In a House of Lords debate last week, the Government was questioned on the implications of cancelling the Child Trust Fund in terms of unemployment for current providers, and asked to provide a breakdown of the claim that the reforms would result in savings of £500 million.
The questions concerning the tax-free children’s savings scheme probed Treasury minister Lord Sassoon on three aspects of the changes: the cost of continuing the CTF with the present £50 vouchers, the effect of the changes on unemployment for CTf providers, and the £500 million worth of savings that had been cited as a motive for the CTF’s abolition.
Addressing the anticipated savings, Lord Sassoon indicated an increase from 2010 to 2015, starting at £320 million in 2010/11 and rising to £560 million in 2014/15. With £540 million as expected savings for 2011 – the year eligibility for the CTF will cease entirely – Lord Sassoon provided a breakdown of the total that attributed £410 million to cancelling the vouchers, and savings of £130 million from further payments to low income families.
The estimated cost of continuing the scheme with the current £50 vouchers was £40 million a year, excluding administration costs, and assuming no additional payments to lower income families.
Lord Sasson added that the Government “have made no estimates of the effect on employment at exisiting child trust fund providers as a result of the changes set out above”.
The tax-free CTF was introduced in 2005 and entitled all newly born babies to a £250 voucher at birth, with a further payment at age seven. Parents were able to compare CTF providers before the voucher’s expiry date, after which a fund would automatically be opened by HMRC.
The scrapping of the children’s savings scheme was one of the highest profile Budget cuts earlier this year, with voucher payments dropping to £50 soon afterwards, until they are ceased entirely in January 2011. Existing CTFs will still be open to top-up contributions from family and friends, with the tax-free growth accessible once the child has reached age 18.