The Liberal Democrats would like to see the funds scrapped entirely, while shadow chancellor George Osborne wants to reserve new spending on CTF to the poorest third of society, with an estimated saving of £300 million a year.
While any new or re-elected government is going to need to make some tough choices to relieve the straining public purse, this is a pity. The CTF has been a great success story, and while it might be tempting to assume that the most frequent candidates for ‘topping up’ the schemes are higher earners, it would be wrong to apply this principle carte blanche.
The CTF wrapper makes saving for children a simple and straightforward process for everyone, whether topping up by small amounts each year or aiming for the full £1,200.
Cash vs investments
| Accounts opened so far | 3.45m (approx) |
| Estimated number of cash accounts | >840.000 |
| Example funds underlying popular CTFs | Insight Investment Foundation Growth (The Children's Mutual) F&C FTSE All Share Tracker Fund (F&C) |
Source: Bulding Societies Association, HMRC, Trustnet
5-yr performance
Source: Financial Express Analytics
The cost to the public purse of CTF vouchers overall is relatively little, whilst the long term benefits by far outweigh the costs. Indeed the CTF is currently linked to financial education in the classroom.
As the then minister for children Margaret Hodge said when CTF was launched: "The Child Trust Fund is not only about giving all children an asset to use when they are 18 and encouraging saving - it is also about improving financial awareness. The Child Trust Fund offers the real advantage of bringing financial education to life and any discussion of the value of saving will be real rather than theoretical."
Given the high levels of debt in the UK, not to mention the state of the economy, this is more important than ever. But, I do wonder how financial education in the classroom and the CTF could realistically be linked together if there is no guarantee that all children have a CTF pot to make the lessons of savings and investment directly of interest.
At the very least, if a plan to limit tax payer funded contributions into CTF was adopted by a future government, the AIC believes the CTF wrapper should remain in place for all families. This would not come with a significant tax cost for the government – after all, children already have an income and capital gains tax allowance for savings made outside the Child Trust Fund wrapper.
From both an industry and consumer perspective, any newly elected government should also consider some of the wider implications of either abolishing or reducing the scope of this wrapper.
Will the general public be likely to support future government-sponsored savings schemes if there is a very real possibility they will be scrapped within just a few years' time? And what of product providers, for whom supporting such initiatives is not without cost?
Bringing up children is indeed an expensive business but it is well worth it. Hopefully any newly elected government will appreciate the benefits of the CTF for the next generation. I for one am keeping my fingers crossed that the CTF continues in to the future.
Annabel Brodie-Smith is Communications Director at the Association of Investment Companies (AIC). The views expressed here are her own.