CHILD TRUST FUND

All children will receive a cash sum from the government on their seventh birthday. The sum is in addition to the £250 that every newborn baby will receive as part of the government's Child Trust Fund. The Treasury was announcing details of the scheme, which Chancellor Gordon Brown said in his last Budget he would launch. Also newly announced was the fact that relatives will be able to chip in up to £1,200 a year between them. As with an individual savings account (ISA), families will have the choice of putting the money in shares, bonds or cash, and growth on the investment will be tax-free.

Children of low-income families will receive £500 from the government while parents will not have to apply for the money because the fund will be linked to the Child Benefit system. Families with a household income below the Child Tax Credit threshold, currently £13,230, will receive the additional £250. The government estimates that about a third of children will receive this additional contribution.

Financial secretary Ruth Kelly said, "The Child Trust Fund will ensure that children will have assets of their own to help them get a better start to their adult life. It will also give young people experience of savings and investment opportunities and help them to manage their finances better in later life." Children will get access to the money when they reach 18. The £250 vouchers will start to be sent out in 2005, and children who were born from September 2002 will be eligible.

David Willetts, Shadow Work and Pensions Secretary, criticised the proposals and said, "This proposal is a complex way of trying to encourage people to save. As always, Gordon Brown couldn't resist inventing a new means test alongside his policy. Many families will now be trapped on this new means test. If they are lucky, children can now use Brown's new fund to build up just enough to pay his government's first year tuition fees."