Brown wrong on baby trusts
GORDON Brown and his Treasury officials have unintentionally misled Parliament by vastly underestimating the likely benefits of his £4bn plan for trust funds for all new-born babies.
The likely growth in each child's trust fund would actually be half as much again as the incorrect projections made by the Treasury in published forecasts widely reproduced throughout the financial services industry and in the Press.
'It's clearly unfortunate,' said a Treasury spokesman after the mistake was pointed out by the London Evening Standard. 'We're sorry if it misled anybody.'
The admission comes just days after the Treasury Select Committee of MPs warned the Chancellor that he must get the details of the scheme right because of its large cost - £4bn over 18 years and more if the Government delivers on its promise for top-ups at age seven.
The Treasury has claimed that a typical £250 trust fund provided by the Government would grow to £456 in real terms after 18 years, assuming a nominal 7% rate of return and excluding charges.
In fact it would be worth £542, according to Evening Standard calculations that have been confirmed by an independent actuary. Similarly, the £500 fund promised for children in poorer families would actually grow to £1,084, not the £911 figure in the Treasury projections.
The Treasury was also mistaken in a series of projections made for trust funds where parents and friends chip in additional contributions.
About 600,000 babies a year born after 1 September 2002 will qualify for the new windfalls.
A string of organisations which supposedly put Brown's proposals under the microscope - including the Financial Services Authority and the Institute of Chartered Accountants in England and Wales - failed to spot the error.
The Treasury Select Committee of MPs repeated the series of errors in their report on Child Trust Funds published earlier this week.
The Treasury spokesman explained that officials had changed their assumptions, taking into account likely fund management charges of 1% a year, but accidentally left in the sentence in the report explicitly stating that no account of charges had been taken. A correction would probably be issued.
