Child Trust Funds to be Axed

The Government has announced that it will make some of the required £6 million worth of savings by axing the Child Trust Fund (CTF). CTFs were established in 2002 and were intended to give children a financial head start once they became young adults.  Previously, children received £250 at birth (£500 for those from low income families) and a further £250 once they reached age 7. This "top up" payment is to be scrapped from August of this year, with the intiial £250 also being axed in January 2011.

David Laws, Chief Secretary to the Treasury, said: “As the Chancellor indicated, we will pass legislation to end Child Trust Fund payments and this will save £320 million in 2010 and 2011, rising to £520 million in 2011-12. He added, “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 went on to say that halting the payments would save the Government £320m during the current year.

The Treasury said that existing Child Trust Funds (CTFs) would continue to run until the child reached 18 and investment gains made during this period would still be tax-free. Parents, friends and relatives would continue to be able to pay into the CTF amounts up to £1,200 a year.