Child Trust Funds

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.”

Watch this space as more public spending cuts loom large……

Source: Moneymarketing