Tories to 'scrap' child trust funds

Mother and child

Child Trust Funds (CTFs) would be effectively scrapped under a Conservative government, with two thirds of children deemed ineligible to benefit from the savings initiative.

Speaking at the Conservative Party Conference on Tuesday 6 October, shadow chancellor George Osborne said the government could “no longer afford” to provide their savings initiative to children, and as a result only the third poorest families and disabled children would continue to benefit.

“Quite frankly, CTFs have not been as successful as many like myself hoped,” Osborne told delegates. “We should continue paying them to the poorest families who often have no savings, and encourage them to use them more – but, let me tell you today, handing out new baby bonds to the rest of the country is a luxury we can no longer afford.”

According to CTF provider Family Investments, this means only households earning less than £17,000 and families with disabled children will be eligible for a CTF.

John Reeve, chief executive of Family Investments, says scrapping CTFs for two thirds of families is a blow to “millions of children from average hardworking families”.

"CTFs were designed to provide all children with a financial asset when they turned 18 which would provide them with a real head start in life,” he adds. “In an age when we need to be encouraging a savings culture among the young, it would be a shame to remove one of the tools most likely to achieve this and the personal responsibility and improved financial awareness that goes with it.”

As well as potentially damaging a savings culture among young people, there are also concerns that scrapping CTFs for most families will result in higher levels of personal debt.

CTF provider The Children's Mutual estimates that if, on average, £0.5 billion was invested each year in CTFs, this would result in an anticipated £2.4 billion being available to young adults.

“In this period of record indebtedness the CTF has become the savings vehicle of choice for families looking to provide a better future for their children,” says The Children’s Mutual’s chief executive, David White. “Quite clearly this would reverse that trend. Removing the most successful savings initiative ever at this juncture will condemn the young people of the future to the same fate as today's generation.”

Osborne also told the conference that “we can no longer justify paying means tested tax credits to families with incomes over £50,000”. Child benefits, winter fuel payments and free TV licenses for pensioners will, however, be preserved.

Introduced in 2005, CTFs are a tax-efficient investment or savings vehicle designed to encourage a savings habit in the next generation. All children born on or after 1 September 2002 will qualify to receive money from the government to be invested in a CTF, with the initial payment of £250 used to open an account.

All eligible children also receive a further £250 top-up voucher just after their seventh birthday.

Ian Sayers, acting director general of The Association of Investment Companies (AIC), calls for the Tories to compromise over CTFs.

He explains: “If a plan to limit taxpayer-funded contributions into CTFs was adopted by a future government, the AIC believes the CTF structure should remain in place so that all families have the freedom to save voluntarily for their children in a tax-efficient manner."

He says this would not amount to a "significant tax cost" for the government.