Why they were right to scrap the Child Trust Fund

2nd June 2010

Before he had to resign, the Lib Dem chief secretary David Laws made a remark about Child Trust Funds suggesting that the Government could continue to hand out money to parents and children now but because it was borrowing the money, it would only have to tax it back in future anyway. 

The all time shortest holder of the office of Chief Secretary to the Treasury, was half right.

Yes, it does seem reckless and even a little bit silly to continue to hand out borrowed money. 

Getting rid of CTFs, with the next payment from the Government reduced to a paltry £50, is pretty much a pain-free cut for now unless of course you are one of the financial instititions that runs the accounts.

The end of a (short-lived) era

People may miss the good feeling you get knowing that some money has been saved or invested for their child.

There are going to be families where one child has an account but another younger sibling does not. Expect rows in the future. 

But no one will miss the money until the 2020s. That really does seem like a problem for the next decade – it could be a couple of financial crises away – while wealthier parents can continue to contribute into existing plans. 

The end of a chance to change?

But it is a bit of a shame because it runs contrary to the ethos of the coalition in other ways.

First what if 'asset based welfare' as policy wonks would term the CTF, worked?

Instinct suggests that access even to small amounts of money can help extend opportunities for the less well off in society.

Yes, a lot of the money in the hands of 18- year-olds may well be spent in the pub.

But for some 18-year-olds it could have helped establish the savings habit, helped set up a small business, helped pay for that first suit or contributed to further education.

With money matters, it really is different strokes for different folks. Money can be squandered or it can be put to good use.

That is how society tends to operate. 

The creators of the child trust fund weren't gambling. They knew that for every prudent use of the money, there was likely to be someone else squandering the cash. 

The savings habit

It was not all about the poorer sections of our society either. The CTFs might also have helped reinforce the idea of saving for kids among the middle classes. 

The CTF may well have been proving to be one of those triggers, the famous 'nudges' towards more responsible behaviour, so beloved of our Prime Minister David Cameron.  

So should we mourn the CTFs passing? Well, it was one of the few initiatives on savings that Labour brought in.

Did it work?

This may be the crux.

We don't know yet until we can assess how the accounts are used in about a decade's time and until we get some research on this, we can't really say.

So we don't know what we've lost. 

The right decision – for now

I think the CTF had to go.

The crisis demands it, the numbers don't add up. And yet, we are in danger of repeating the sort of short termist behaviour that have left our pensions and savings in a terrible state.

So if we turn the corner, in a few years time, it might well make sense to revisit the idea.

We need to change behaviour towards savings and investing and putting money away in a child's early years, surely makes sense.

And if you can afford it, putting money away, whether you get a Government payment or not, still seems to make sense to me.

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