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Coalition pulls plug on CTFs

Coalition pulls plug on CTFs

Category: Savings

Updated: 24/05/2010
First Published: 24/05/2010

MONEYFACTS ARCHIVE
This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.
The chancellor, George Osborne, and his new best friend, the chief secretary to the Treasury, David Laws, are both likely to be have been removed from the Christmas card list of expectant parents-to-be after it was revealed child trust funds are to be scrapped.

As part of the cut backs designed to help reduce the massive budget deficit faced by the UK, the new coalition government has decided to reduce payments from August, before stopping them altogether from 1 January 2011.

At present, new parents receive a voucher from the government for £250 in order to get the account up and running, with a second contribution of £250 paid by the state when the child reaches seven.

For children from low income families, the higher amount of £500 is paid at each of these two points.

Parents, family and friends can all add to the account, up to a maximum value of £1,200 each year.

Although no tax is paid on any gains made in the account, all investments made are unable to be touched until the child turns 18.

However, from this August, contributions at birth are to be reduced to £50 for better off families and to £100 for lower income families, with the payments at age seven stopped altogether.

All contributions will then be stopped from January next year.

"I know that this will be a disappointment to some parents, but we must be honest about what we are doing," said David Laws.

"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 being funded by public borrowing, the Government is also storing up debts which will have to be re-paid by these same young people.

"It is therefore a deception to claim that young people are being made richer by the Child Trust Fund. For every pound paid into this scheme there is an extra pound of public debt. By ending Government payments into this scheme we also save the £5 million annual cost of administering it."

It is estimated that the move will save £320 million in 2010/11, rising to £520million in 2011/12.

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