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Cutting CTFs will not cultivate savings culture

Cutting CTFs will not cultivate savings culture

Category: Savings

Updated: 03/02/2010
First Published: 03/02/2010

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 It is now over 6 months old so the content may be out of date.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 Conservative Party's plan to markedly cut the number of Child Trust Funds (CTFs) is in direct contradiction to their aim of creating a savings culture, Family Investments has said.

Currently, eligible children receive a £250 voucher to start their account, with an extra £250 paid in by the Government when the child reaches seven years of age.

Parents and other family members are encouraged to make regular payments to the tax free account, cultivating savings that the child can access from their eighteenth birthday onwards.

Nearly a third of CTFs receive regular top-ups, with an estimated two million parents and relatives adding £22 million a month to the accounts.

Under Tory plans, CTFs will disappear for all families earning over £16,040 a year. This is despite research showing that 96 per cent of parents think CTFs are effective and encourage saving for children.

Yesterday, shadow chancellor George Osborne said he wanted to restore the UK's savings culture, but reiterated Conservative plans to cut CTFs for the better-off.

"The CTF is clearly creating a culture where parents save more for their children," insisted John Reeve, chief executive of Family Investments.

"The CTF has encouraged those who can save but have not previously done so to start saving. Without the nudge to action created by the CTF there is a danger these positive trends will be reversed.

"There is also a danger that those who still receive CTF will be less inclined to make additional savings if any new Conservative Government is not committed to ensuring they engage with the scheme.

"It seems strange that one of the few definite spending cuts George Osborne has announced is one that will have such a negative impact on their stated policy aims.

"We call on George Osborne to clarify how he will help hard-working, low to middle income families, save for their children's future, if he cuts their CTF."

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