What is the Future of the Child Trust Fund?

What will happen to the Child Trust Fund now that a Conservative – Liberal Democrat coalition government has been agreed?

During their thirteen years in power, one of the many schemes the Labour Party bought in was the Child Trust Fund. The scheme works by the parents of all new born children being given a £250 voucher to invest on behalf of their child. They are then given another £250 voucher when the child turns seven. The amount of each of these payments is £500 for children born with a disability. Once the original payment has been invested, family and friends can invest a further £1,200 per year. Children then acquire the accumulated amount plus interest upon their eighteenth birthday.

Both the Conservative Party and the Liberal Democrats have spoken out about their reservation towards the child trust fund in its present form. The Lib Dem’s have long been against the scheme and stated in their manifesto that they planned to completely scrap it in the event of them winning the election. Of course they did not win the election, but due to the hung parliament they will be playing their part in forming a government. The Lib Dem’s don’t feel that it is the best way to provide for children. Their pre-election plans were to spend the money saved from scrapping it on education, especially helping the disadvantaged.

In their manifesto, the Conservative Party said they wouldn’t go as far as the Lib Dem’s, but would reduce it to only the poorest third of families. They don’t think that children with well-off parents need the benefit it offers. When they first made the announcement stating this it was thought the cut off point would be families earning £16,000 per year.

After the election results and days of intense negotiations between the two parties, a coalition between the Conservatives and the Liberal Democrats has now been agreed. As neither were in favour of a child trust fund for all, it seems inevitable that there will be changes. The question is, will it be capped or scrapped?

It has been highly documented that cuts in public spending will be made over the coming parliament, with the Tories planning £6 billion worth of cuts in the next year. As the Conservatives have the majority of MP’s within the coalition it is likely their child trust fund policy will take priority over that of the Lib Dem’s. But with pressure likely from the Lib Dem’s not to cut so brutally in other areas, it is possible the child trust fund could be sacrificed. Plus it seems that some of the Liberal Democrats education ideas will be adopted in the new government so the money saved if the child trust fund is scrapped could be used to pay for this.

It seems as though the best hope for supporters of the child trust fund is for it to be capped at something around those parents earning £16,000 per year. It has been argued though, that this would make the aim of the scheme completely redundant. It was bought in to encourage parents to save, and to teach children the benefits of saving. If it is only made available to the poorest they may not be able to invest beyond the two £500 vouchers, therefore resulting in only £1,000 being invested. Added to this would be the accumulated interest over 18 years but it would still be by no means significant.

There will be many changes over the course of the Conservative – Lib Dem time in government. With the current financial situation it will be interesting to see which decisions they make over the coming years. But one thing that does seem on the cards is the end of a child trust fund available to all.

Andrew Marshall (c)