Childcare costs scheme 'better for parents'

 

Elizabeth Truss: 'It will be much simpler for parents than the current system'

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The government has promised to create a "better" childcare system for parents, by allowing them to claim back up to £1,200 a year in costs per child.

Children's minister Elizabeth Truss said the problem of affordability went "right up the income scale" and the new scheme would provide "choice".

Households where a parent does not work will not be able to claim the money.

Asked how this would affect stay-at-home mothers and fathers, Ms Truss said ministers backed "strong families".

The UK has some of the highest childcare costs in the world, with many people with two or more children saying it does not make financial sense for both parents to work.

'Prohibitive'

Under the proposed scheme, which will undergo consultation, parents will be allowed to claim back 20% out of a total of around £6,000 - what the government says to be the average annual price of a childcare place.

To be introduced from 2015, it would cover children up to five years old, but will build up "over time" to include under-12s.

Unlike the current voucher system, which only operates where employers support it, the new scheme would be paid per child, instead of per household.

How the new scheme will work

  • Parents will be able to open an online voucher account with a voucher provider and have their payments topped up by government.
  • For every 80p families pay in, the government will put in 20p up to the annual limit on costs for each child of £1,200.
  • Parents will be able to use the vouchers for any Ofsted regulated childcare in England and the equivalent bodies in Scotland, Wales and Northern Ireland.
  • The scheme will initially only be open to pay for children under five.
  • The scheme is expected to benefit 2.5 million families.
  • Parents using the existing childcare voucher system will be able to continue using that scheme instead.
  • Full details of the new scheme will be proposed in a consultation before being finalised.

Parents earning up to £150,000 a year each - or a maximum of £300,000 per household - would be eligible.

Ms Truss told BBC Radio 4's Today programme: "This is about giving parents choice. At the moment a lot of parents can't go out to work because the cost of childcare is prohibitive."

She added: "We believe in marriage and strong families and in families making choices."

"What we are recognising is that where families are earning between £20,000 and £40,000 a year, [they feel] it's not worth going to work because of the cost of childcare," Ms Truss said.

"What we need to recognise is that this new voucher system is much better than its predecessor. Now working families can access it."

It would reach 2.5 million households, rather than 500,000 under the current system, Ms Truss said.

Half of the funding for the £1.4bn scheme would come from the abolition of the previous system of childcare vouchers, and in part by funding switched from elsewhere in Whitehall.

Under the current employer-supported childcare voucher scheme, parents can receive vouchers for childcare worth up to £55 a week. This sum is deducted from their salary before tax is paid.

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The saving in tax and national insurance is typically worth about £900 a year for a basic-rate taxpayer. Where both parents work, families can save about £1,800 a year.

These vouchers are available only to employees whose employer is part of the scheme, but the new policy is expected to be open to all working parents who meet the criteria.

Parents who already claim childcare vouchers through the old scheme would be able to continue to do so if they wish, but it would be closed to new claimants who would be moved to the new tax-free childcare scheme.

'Huge help'

Anand Shulka, chief executive of national childcare charity, the Daycare Trust, said an "almost universal" benefit had to be welcomed.

But, for Labour, shadow education secretary Stephen Twigg said: "Parents will be disappointed that three years into this government they will not get any help with childcare costs for another two and a half years.

"While working parents won't get any help before the next election, David Cameron is happy to help millionaires with a tax cut now."

He said the measure would not make up for the cuts the government has already made to support for children.

In other reaction, The Federation of Small Businesses said the plan would encourage more women to return to work and boost labour market "flexibility", while the Twins and Multiple Birth Association called it a "step in the right direction".

The Policy Exchange think tank said the subsidy would be a "huge help" to those on low incomes but warned there would be "some losers"

"A family with two working parents and one child will be worse off," said its education research fellow Harriet Waldegrave.

"If only one parent works, the family will not be able to get any support (unlike at present where the working parent can get vouchers), so it will be important to consider what this means for those families, for example, where one parent is in further education or training."

Tax-free childcare: Examples for two-child families

Earners Annual claim back limit Details

Source: HM Treasury

KEY: Orange figures represent individuals not eligible for tax credits/universal tax credit.

Green figures represent individuals eligible for tax credits/universal tax credit.

figures

One income of £120,000, one of £80,000

£1,200 per child

Two parents working full-time with annual salaries up to £150,000 each will be entitled to claim back 20% of childcare costs, with a maximum of £1,200 per child aged under 5, eventually rising to under-12s.

figures

Single parent earning £60,000

£1,200 per child

A single parent working full-time, who does not qualify for tax credits or universal credit, earning up to £150,000 will be entitled to claim back 20% of childcare costs, with a maximum of £1,200 per child.

figures

One income of £60,000

£0

If one parent works and the other does not, and the family does not qualify for tax credits or universal credit, they will not be able to claim.

figures

Two incomes of £12,000 each

85% of childcare costs

Two low-income workers who qualify for tax credits or universal credit and earn over the income tax threshold (set to be £10,000) will be able to claim 85% of childcare costs. The same applies to single parents.

figures

One income of £12,000, one of £8,000

70% of childcare costs

Families where both parents work, who qualify for tax credits and universal credit and one parent earns above the income tax threshold (set to be £10,000) and the other does not, will be able to claim 70% of childcare costs.

 

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  • rate this
    +5

    Comment number 879.

    My son is self-employed with no children. Do you think the government could give him £1200 towards the running costs of his van to help keep him employed and contributing his taxes towards this benefit that will go to those with children?

  • rate this
    +34

    Comment number 678.

    If people are earning £300k why do they need help. Give to those that earn far less and have to stay at home. I thought we were cutting Benefits, not giving to those that are RICH. Robin Hood in reverse, I think. Another option to save money is for the parents to stay at home and for their children to get to know them.

  • rate this
    +9

    Comment number 667.

    As a non-parent who works I find myself asking what would I rather my taxes pay for:

    Childcare so that parents can work; or other benefits so one or both parents can not work and look after their children.

    The former is the obvious answer.

    Which makes you wonder why the government aren't looking for ways to provide free childcare to working parent families jointly earning under say, 100k.

  • rate this
    -10

    Comment number 665.

    This is a win-win solution.
    Those who find childcare vouchers more interesting can stick with them. The other will get something...
    Most of that money is used to pay someone else wages. Therefore providing more IT and NI contribution.
    Parents might be able to work more, therefore will pay more taxes themselves and will also spend more, providing an economic boost and more tax revenues (VAT).

  • rate this
    +3

    Comment number 616.

    How very disappointing and so very typical of the Conservatives. They say the average childcare costs are £6000, really?? I pay £11,000 a year, £216 a week and not in London either. This equates to just under 50% of my salary. Oh and the icing on the cake - this isn't coming into effect until 2015 when my son starts school. Just brilliant.

 

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