Blow for parents as coalition scraps Child Trust Funds

Published on Monday 24 May 2010 22:34

MILLIONS of parents will lose out by more than £1,000 by the time their child reaches 18 after the government announced plans to axe Child Trust Funds.

The coalition plans to introduce secondary legislation cutting the money children receive at birth from 250 to 50 from 1 August, with children from lower-income households receiving 100, down from 500 previously.

Children will no longer receive an additional payment when they are seven, and all payments will be stopped from the beginning of next year, following the introduction of primary legislation.

The Treasury said it would continue to make additional contributions to disabled children this year, but from 2011-12 the money would be redirected to provide respite care for them.

Child Trust Funds (CTFs) were introduced by the previous Labour government to encourage parents to save for their children and to ensure all children had an asset when they reached 18. They were launched for children born on or after 1 September, 2002, and as well as receiving the government vouchers, parents, friends and relatives were able to save up to 1,200 a year into the funds.

The government had already signalled its intention to reduce spending on CTFs in its coalition agreement, but this had been interpreted as meaning that they would be scrapped only for higher income families.

Chief Secretary to the Treasury David Laws said: "As the Chancellor indicated, we will pass legislation to end Child Trust Fund payments and this will save 320m in 2010 and 2011, rising to 520m in 2011-12. I know that this will be a disappointment to some parents, but we need to be honest about what we are doing.

"At present, the Child Trust Fund is based on the claim that young people will build up an asset which they can use later in life, but since government payments into this scheme are essentially being funded by public borrowing, the government is also storing up debts which will have to be repaid by these same young people. It is, therefore, quite simply a deception to claim that young people are being made richer by the Child Trust Fund."

He added that for every pound that was paid into the scheme, there was an additional pound of public debt. Existing CTFs will continue to run until the child reaches 18.

Members of the savings industry expressed disappointment that the scheme was being scrapped. Brian Morris, head of savings at the Building Societies Association, said: "This is disappointing as CTFs are a very good way of getting children into the habit of saving."