Government urged to revive Child Trust Funds to help low-income families

Child Trust Funds should be revived to help free children from low income families from "debt serfdom", a thinktank said today.

Boosting the savings culture among disadvantaged households would do more to reduce inequality than closing income gaps, ResPublica said.

The group said the wealthiest households in the UK had assets worth 100 times more than the poorest households, a figure which it said dwarfed the gap between incomes.

It warned that efforts to create a fair society with opportunity for all would founder unless urgent action was taken to address the asset gap.

It is calling on the Government to retain the infrastructure of Child Trust Funds, and use it to create a new tax-free savings account called Asset Building for Children (ABC).

One of the accounts would automatically be opened for all children who were aged under 18 on April 1 2011.

Parents would be encouraged to save into the accounts by receiving tax relief on contributions of up to £3,600 a year.

The accounts would also offer a reward scheme, such as money off local attractions, leisure facilities and public transport, to further encourage parents to save.

A fund would also be created through voluntary donations from businesses and charities, as well as money from Government, to match contributions paid into the accounts by those from the poorest households.

The group estimates that it would cost £234 million a year to contribute 50p for every £1 saved by poorer families, up to £120 a year.

It added that a financial capability programme should be run alongside the accounts to help improve financial literacy.

Children would also be encouraged to help manage their account once they reached 14.

Author of the report Phillip Blond, director of ResPublica, said: "Too many Britons are trapped in a world of welfare and low wages, where owning little, they can change even less.

"Without assets, opportunity seldom knocks - wealth is what allows people to access opportunity and to advance up the social ladder.

"Locking people out of wealth and access to assets condemns them to debt serfdom where they must borrow to make ends meet and where futures are consumed by the demands of the present."

The new Government announced that it was phasing out Child Trust Funds by reducing, and then ending altogether, the vouchers parents receive to invest on their child's behalf.

But ResPublica said the Child Trust Fund had been one of the most successful savings initiatives ever introduced in the UK, with 4.6 million children having one of the accounts, into which parents invested an average of £289 a year.