Should Child Trust Funds be restricted to the poorest parents?

He makes the point too that parents and grandparents are contributing some £22 million a month to top up CTFs – but clearly this is coming from wealthier families who arguably don’t need to be encouraged to save for their children’s future.  ‘The CTF will make an enormous difference to the social and economic fortunes of a generation, which is why it is vital the Government CTF contribution should be maintained for all,’ he argues.

Well, he would say that, wouldn’t he.  Family Investments manages 1.1 million CTF accounts while The Children's Mutual has opened nearly 750,000 CTF accounts out of the total 5,139,000 issued to date.  Of these 3,630,000 have been invested by parents – but over a million and a half parents have done nothing and 1,509,000 CTFs were invested by default by the government.  This is incredible when you think that this is free money.

The Conservatives believe that CTFs are not doing the job of encouraging savings for children from poorer families.  Their analysis shows that in wealthier areas such as Henley and mid-Sussex, where fewer than one in twenty children live in deprived households, around 85% of parents claim Child Trust Funds on behalf of their children.  But in poorer areas such as Bradford West, where a quarter of children live in deprived households, only 57% of parents claim Child Trust Funds.  In London and the South East, the average Child Trust Fund in London is worth almost 25% more than in less wealthy regions.

‘The aim of encouraging parents to save for their children's future is a laudable one,’ commented shadow families spokesman, David Willetts.  ‘But it is deeply worrying to learn that those who could benefit most from Child Trust Funds are among the least likely to use them.  In their current form, Child Trust Funds simply are not reaching the children who need them most. Our proposals to concentrate Government contributions on the poorest third of families, while maintaining a universal savings product for all families, will ensure that money reaches the children who really need it.’ 

Children are nearly all non-taxpayers and are unlikely to save enough to ever have a Capital Gains Tax problem while still under the age of 18 so the supposed tax advantages of CTFs are irrelevant.  If CTFs have any benefit it is in reminding parents that they need to save for their child’s future – something most middle class parents do anyway. 

Concentrating the benefits on those families with low incomes and increasing the amount paid makes sense.  And while he’s at it, perhaps Cameron should consider taxing child benefit which is currently tax free to all and is a not inconsiderable £20 a week for the first child and £13.40 a week for subsequent children.