banks would foster the virtue of thrift, discouraging the poor from drinking and idleness.

Saving would also, literally, give them a stake in society, or as Scottish minister and theologian Thomas Chalmers said at the time: “An interest in the social order, in the peace and stability of the commonwealth.” A man with a bank balance was much less likely to call for the overthrow of the system. William Gladstone and Benjamin Disraeli, Liberal and Conservative party leaders, both suggested that a man with £50 or more in the bank deserved to be given the vote.

Criticisms of the savings movement

The banks’ drawbacks, though, attracted less attention. Their interest rate, tied to the return on government bonds, was not generous.

With amateurs on their boards, the banks were vulnerable to managerial fraud, and there were some sensational collapses – those of the Dublin and Cardiff banks were the highest in profile. Savers had no guarantee of repayment, and might lose every penny. Some people avoided the local savings bank because they did not want their bosses to know how much they had saved, in case the information was used against them when they asked for a pay rise. And there were continuing accusations that the banks were mainly used by the middle classes, because they were the ones with the spare cash. Being poor meant having no margin for savings.

Mill workers would have struggled to make enough to save.
Penny Magazine Supplement, December 1843

By the end of the 19th century, the number of savings banks, especially of the small village banks run by the gentry, was falling. New organisations run by and for their members – the building societies, the Co-operative movement and the trades unions – were getting bigger and stronger.

And there were now challenges across the Liberal and Socialist parties to the claim that the poor should be monitored and disciplined to make them behave better and consume less.

Writing in 1909, the Fabian Emily Townshend mocked the view that “for any man to enjoy any benefits which he has not definitely worked for and earned is injurious to his character”. She pointed out that she had done nothing to earn the annual dividend she got on her railway shares, or the “miraculous” news that “certain shares that were worth £4 yesterday are now worth £5”. Why should the poor be subjected to a harsher discipline than she was?

There are inescapable parallels with the birth of the savings movements in the 19th century with the political calls for savings today- for instance calls to be thrifty and help control public spending, while financial institutions with amateur non-executive directors ignore mismanagement until it’s too late. And today there are groups for whom saving is not an option. Recent research suggested that savings are difficult or impossible for a substantial number of working people and many do not qualify for auto-enrolment.

It goes to show that ideas around thrift might sound good and appeal to key parts of the voting electorate. But it begs the question: how will the excluded respond when they keep being urged to pay for a stake in society?

‘Financial heroism’ and The Economist

Wednesday, October 7th, 2015

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The Economist has been published since 1843. It is one of the international financial journals currently the subject of “Economics in the Public Sphere” (ECONPUBLIC) a research project funded by the EU studying the creation and dissemination of economic knowledge in the USA, UK, France, Brazil and Argentina.

On 24-25 September, University College London, the UK partner in the project, held a workshop looking forward to 175 Years of The Economist, attended by international delegates including four of the journal’s five editors from 1974 to today.

Sheffield University Management School’s Prof Josephine Maltby (pictured above, with wartime adverts relating to the research), with Janette Rutterford from the Open University, presented their paper looking at the role of The Economist 1914-1918. Its 1914 editor, Hirst, who called the war ‘the triumph of… force over reason, of brutality over humanity’ was dismissed in 1916 for being ‘distressingly pacifist’. Hartley Withers, who replaced him, advocated ‘financial heroism’ in the form of patriotic self-denial and support for the war effort in the form of War Loan and War savings. But Withers became less and less enthusiastic about government policy – he began to point out that whilst the workers were funding the war effort, the wealthy (and the companies profiting from armaments and military supplies) were having an easier time, ‘gently handled’ by British taxation policies. His criticisms can be contrasted with the tone taken in Germany, where the wartime press was consistently positive about the success of the national financial effort.

Feedback at the workshop was positive – Prof Maltby and her collaborator are currently building it into a revised paper which will look in more detail at the parallels and differences between British and German finance in wartime.

Click here to read the paper.

What happened to savings for the future? By Prof Josephine Maltby

Monday, January 5th, 2015

Josephine Maltby, Professor of Accounting and Financial Management at Sheffield University Management School, comments on the savings culture.

What happened to savings for the future?

This year has seen a series of reports about likely pensions shortfalls and the urgent need to increase savings.

As recently highlighted by Katie Evans and Emran Mian in Savings in the Balance 2014, apart from a brief recovery in the mid 2000s the UK savings as a percentage of household income have fallen between 1997 and 2014. In a survey which reveals savings as a percentage of GDP, the UK came next to the bottom with 10 per cent of GDP going into savings – only Greece doing worse.

This is treated by commentators as a 21st century crisis. But these worries are nothing new and it seems the anxieties about tightening the purse strings have been prevalent since the 19th century.

Political restlessness

In the early 1800s anxiety about political restlessness among the lower classes underlay the foundation of savings banks in towns, cities and villages all over the UK.

They were created and run by elites – the local squire, clergyman or industrialist presiding over a board of trustees. It was argued by contemporary politicians that the local banks would be good for the savers, turning then away from feckless habits. That in turn would cut down the local rates bill which went to provide poor relief. And savings would ‘bind the humbler to the more influential and wealthy classes’ making them grateful for the financial advice and assurance their betters were offering them.

Savings were all invested in Government bonds, giving the lower classes ‘a greater interest in the stability of the government.’

The savings banks spread rapidly. By the 1860s there were almost 650 of them, with 1.5 million savers. The smaller and rural banks were superseded by the chain of Post Office Savings Banks, but the urban banks survived and grew into what have become the Trustee Savings Banks.

It was important to the banks to demonstrate their success in drawing in working-class savers. As part of their annual reports, many of them published detailed breakdowns of their savers by occupation. And they kept detailed records of savers-as well as account data, they recorded a set of personal details for every depositor.

These bank records are a rich source of data that has not previously been explored in much detail.

Collaborative researchers from the universities of Sheffield, York and the Open University are now analysing these records to gain an understanding of savers and savings in the 19th century.

Women were better savers than men

Looking at the records of 4500 people in four banks – Limehouse, East London, Bury in Lancashire and Newcastle and North Shields (Northumberland) gives new insights into the way people managed their finances. Research so far shows a variety of savers. The banks’ promoters aimed them at the working man, but:

  • Women were a significant proportion of savers, including married women even before 1870 when they were granted property rights. The evidence from account records shows them apparently managing their own money with no intrusion by husbands. And it raises questions about current estimates of women’s employment; do the bank records indicate that they were saving wages in a period when married women’s employment levels are believed to below?
  • Children were important as savers, with teenagers apparently saving from their earnings
  • There were a variety of joint accounts, sometimes for married couples, but also for groups of people, maybe workmates
  • Accounts were transferred between family members, for instance from an elderly person to a child or grandchild.

And although the mission of the banks was to promote thrifty saving for old age, work so far shows that long-term saving was only for the minority. 19th century savers mainly used the banks to provide current accounts, saving for the short term to meet regular expenses like rent, or to tide them over wage cuts and unemployment.

Patterns of saving and account management vary, apparently in response to local economic factors. Limehouse savers included sailors who gave wives access to their accounts whilst they were away at sea: among Bury savers were the women working in the growing Lancashire textile industry. In the 1860s, the loss of cotton supplies caused by the American Civil War meant that textile workers were unemployed and ran down their account balances.

Read about Professor Josephine Maltby, and see a full list of publications, here: