The Government has revealed it will end child trust fund (CTF) payments as part of the £6.2 billion of savings to help cut the budget deficit.

Chief Secretary to the Treasury David Laws says this will save £320million in 2010/11, rising to £520million in 2011/12.

He announced this morning that from 1 August contributions at birth will fall to £50 (£100 for those on lower incomes) and those at age seven will end. From 1 January, all contributions will stop.

Under the scheme, most parents currently get £250 to put in trust for their child in the form of a voucher (or £500 if household income is less than £16,040) on the day he or she is born, and again on their seventh birthday.

The future of child trust funds

  • CTFs themselves will remain for existing account holders, it's just that the Government will no longer make payments into them.

  • Also, any returns on cash saved or invested within a CTF will remain untaxed and you will be able to contribute cash yourself (up to £1,200 per account, per year).

  • However, once legislation is passed, you will not be able to open a new CTF account, unless you already have a valid voucher.

Government statement

Laws says: "I know this will be a disappointment to some parents, but we must be honest about what we are doing.

"The CTF is based on the claim young people will build up an asset which they can use later in life. But since government payments into this scheme are being funded by public borrowing, the Government is also storing up debts which will have to be re-paid by these same young people.

"It is therefore a deception to claim that young people are being made richer by the child trust fund. For every pound paid into this scheme there is an extra pound of public debt. By ending government payments we also save the £5 million annual cost of administering it."

Further reading/key links

Official announcement: CTFs axed
Get the best rate for your child's savings: Child Trust Funds
See what you're entitled to: Five-Minute Benefit Check
Claim free childcare cash: Tax Credits