Opinion: Childcare tax reforms come too late as providers struggle on

Denise Burke
Monday, March 31, 2014

The coalition government's announcement of a revised childcare tax break scheme received mixed responses from the sector, charities and think-tanks. Some have welcomed the news to increase the childcare tax break from £1,200 to £2,000 a child and the rise in age range from five to 12 years from the start of the scheme. In addition, the revised scheme, which will operate online, will be open to those who are self-employed. Others have criticised the decision to make the tax breaks for childcare available to families with incomes of up to £300,000. They argue the offer will help richer parents most, that it will be difficult to police and for some families it will be less generous than the current childcare voucher regime.

Parents paying 80 per cent of childcare costs of up to £10,000 a child to a registered provider will get the remaining 20 per cent tax-free. But there are very few low and middle-income earners who spend as much as £10,000 a year per child on childcare. The new flat-rate 20 per cent system will see a higher subsidy for those parents who can afford to spend more on good quality care.

But the announcement doesn't address the immediate problem. Families are struggling now to pay for childcare and need help straight away, not in 18 months' time when the changes would take effect. When Nick Clegg was challenged on the delay of help, he responded that the government was keen to get the online scheme right and it would take time to test the logistics.

In fact, the package was originally unveiled a year ago; only the figures have changed. Can it really take two-and-a-half years to develop and implement the scheme? Additional investment in the childcare sector is of course welcome. But this latest announcement is too little, too late.

Some academics have questioned whether the government has chosen the right way to invest in childcare. They reference international comparisons such as in the Netherlands, where the lower a person's pay, the higher the government subsidies. The real picture though is not so rosy there. Nurseries are struggling with occupancy, they aren't viable and many are closing.

It is difficult to compare us to our European neighbours. In this country, the bulk of childcare is provided by the private sector. And where there is a strong for-profit sector like here in Britain, the additional government funding could simply boost prices and profits, rather than increase either affordability or quality. The announcement does nothing to increase capacity for two-year-olds and is unlikely to increase provision in more disadvantaged areas.

The announcement to extend the pupil premium to disadvantaged twoand three-year-olds is equally worrying. While the concept of paying providers more to look after these children is laudable, the offer is flawed. In theory, there is a flat-rate payment per child for every threeand four-year-old, but the reality is much different. It's a postcode lottery with huge differences from local authority to local authority. An extra £200 per disadvantaged child won't go very far, especially if the money is diluted.

So how will the childcare tax break online account scheme be administered? Many of the existing childcare voucher companies have been talking over the past year with government officials on how they could play a role in offering the online account. But they were summoned to a meeting at the Treasury just before the Budget to find out that the proposed online account will be run jointly by National Savings and Investment (NS&I) and the IT company Atos. So much for transparency and procurement procedures. Where does that leave the voucher companies now? The employers' childcare voucher scheme will cease once the new online account is launched in September 2015 unless existing parents choose to remain in the scheme (and many may well do so once they have done the sums to see if they will be better off).

We don't know how parents would have chosen an online account provider if there had been a number of companies offering online accounts, but the voucher companies must be feeling battered and bruised.

The idea of an online account has been talked about for a long time, but surely the government is missing a trick. It could bring together far more than government subsidies and parental fees. What about the funding for two-, threeand four-year-olds?

So will Labour up the stakes and improve on its childcare proposal to increase the free offer from 15 to 25 hours? It has challenged the tax break proposal, but worryingly no political party has risen to the challenge of offering better funding for free childcare places for two-, threeand four-year-olds.

The funding must increase and be a guaranteed flat-rate to ensure that providers are sustainable and can offer quality. Providers simply will not offer 25 hours on the current ad hoc funding system. Any new childcare offer must be well-thought out and properly designed to help those families that need the help most. And it is needed now. Parents can't wait until 2015.

Denise Burke is director of United for All Ages and www.GoodCareGuide.co.uk.

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