Regulations on Child Trust Funds and Childcare Vouchers

[Katherine West]

Mr Speaker,

I am laying before the House today regulations to give effect to two changes in the Chancellor’s Budget.

The first are reforms to Child Trust Funds. From this year onwards, the Government is ceasing payments into Child Trust Funds for children in the top third of the household income distribution, halving them for those in the middle third, and maintaining them for those in the poorest third. This change focusses resources where they are most needed. That will save £250 million every single year, and all savings are all being diverted into the establishment of the pupil premium - removing an unnecessary subsidy for wealthier and middle class families, and diverting the resources to support the most disadvantaged children. 

Parents will still be able to establish and pay into a child trust fund, and existing balances remain.

The second are reforms to childcare. Currently, private childcare vouchers handed out by employers to their staff can be an untaxed benefit. That has turned out to be a very inefficient way of supporting childcare costs. A larger benefit goes to higher earning individuals who pay a higher marginal tax rate, the vouchers are used by a relatively narrow set of professional employers, and they take no account of need. For example, Mr Speaker, childcare vouchers mean that - for example - a full time working parent can claim a significant subsidy whether or not the other parent is in work, or working part time, or their household income is sufficiently high that they can afford to pay.

Therefore, we have decided to remove the tax benefit of childcare vouchers. Employers may still offer vouchers if they chose to. The roughly £350 million saved will instead pay for offering 20 hours of free childcare to all 3 and 4 year olds where all parents work at least 30 hours a week. That is a much more targeted measure that supports childcare costs for those households where childcare costs are highest.

These regulations demonstrate our commitment to finding commonsense savings and reprioritising funding to households most in need, or to measures that have the greatest impact, and I commend them to this House.