Child Trust Funds (Amendment) Regulations 2009

These draft regulations provide for a government payment to all eligible child trust fund children on reaching their seventh birthday. They also extend the eligibility criteria for the additional government payment that is paid to the child trust fund accounts of children in lower-income families. The child trust fund is a long-term savings and investment account and is an important part of the Government’s savings strategy. It will ensure that every child, regardless of their background, has a financial asset at the age of 18. It will be used to help bring financial education to life as part of the ““My Money”” programme that is being rolled out in schools. It will bring financial education within the framework of the child’s development, and it will help strengthen the financial capability of both children and adults while promoting positive attitudes towards saving. All children born since 1 September 2002, who are the subject of a child benefit award, are eligible for the child trust fund, as long as they live in the UK and are not subject to immigration control. The Government provide an initial contribution of £250, and children in lower-income families are entitled to a top-up contribution of a further £250. Children are eligible for this additional payment if their families are entitled to the maximum child tax credit at the time when the child becomes eligible for the CTF. There are special arrangements in place to ensure that children in care, who may not be in a child benefit award, do not miss out on receiving a child trust fund account. After a parent has been awarded child benefit, they are automatically sent a child trust fund voucher, which they can use to open the account of their choice. To date, around three-quarters of parents have used the voucher to open a child trust fund account for their child. However, no child eligible for a child trust fund account will miss out, because HMRC will open an account on behalf of the child if their parents have failed to do so. The Act allows the Treasury to make regulations that provide for further government payments to be made into the accounts of eligible children. After extensive consultation, the Government published their detailed proposals for the child trust fund in October 2003. Those proposals included an announcement that the Government would make a top-up payment to each child’s child trust fund account as they turn seven years old. The top-up was designed with two main purposes in mind: to increase the value of all children’s accounts, so leaving them with a more substantial asset when they are 18; and to emphasise the child trust fund as a live and relevant example of saving and investment. Following consultation in 2004 and 2005 on the details of these further payments, the Government announced in Budget 2006 that the age-seven payments would be £250 for every child, with a further £250 for children from lower-income families and children who are in care on their seventh birthday. Eligibility for the age-seven payments will follow similar criteria as for the initial contribution into the account. The universal payment will go to children who are in a child benefit award on their seventh birthday, who live in the UK and who are not subject to immigration controls. The additional payment for children from lower-income families will be paid if the child’s family is entitled to the maximum award for child tax credit during the tax year in which the child’s seventh birthday falls, and all children in care on their seventh birthday will get the universal payment plus an extra £250. HMRC will arrange for these further age-seven payments to be paid automatically into the child’s account and will write to the child’s family to inform them once the payment has been made. The cost to the Exchequer of making the age-seven payments will be around £250 million per annum, making the total cost of the scheme £510 million by 2012-13. The draft regulations also amend the eligibility criteria for the additional government payment for children born in lower-income families. Representations were made last summer at the Treasury Select Committee when evidence on the child trust fund was given by the Economic Secretary to the Treasury. The concern was that some people may be missing out on an additional payment because eligibility is based on eligibility to the child tax credit and the rules require families to claim the child tax credit within, broadly, three months of the birth of the child. Mums with, for example, post-natal depression, might not get around to that in time. We have listened to those concerns and will change the regulations to give individuals more time to qualify for the additional payment. Under the new rules, the additional payment will be due as long as a child tax credit claim is made before the CTF voucher expires. This new eligibility period will usually be just over a year from when the child is born. The additional payment will be made automatically by Her Majesty’s Revenue and Customs and eligible parents will not have to do anything for their child to receive the additional money. This amendment will apply to children in respect of whom child benefit commenced on or after 6 April 2008. The annual cost of administering the scheme is £7.2 million, which works out at around £1.80 per child with a child trust fund account. The calculator which can be found on the child trust fund website estimates that for a child born in 2008, who receives nothing other than two government contributions of £500, the final value of the child trust fund account would range from £1,600 to £2,600. For a child born in the same year, but who receives two government contributions of £250 and the maximum annual top-up payment of £1,200 per year, the final value of the child trust fund account would range from £29,000 to £38,000. It is encouraging that, even at this early stage in the life of child trust funds, one in four children received extra contributions into their accounts and the average contribution made in 2007-08 was £279. In summary, these regulations will provide for a further government payment into the child trust fund account of all eligible children on reaching their seventh birthday and will also extend the period of eligibility for lower-income families to receive the additional payment. With these final values in mind, I fully believe that the benefits far outweigh the costs and that these regulations will help the child trust fund move towards meeting its objectives of ensuring that each child has a financial asset at the age of 18, helping each child to get into the habit of saving, understanding personal finance and teaching them about the benefits of saving. All of those issues mean that I commend these regulations to the Committee.