Middle-class teenagers to benefit most from child trust funds

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Indy Politics

Children from middle-class families are likely to benefit more from the Chancellor's flagship "child trust funds" than those from poor backgrounds, a committee of MPs concluded yesterday.

The Treasury Select Committee said the scheme, which will encourage parents to put money into a savings account for children after the state pays in £250, plus a further £250 for poor families, could cost the Government more than £4bn.

The MPs who examined the programme, for all children born from September 2002 in the UK, said it was "ambitious" and "pioneering". But they said wealthier families with money to invest would build up a better fund for their child at age 18 than those without extra cash to put in. The committee also questioned how the money would be used by the child at 18 when they can withdraw it. The Government has no restrictions on how it should be used. "We ... acknowledge the practical difficulties of devising a scheme to ensure this is the case," the report said.

Treasury figures show children with £500 invested at birth will have £911 when they are 18. But those with £250 but whose parents make monthly payments of £40 will have £14,399. Yesterday Michael Fallon MP, chairman of the Treasury select committee, said: "Better-off families are likely to benefit most [because] the final value of child trust funds will depend not on the size of the initial government endowment, but on the level of tax-free additional contributions made by family and friends."

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