Government spending cuts ends Child Trust Fund

The new coalition government revealed their plans for spending cuts earlier this week which will save up to £6 billion, but a portion of those cuts will come from the abolition of the Child Trust Fund - a move that is sure to be very unpopular with British families.

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The Child Trust Fund was introduced in 2002 and aimed to promote savings accounts for children. They gave £250 to better-off families and £500 to lower income families for each child to open an account. However, with the latest round of spending cuts, the amounts will be reduced to £50 and £100 respectively until 2011, when the fund will be cancelled altogether.

Some experts believe that this was a good move and that the Child Trust Fund was not an effective way of encouraging a saving culture.

David Kuo, director of, said: "It is inconceivable that any responsible government can justify spending around £300m a year on children's investments for tomorrow when the nation is nursing a huge budget deficit today. To continue with Child Trust Funds is tantamount to buying shares with a credit card. It is illogical, irrational and irresponsible."

Others are critical of the government's decision as they feel the trust funds are necessary for parents trying to set up a future for their children.

Andrew Hagger of, another financial website, said: "Whilst there is undoubtedly an urgent need to reduce the budget deficit, we should not lose sight of the importance of encouraging the savings habit in the UK."

So what is the alternative once the Child Trust Funds are discontinued? George Ladds, head of investments and pensions research at Fair Investment Company, feels that a children's ISA should be set up.

He said: "Children and their parents would be encouraged to save if they could get the same tax efficient saving benefits that we are all entitled to. If the government set an ISA allowance of £3,600 for children this might encourage more to save in a way that they want to invest and enable parents to take more control over who they save for and when they receive the money."

Should the government be promoting a saving culture in future generations or is up to the individual to set up savings accounts for their children? Leave a comment and share your thoughts.