Help For Parents: Baby bonds and child tax credits increased

The Government's contributions to Gordon Brown's "baby bonds" scheme are to double in an effort to "promote a savings culture among young people".

Another £250 will be handed out to invest in the Child Trust Funds of youngsters when they reach the age of seven, with £500 for lower-income families. That is on top of the £250 or £500 they are already allocated when they are born.

The Chancellor also announced above-inflation increases in child tax credits, but was accused by left-wing MPs and charities of ducking the tough decisions necessary to combat child poverty.

The idea of Child Trust Funds was the centrepiece of Mr Brown's Budget three years ago. Recent figures suggested that they are slowly gaining in popularity after a poor initial take-up. However, about one-third of parents are still failing to activate accounts upon receipt of the Government windfall after the birth of a child.

They can add their own contribution of up to £1,200 a year to the fund, which is invested in long-term accounts to build up a nest egg, available when the child reaches the age of 18.

Mr Brown told MPs he was extending the principle of the scheme to cover youngsters when they reach seven years of age, with the intention that every child growing up in Britain has "assets to their name". He said: "[It is] an investment in the future and in a savings culture among young people that will in time allow all young people to have more of the choices that were once available only to some."

Mr Brown said he had decided to give preference to extra help for families with children over tax cuts. Child tax credits will rise by 14 per cent over three years, meaning that it would be worth £88 a week, or £4,500 a year. The rate of child benefit will rise from £17 to £17.45 a week from next month.

The Government recently announced it had missed its own target of cutting levels of child poverty by a quarter by the end of last year. Mr Brown told the Commons that 700,000 fewer children than nine years ago were growing up in poverty, but conceded the Government had more to do. "It is by both raising child benefits, as today, and encouraging more single parents into work ... that 300,000 fewer children will no longer be growing up in poverty and instead have better chances," he said.

The Chancellor said he was raising the value of the tax-free child care voucher from £50 to £55 a week and was making capital grants available for medium-sized or small companies to open workplace nurseries. The number of Sure Start children's centres will expand from the current 700 to 3,500 by 2010.

The Save the Children charity protested that the Budget had failed to deliver for the poorest. Jasmine Whitbread, its chief executive, said: " Although there are new measures announced that will help those closest to the poverty line, our research shows that this Government is still completely failing to reach those in severe poverty. This Budget falls far short of the help that the poorest children need."

John McDonnell, the left-wing MP who chairs the Labour Representation Committee pressure group, said : "Proposals to raise the child tax credit are minimal improvements. The real gains made in cutting child poverty are to be welcomed, but the Government will not achieve its goals unless it is prepared to increase redistribution."

He called for a £5-a-week rise in the rate of Child Benefit as a way of immediately lifting 350,000 children out of poverty.

Kate Green, the chief executive of the Child Poverty Action Group, said: "Although Child Trust Funds will not improve the incomes of the poorest families today, we welcome the announcement of top-up payments at seven. It's right and fair that the poorest children get a much larger top-up because their families will find it very difficult to make their own contributions to the fund."

David White, chief executive of The Children's Mutual, said: "We believe this additional top-up demonstrates the Government's commitment to the Child Trust Fund and will provide an additional incentive for parents, family and friends to make extra contributions."

The Association of Investment Trust Companies called on the Government to make a further payment when children were 11 and to step up the education programme for parents and children to boost financial awareness.

Sarah Jackson, chief executive of the Working Families pressure group, said: "The Chancellor has missed an opportunity to help families meet the high cost of childcare, particularly for disabled children, by keeping the cap on the maximum eligible childcare costs at £300.

Case Study, Couple with child: 'As far as we're concerned, it's a neutral Budget'

By Deborah Linton

Chris Alexander, 49, is a senior project manager in financial services. His wife, Amanda, 36, is a self-employed life coach, and former IT industry project manager.

Live In Kelsall, Cheshire with son Max, three.

Income Chris earns £57,000 a year, Amanda takes £500 to £800 a month. Chris receives an annual £4,000 car allowance, pension and life insurance. They receive £200 in childcare vouchers each month.

Outgoings Chris contributes 6 per cent of his gross salary to a pension fund and Amanda makes a £22 monthly payment. They pay around £350 a year in insurance on one car, which costs £80 a month in petrol. Their people-carrier costs £250 a month in diesel. Each month, the couple pay a £1,300 mortgage, £160 council tax and domestic bills of £125. Max attends nursery, pre-school and lunch club, which costs £113 a week. The couple pays maintenance towards Chris's two children from his previous marriage, who are aged 18 and 15.

Politics Last election "we voted Labour reluctantly," says Amanda. "I don't think they've done a good job."

Hopes for the Budget An extension of childcare support for self-employed mothers.

Effect of Budget They would be about £335 better off - gaining on income tax changes (by £263) and childcare tax savings (£107). They lose out by £51 on changes to National Insurance and will be £7 worse due to a rise in duty on wine.

Reaction "As far as we're concerned it's a neutral budget. We don't stand to benefit a huge amount. £335 is swallowed up," says Chris.

Amanda adds: "I think every year the government is becoming more and more aware of the need to make childcare more affordable. But as a self-employed mum I still don't benefit. It just seems such an obvious thing to think how can we help self-employed parents who are helping the economy directly. As for cars, Chris has always chosen his car based on CO2 emissions. If something is spewing emissions, we should do something about it."

* Treasury Budget site

* Chancellor's Statement in full