Battle to save child trust funds steps up a gear after number in scheme passes 5 million

CALLS for child trust funds (CTFs) to be retained in the face of swingeing post-election spending cuts have intensified, after the number of children benefiting from the scheme passed a key milestone.

Five years after the government scheme was launched, HM Revenue and Customs figures show more than five million children have a CTF in their name.

Despite that, however, the future of CTFs is shrouded in uncertainty, with the Conservative party proposing to axe the scheme as part of its spending cuts, should it win the impending general election.

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CTFs, available to children born since September 2002, are opened with 250 vouchers (500 for low-income families) sent to parents at birth, with the government contributing a further 250 when the child turns seven.

Almost 1.4 million families are contributing an extra 5 million a week to the accounts, according to the Children's Mutual. David White, chief executive of the child savings specialist, said nearly three-quarters of parents opened an account with their CTF.

"In addition to this, our research has found a further 10 per cent of parents consciously decide to let the government open the account for them – making an active engagement rate of nearly 85 per cent," he said.

"This is particularly noteworthy, as only 40 per cent of the adult population has a private pension and an even lower 30 per cent has an Isa – further underlining the true engagement UK families have with the CTF."

Economists have called on the next government to continue supporting CTFs, which they believe will cut personal debt and improve financial literacy over the long term.

Julian Le Grand, professor of social policy at the London School of Economics, said: "The ownership of capital gives people psychological and economic independence, and encourages them to invest, to save and to think about the future more widely."

Le Grand, a former Downing Street adviser, said future increases in the inheritance tax (IHT) threshold, which will be frozen at 325,000 until 2014-15, could be made more politically acceptable if they were linked to child savings in a way that boosted the savings levels of younger generations. "CTFs could become a financial-planning and wealth-creation tool by linking them to IHT, and bridging the gap between the older and younger generations," Le Grand said.