Govt axing of CTFs branded "a terrible shame"

Child trust funds (CTFs) have been axed as part of £6.2bn Government cuts.

All payments to CTFs will be scrapped by January, with payments sharply reduced in August, in a move chief secretary to the Treasury David Laws said would save £520m.

Laws, who acknowledged the plan will be a "disappointment" to parents, said the process of handing people funds from borrowed money amounted to deception.

"It is deceiving people to think we're giving them an asset when we are just borrowing money on the financial markets that our children and children's children will have to pay for," he said.

The Government aims to save £320m in the year 2010-2011, rising to £520m in 20111-2012.

The axing of the scheme has shocked the industry as it was widely expected the Government would reduce payments into the funds rather than abolish them entirely.

Family Investments head of savings Kate Moore said she was "in shock" after hearing CTFs will be scrapped.

"It has been one of the most successful schemes ever, is completely unique and is still in its infancy," she says.

"It seems a terrible shame the Government has scrapped it for short-term savings. This is contrary to what we expected would happen - the coalition said it would make reduction in child trust funds - not scrap them.

"This gives parents the wrong message about the importance of saving for children."

Moore says CTFs should be treated as a benefit rather than an investment.

She adds her greatest fear now is the double whammy of scrapping vouchers and the tax-free wrappers within child trust funds.

"I want the Government to ensure the tax-free wrapper for CTFs remains," she says.

Child trust funds were brought in by the last Government to encourage parents to save for their children and give them a head start when they turn 18.

Under the scheme, parents of new-born children are given a voucher of £250 with a further payment made when the child reaches the age of seven.

Parents can contribute up to £1,200 a year, with the money often invested in shares, and benefit form paying no tax on income or gains.