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Should child trust funds face the chop?

With tighter public spending expected from the Government this Autumn, the child trust fund could be one of the “less unattractive” options for cuts, says Institute of Fiscal Studies deputy director Carl Emmerson.

In an IFS observation last week Emmerson assessed the pros and cons of abolishing the initiative.

He says the need in the medium-term to reduce public borrowing makes it natural to try to identify areas of public spending that could be cut with the least pain and that the CTF is a possible candidate.

CTFs were launched in 2005 but were backdated for children born on or after September 1, 2002, to help boost long-term savings for children.

All children receive £250 at birth or £500 for those in lower-income families with a second payment from the Government of £250 made shortly after the child’s seventh birthday.

Emmerson says abolishing the CTF would make “a small but not insignificant contribution” to the £26bn spending cut estimated to be required by 2013-14 under the Government’s spending plans.

He says: “When the time for tough choices about public spending arrives abolishing the child trust fund could be one of the less unattractive options.”

Child trust fund supporters argue the saving initiative complements existing spending on schools and cash transfers to families with children and that it could help improve their ‘life chances’ through a stronger saving culture.
But Emmerson says though abolishing CTFs would make newborns worse off in 18 years time, spending cuts in other areas could be even more detrimental.

He says cuts to benefits or tax credits would reduce the disposable cash parents have to spend on their offspring during childhood and public services cuts could reduce the quality and quantity of the services on offer.
He says: “Both could reduce the quality of life and the future life chances of children by more than the abolition of the child trust fund.”

Philip J Milton & Company managing director Philip Milton says trying to engage with children to save is positive but doling out £250 to a baby at birth and at subsequent points with no qualification and no reasoning smacks of vote catching and is a very bad idea.

He says: “Benefit comes with responsibility and it is the parents who are ultimately the ones responsible so families have to offer some contribution or input into the scenario.
“The benefits are so long distant and if the Government is going to say it has to close a hospital or it carries on giving children £250, the question gets answered by itself.”

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There are 8 comments at the moment, we would love to hear your opinion too.

  1. Should child trust funds face the chop

  2. Pointless and wasteful
    Investment CTF’s are complete foolery unless you top it up every month for 18 years, which sadly I cannot afford to do. Scrap it and save the expense I say ..totally pointless, rather like cats.

  3. Child Trust Funds
    CTFs are another example of how the government can find lots of daft reasons to employ more civil servants. Compared with, say, the debt many kids will leave university with, the amounts involved are feeble.

    Why not just let kids have ISAs?

  4. Why CTF’s were always a daft idea
    The £500 invested is accessible by the child at age 18 – those from poor families will be told to hand it over to pay for board and lodgings and those from better off families will use the proceeds to fund their first trip to Ibiza with their mates or to pay for tuition fees – a small percentage will actual save and see the benefit of saving – the original purpose. The money wasted would be better spent on educating people how to budget and plan for the long term

  5. CTFs deserve our full support
    Introducing CTFs was a brave step which could just help to develop a nation of investors. They are a key building block in improving financial capability as well as providing a nest egg for young adults. I think I have more faith in our young people and whether they use it towards university, a deposit on property or something else they will have learnt the benefits of compounded returns. I just hope they use an equity based CTF not cash. Although called a CTF it is effectively a child’s ISA.

  6. Child trust funds
    Let me think, a plan that matures when kids reach the age to vote is no more than a bribe under any guise. On top of that what real value will 2x £250 payments grow to, buttons. Lastly is this not a form of discrimination, who says that children born to parents with more money won’t need or deserve an equal payout. Socialism to the extreme. Now is when families need the money not 18 years down the line.

  7. CHild Trust Funds
    A perfect example of a Government who beleives it can spend our moneny better than we can do so ourselves. A ridulous idea from the start, it’s just surprising that the it’s lasted this long before the wheels are, apparently and I do hope so, coming off

  8. Child Trust Funds
    Actually, they are rather good ways to encourage long term saving by grandparents, parents or other well wishers. The kids can’t get their sticky mitts on the dough till they are 18 and nor can anyone else. If the full amount of £1200 is contributed each year to a fund with a nice low TER, this could add up to £30,000 plus, assuming a modest growth. The kiddos may blow the lot on wine, women and song but they may even do something useful with it.

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