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Last Updated:  Wednesday, 9 April, 2003, 13:08 GMT 14:08 UK
500 for newborns
Teenagers
The fund will be available to be spent at age 18
Chancellor Gordon Brown has announced the introduction of the long-trailed Child Trust Fund.

The measure, originally announced back in 2001, will see all new born babies being given a minimum fund of 250, rising to 500 in the most disadvantaged cases so that the money can be invested to ideally pay for college fees or training at age 18.

In addition, the government is to look at the possibility of topping-up the Child Trust Fund with supplementary payments at key stages during the school years.

The Chancellor announced that the new payments would be backdated to September 2002.

Nest-egg

The Child Trust Fund could have a significant long term effect on the finances of the child.

According to Virgin Money research two-thirds of families will be able to claim the full 500.

And if this money was invested and grew at 7% per year the Child Trust Fund would be worth 1,410 at age 18.

What is more, if parents or grandparents top-up the fund to the tune of 10 per month Virgin estimate that the amount saved would grow to 5,210.

In a bid to prevent the Child Trust Fund becoming a handy tax efficient savings vehicle for the wealthy the government is to limit parental contributions to 1,000 a year.

In addition, the government, made nervous by three years of stock market falls, is to consult on whether the investment scope of Child Trust Funds be limited to 'safe' products such as deposit savings acounts.

Jam tomorrow

The proposals have been given a mixed reaction by groups involved in child poverty.

According to Martin Barnes director of the influential Child Poverty Action Group (CPAG) the Chancellor's move is promising poor families "jam tomorrow rather than today."

"We welcome the step but it doesn't do anything about child poverty today. We would have liked to have seen the Chancellor announce an increase of the Child Tax credit in the Budget to help families now," Mr Barnes said.

As for the Child Tax Credit the Chancellor has left any increase until at least the spending review in the summer and possibly the Pre-Budget report in the autumn.

The government is committed to halving child poverty by 2010 and eradicating it within a generation.

But Mr Barnes believes that the government is in severe danger of missing even its first milestone target of reducing child poverty by a quarter by 2004-05.




WATCH AND LISTEN
The BBC's Laura Trevelyan
"Even babies from well off families will get 250"



SEE ALSO:
Investing for a new baby
17 Sep 02  |  Cashing In


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