Business

Child Trust Fund payments to drop sharply

  • 1 August 2010
  • From the section Business

Babies born this weekend will be the last in the UK to receive the full payment to Child Trust Funds.

Vouchers for £250 from the government - to be invested until the child is 18 - will be paid until Monday, when payments will fall to £50, or £100 for low-income families.

The scheme will be abolished at the end of the year, prompting critics to accuse the government of short-termism.

The government says the vouchers are essentially funded by public borrowing.

As part of the phasing out of the scheme, the top-up £250 given on a child's seventh birthday has now also been scrapped in England.

The payments were introduced in September 2002 to encourage parents to invest for their children via a Child Trust Fund - often in shares - for when they enter further education or live by themselves.

Until this weekend, parents of newborns had received a voucher for £250 and the same again when the child reached the age of seven.

If the child was born into a family where the annual household income was £16,190 or less, then the initial payment was for £500.

Parents, family and friends could then put up to £1,200 a year into the Child Trust Fund with any income or gain tax free.

Children in Wales turning seven will continue to receive a £50 top-up to their Child Trust Fund, or £100 for low-income families, funded by the Welsh Assembly.

"It is crucial that we invest in the future of our children and young people, especially those from less well off backgrounds," said a Welsh Assembly spokesman.

"We are doing everything we can to explore ways in which our existing investment in setting up Child Trust Funds in Wales can be protected and to see what we can do to maintain our commitment to Wales' children and young people in the future."

Child Trust Funds that have been opened since the scheme was introduced will be untouched and the tax-free element of the scheme will be unchanged. Parents can still make their own payments.

Savings

When the changes were announced earlier this year, the coalition government said that handing people payments from public borrowing was "deceiving" people.

It estimates that the halting of the payments will save the government £320m in 2010 and 2011, rising to £520m in 2011-12.

Figures suggest three out of four parents have put their child's voucher into accounts which are invested in shares.

Critics have accused the government of being short-sighted, claiming the investment could provide a welcome boost to the next generation.

Another savings scheme - the Savings Gateway - planned to start in July, was aimed at encouraging the poorest to save. This was also scrapped earlier this year by the coalition government.

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