A step too far?

The government needs to rethink the phasing out of employer-supported childcare vouchers

One of the great achievements of the Labour government over the last decade has been the extension of childcare and flexible working rights to working parents. Right from the start we recognised that ensuring families had the flexibility of combining work and good quality care for their children would benefit society in general. This year the government went even further, granting extra flexible rights to parents with children under 16. In Gordon Brown's speech to Labour Party Conference on 29 September 2009, he announced an extension of the entitlement to free childcare of 10 hours per week to 250,000 two-year olds from lower income families.

But this welcome move came with a hitch - in order to pay for the extension, the government said that they reform ‘old tax reliefs'. As we now know, this means phasing out the effective and popular tax relief for employer-supported childcare vouchers. These were introduced only a few years ago to give parents a better work-life balance by making registered childcare more affordable and accessible.

The current system is popular with employees and employers alike because it is flexible. They can be used to help parents with the costs of after school and breakfast clubs for young people up to the age of 16. A decision to abolish the current system could deprive over 330,000 parents of between £900 and £1,200 a year in support for childcare. Cutting tax relief for childcare vouchers will mean a very significant increase in household costs of childcare for middle-income families and there's evidence of an outcry already - there are 66,000 signatures on the Downing Street e-petition to keep the vouchers to date.

Tax relief has helped stimulate the childcare industry through choice and diversity. The incentive is largely responsible for the growth of the employer-led childcare sector over the last decade. In 2003 just 8% of employers provided support for employees with childcare responsibilities, by the end of 2006 this stood at 36%, according to research undertaken for the HMRC. The line from the government is that relief for childcare vouchers is a ‘tax-break for the well-off', because incentives are perceived as 'poorly targeted', even though the vast majority of parents on the basic tax rate benefit from the relief.

Phasing out the scheme would force some parents to choose between working and looking after their children or change their current flexible working arrangements - in the midst of a recession. We don't have to choose between tax relief and extending childcare to two-year olds, we can have both - given the sums involved. Why should we deprive, mainly women, of the benefit of childcare vouchers even if they are on middle incomes? It's flawed logic to remove tax relief for employer-supported childcare and goes against the grain of our policies, let's hope the Government rethinks this retrograde step in the run-up to the Pre-Budget Report.

Jessica Asato is acting director of Progress

03 Nov 2009 15:46

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Comments

• Posted by Andy Ray on 03 November 2009, 8:31:35 PM Whatever Gordon’s “moral compass”;, he seems to have a penchant for picking up unpopular measures first (although caving in later most times) : 10p tax, Gurkhas, petrol duty, army deaths etc etc etc!
• Posted by Mark on 03 November 2009, 10:43:50 PM Disagree Jessica, Flexible working has increased individualism in the workplace, created and formed a more virulent form of negative Liberty and a massive loss of Labour and union support. The emphasis on single parents and unmarried couples on low incomes is undervaluing marriage and arguablty alienating many working class couples. Many married couples have to pay for their childcare. The Government would be right to phase ot the scheme. This will enable everybody to obtain a bike on a similar salary sacrifice scheme to fight climate change which is deemed more important at this time. Sorry Jessica has nobody told you.
• Posted by Andy Ray on 03 November 2009, 11:13:20 PM Sorry, Mark, has nobody told you that it's an election-loser : we'll lose "Middle England"!
• Posted by Angela Blair on 04 November 2009, 9:17:09 AM I am a working mother who uses an employee voucher scheme to subsidise essential after-school care for my child. This decision by the Govenement has caused me a great deal of stress and anguish and my childcare provider is facing an uncertain future. This government seems to be hell bent on alienating core voters like myself by tinkering with proven success stories like the voucher scheme. Its the lack of logic behind it thats so confounding. I fail to see how subsidising the £280 I pay through a modest tax break each month is promoting a more virulent form of negative liberty. Rather it is an indication of support for employees like myself who prop up the economy.
• Posted by Sarah Smith on 04 November 2009, 12:55:49 PM I am a mother of 2, who has remained in her career through out motherhood, not the easiest decision but one which I chose to make. As I have remained in the workplace and now earn a modest salary, I pay 40% tax, I brought a house which I paid a lot of stamp duty on, I buy goods which I pay VAT on, I drive a car which I pay a lot of fuel tax for!!! If I had not been able to return to work when I did, I would not be on such a 'great' salary (not that great in reality by the time the tax is paid), I would not be able to afford my mortgage, I would not be able to run a car, I would not be able to purchase so many things with the VAT payable - how much will the government lose in these revenue streams if they make it even more difficult for mothers (and fathers) to stay in the workplace? I am not entitled to working tax credits, if I was surely I would be costing the government (tax payer) more? Why stop people from being self sufficient?
• Posted by Denise on 04 November 2009, 2:23:41 PM I agree entirely with your view although I believe some tweaking of the scheme is necessary to cap the benefit at the basic rate of tax. What utter nonense for government to have linked the extension of two year funding with the employer supported scheme. One is about early education and the benefits to the child and doesn't meet the 16 hour rule enabling parents to access CTC, the latter does help working parents albeit just adds to the complexity of childcare funding. Bring on some innovative thinking about how the funding maze can be simplified such as an electronic debit card bringing together all the funding streams. These voucher companies are clever enough to develop such a tool, just need Treasury to think outside the box!
• Posted by Stephen on 04 November 2009, 3:16:06 PM This looks like one of those decisions with lots of unintended consequences. Surely the government didn't mean to penalise lots of middle and lower income working parents, just the type of people they need to vote Labour in 2010? Rather than close down this tax exemption, the government should look at extending it to employees who care for older or disabled relatives. Much more needs to be done to help retain workers with care responsibilities in the workforce.
• Posted by Hannah Baker on 04 November 2009, 3:53:05 PM I work for a company that provides emergency childcare and childcare vouchers. Ben Black, our Managing Director and childcare market expert has published an insight into the UK childcare market in response to Gordon's suggested changes to tax relief. To view this article visit our news section at www.myfamilycare.co.uk