What are Child Trust Funds?

May 28, 2010 Updated: March 12, 2012

Child Trust Funds have fallen with the first swing of the austerity axe. But what exactly are they?

Child Trust Funds (CTF) were intended to be a government-aided nest egg to contribute towards university fees, deposits on first mortgages, and so on, when the named person reached 18. Launched by Labour in 2002, the CTF was the flagship of children's savings schemes.

It provided new parents with a £250 voucher which they could invest, tax-free, for 18 years in a shares or cash-based account.

Parents, grandparents, and others could top up the account to an extra £1,200 a year and the government gave another £250 when the child reached seven years old.

The first batch of savers would have had access to their funds in 2020.

Many believed the CTFs were relatively inexpensive for the government and could engender a saving habit in children and give young people a sound footing at the start of their adult life.

David Laws, the chief secretary to the Treasury, was with the Chancellor on May 24th as they introduced the first set of cuts of the new government.

He said that scaling back and then scrapping CTFs would save £320 million over the next tax year.

He said that payments to disabled children due this year will be honoured and that £20 million of the £320 million saved would be used for extra "respite breaks" for disabled children.

Mr Laws is one of five Liberal Democrat ministers. His first act in office was to scrap his chauffeur-driven Jaguar.