Neil Lovatt: How not to encourage the saving ethos in the young

SO THE age of austerity has arrived, and as expected the first in line for the blade of the cuts was the child trust fund.

At a time of severe belt tightening, Child Trust Funds were regarded as a benefit that we could no longer afford as a nation. More interestingly, the argument employed for targeting Child Trust funds was simply that it made no sense to put money aside for children when they would be lumbered with greater debt in the future.

This is a fair argument of course, provided it is applied consistently. With that in mind, will we see abolition of tax relief on pensions, after all what is the point in giving pensioners tax relief on their pension contributions when they will just be lumbered with debt in retirement. In economic terms there is no difference between these arguments, on the other hand the political difference is that one relates to the electorally popular baby boomer constituency.

However, leaving aside the political skew of the argument there is no doubt that the abolition of the Child Trust Fund vouchers saved a clearly identifiable tranche of money, 250 for every child born and a further 250 when they turn seven.

But the legislation is to go further - not only will the vouchers be abolished but so too will the actual Child Trust Fund allowance (think of it as a kids ISA). Quietly and buried in technical documentation the government have simply noted that without vouchers it will no longer be possible to open a Child Trust Fund in future. This is going above and beyond simply money and seems to be straying into Machiavellian politics and tokenism. George Osborne is on the record saying that he is keen to encourage saving for children, Ian Duncan Smith so recently (and rightly) lambasted the entire nation for not saving enough and yet both are watching on the sidelines as a product, which is as successful as ISAs when it comes to voluntary payments, is quietly abolished.

Encouraging child savings is one of the best ways to enable the population of this country to engage with financial products through the practical experience and benefits of a long term regular savings habit. Child Trust Funds on a number of definitions were one of the most successful financial products in the history of the UK, and yet the planned legislation will quietly close them.

Are we then to believe that in the future they might be revived under a new guise in a few years time, a renamed Child Trust Fund perhaps. Someone should trademark the name Child ISA. But for what benefit? I can't believe it's about saving the relatively small cost of tax free allowances, especially when ISAs have been so generously uprated of late. Furthermore, if child savings are revived under a new regime in some new form with new rules we will enter a world of a complex patchwork of legislation and products to help confuse the populace. Just look at the scorched earth policy of pension reform over the decades that has left all but a few technical gurus with the faintest idea of what is going on.

Retaining the Child Trust is a wonderful way of ensuring that a simple, universal and accessible child savings product is available as a right to the population at large. Without the Child Trust Fund we will revert to the previous situation where child saving and investments were confined to a niche of the wealthy and well advised (it's possible to recreate many of the benefits of a Child Trust Fund using some tax and trust planning but they are accessible only to the chattering classes and some utopian dreamers). At a time when we are seeing, throughout the world, the results of populations failing to make adequate self provision for the future, this is not the time to slam the door shut to one of the most successful financial products the UK has ever known.

The battle over the Child Trust Fund is far from over. When the legislation reaches the House of Commons it can easily be amended to retain the Child Trust Fund allowance minus the vouchers. The question is, will Liberal and Conservative back-benchers have the courage to join a campaign to save Child Trust Funds allowances? Such a change wouldn't bring down the government, it would cost very little to provide but the long-term benefits and the development of a savings culture are immense. There are some things worth campaigning for, and this is one of them.

• Neil Lovatt is sales and marketing director at Scottish Friendly.