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Child Trust Funds - the game is not over yet

13th May 2010 Print

With the manifesto position of the Liberal Democrats being to completely abolish Child Trust Funds, and the Conservative policy one of limiting further plans exclusively to those on the lowest incomes, supporters of the scheme will be carefully awaiting further clarification on their future in the run up to the coalition government's emergency budget.

With the starting position of each party as described above, the outlook for CTFs remains uncertain. However, one glimmer of hope can be found in the coalition outline policy agreement which refers to "reductions" in Child Trust Funds rather than their abolition. On the face of it this suggests that the policy which may emerge will be nearer to the Conservative position rather than the Liberal Democrat one. However, we feel that the existing Conservative position of restricting new CTFs exclusively to those on low incomes, i.e. those least able to top up the accounts from their own resources, would likely make the scheme commercially unviable for some providers. 

At F&C we believe there is sufficient room within the coalition's broad holding position for an alternative option to that previously set out by the Conservatives. There is therefore a window of opportunity for the creation of a policy which could secure the continuation of CTFs as a commercially viable saving scheme while also enabling the new Government to achieve its broad objectives.

One set of options would be to simply to reduce the overall value of the vouchers and/or recalibrate their distribution either over time or the income spectrum. In others words, the headline value could be reduced for all but those on the lowest incomes or further waves beyond the initial contribution (e. at aged 7 and beyond) abolished. These types of options would retain the principle of universality while reducing the costs of the scheme.

Alternatively, there are other potential options open which would retain opportunity of access to CTFs for all parents, while still cutting costs and restricting the issue of vouchers to those on the lowest incomes. This could include allowing middle income parents, who would not be eligible for a voucher under current Conservative policy, to opt to have their Child Benefit paid into a CTF instead.

At the very least we believe that it would be disappointing for the government to prevent parents from voluntarily opening a CTF and funding from entirely their own resources just because of a wish to cut the costs of the vouchers. We have long believed that too much emphasis has been place on the issue of CTF vouchers and that the real success of CTFs over the long-run will be measured by the extent to which they help engender a savings culture.