Aoife Hamilton is Policy and Information Manager at Employers For Childcare – an independent charity which developed from a community project set up in 1998, encouraging employers to make it easier for parents with dependent childcare get into work and stay in work. This is a sponsored post by Employers for Childcare and the Childcare Voucher Providers Association.
Governments of various hues have long believed in supporting parents with the cost of childcare. Childcare costs have risen much faster than wages and, for many families, are prohibitively expensive to the point that it no longer pays to work. The economy and public finances are better served by helping parents with childcare costs so they can continue to work. Indeed the Joseph Rowntree Foundation noted that every out-of-work claimant that gets into work saves the Government almost £6,900 per annum, with the UK’s economic output increasing by more than £13,000.
It is against this backdrop that the Government is rolling out a childcare offer that is about to inadvertently penalise ordinary working families.
The recent Treasury Committee inquiry and Westminster Hall debate have made for fascinating, if not disturbing, viewing. The Government acknowledged that Tax-Free Childcare has been developed for higher-earning rather than lower-earning families. This in itself is not necessarily a bad policy decision, but it becomes concerning when one considers that at the same time the Government wishes to remove Childcare Vouchers, a system tailored to help lower and middle earners more.
The Treasury has conducted very little research into the negative impacts of removing Childcare Vouchers, but the biggest impact will be felt by middle earners that are likely to be younger parents in their 20s and 30s. Even if these parents have already achieved a higher salary than the national average of £28,000, it is still likely to be lower than the £45,000 higher rate tax threshold, so able to derive the maximum benefit from Childcare Vouchers.
Assuming these families spend the national average on childcare, they will be hundreds of pounds worse off. At the same time, the biggest beneficiaries from Tax-Free Childcare are set to be big earners and big spenders. A parent has to be able to spend £8,000 of their own money before they receive the headline benefit from Tax-Free Childcare, a sum that is just out of reach to the ordinary working family.
One reason why the Government might have wanted to close the Childcare Voucher scheme is the administrative cost. But this argument doesn’t make any sense either. The Treasury offers employers a reduction on their own National Insurance Contributions if they implement Childcare Vouchers. The amount of tax relief is decided by government and bears no relation to the cost of running the scheme and administration costs charged by providers. It is entirely within government’s gift to decide how much relief they wish to offer and all indicators point to employee support, rather than tax relief, being the driver for employers offering Childcare Vouchers.
The charges made by the voucher providers to administer the schemes for businesses amount to about three per cent of the voucher value. With about £800 million of voucher support issued annually this works out as about £24 million. This is tellingly lower than the £40 million cost Atos charges the Government to administer the new Tax-Free Childcare scheme, via the contract struck behind closed doors. A further difference is that natural competition between the dozens of voucher providers keeps standards high and costs low, and the costs are borne by businesses rather than the tax payer.
All in all, the decision to close the Childcare Voucher scheme seems baffling. If the Government is interested in helping ordinary working families and reaching younger voters, it seems totally alien to remove a scheme that benefits them and has been tried and tested, while its new scheme is still plagued by IT failures.
There are good reasons to retain Tax-Free Childcare. Those families that fit the higher income/higher childcare cost profile really do benefit from it. We have advised about 33 per cent out of 5000-plus parents who have called us for support to use Tax-Free Childcare as it is more advantageous for their circumstances (the other 67 per cent are better off with a combination of Childcare Vouchers and/or Tax Credits).
Because of this evidence, and at the request of parents and employers, we believe the Government should reconsider its decision to close Childcare Vouchers, as Tax-Free Childcare and Childcare Vouchers running together – giving parents a genuine choice – makes for a comprehensive childcare support package and shows that the Government is on the side of ordinary working families.
Fortunately, the actual legislation to close the Childcare Voucher scheme is yet to be laid, so there remains time for common sense to prevail. But that time is rapidly diminishing.
With Childcare Vouchers, the Government has been thrown a domestic policy lifeline. What might look like the ‘do nothing’ option, keeping Childcare Vouchers open, is actually the opportunity to really ‘do something’ for ordinary working families and retain access to a scheme that is a lifeline for many.