Rare it is that a government actually does give away something for nothing, and so has been proven in the case of Child Trust Funds.
Assuming consumers have not been priced off airlines by new carbon emissions trading pricing mechanisms by then, it is fairly clear the average 18-year-old would prefer to spend the money on whatever they like rather than whatever the government would like to see it spent on.
Of course, not everybody can take the same prudent attitude towards money the chancellor (for now) does.
This raises questions relating to the politics underlying the whole CTF premise.
Consider the following evidence: In Australia, the government introduced mandatory long-term savings through Superannuation schemes. However, once the combined pot of money grew to a certain size the tax authorities could contain themselves no longer.
Or, as Taxpayers Australia puts it:
"Superannuation is now the most highly taxed form of income in Australia. Contributions are taxed at 15. Those same contributions are taxed at up to another 15% where the Superannuation surcharge applies. Earnings are then taxed another 15%. Any lump sum on retirement is further taxed at 15% plus Medicare levy up to the lump sum RBL. Any excess is taxed at 47% plus Medicare levy."
It is currently unlikely the UK government would look to directly tax the infant pot created by the first million or so £250 vouchers given out through the CTF regime.
That said, it may take a different tack once the total value of assets reaches, say, £10bn or £216bn – the sum of 10 million children investing the maximum £1,200 annually over 18 years, excluding investment gains.
Spent unwisely on goods and services the VAT take alone could net the Treasury more than £37bn. You could consider it merely the opinion of cynical jouranlists but that what legislation can do to protect these products other legislation can also undo.
CTFs as a concept could be seen as direct competition to the Tories’ Lifetime individual Savings Account (LiSA)which seeks to funnel both government and private contributions into a system similar to the US 401k accounts or Registered Retirement Savings Plan accounts used in Canada.
RRSPs are groovy because they allow first-time property buyers to access their accounts to fund a deposit as long as the money is put back over time.
Minister for children Margaret Hodge suggested a CTF account could also be used to fund a deposit on a house.
Given house price inflation in the last year alone increased the value of the average UK property by about £50 daily, the maximum allowable saving of £1,200 annually for 18 years may not go far, let alone the government’s suggestion it may put in up to £2,000 for eligible children from the poorest families over that period of time, families are unlikely to be able to afford to put money of their own into CTF accounts.
Neither has the government particularly outlined how it might avoid the establishment of a 'TEPS-style' market, whereby CTF account holders can obtain cash up-front in return for promising to pay out of their accounts when they turn 18 and are eligible to withdraw the cash.
A 15 or 16-year-old contemplating buying a moped might find the offer of 80p in the £1 tempting if a lender were to offer the cash up-front in return for access to whatever is paid out of the CTF two or three years into the future.
It might not be long before a grey market in traded CTFs develops beyond the reach of regulators. After all, the assets in the account belong to the child not the government, which is hardly going to be in a position to dictate how it is used.
The government could, of course, change the rules: children do not vote. And while altering the terms under which CTFs can be managed might be political suicide in the eyes of the parents, nothing can be ruled out as governments regularly U-turn on election pledges and voter promises.IFAonline
Three years at Wells Fargo
Effective from 9 December 2019
One firm with permission suspensions left
Continuing the Architas education series for clients.
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