Childcare tax breaks risk helping the rich the most

At present, there are almost no voucher recipients among the poorest 40 per cent of households.

In the week that parents earning over £50,000 saw their child benefit cut, the speculation is that the government intends to introduce tax relief for childcare, possibly making those who were worse off from the child benefit change, better off once again. In the absence of an announcement from ministers, we will not know what the government actually intends to do until next week’s announcement. But the talk is of the introduction of basic rate tax relief for childcare worth £2,000 a year per child. How the scheme will work is anyone's guess but, even without the details, we can already speculate that this is a policy that is likely to help the better off more than the ‘strivers’ the government says it supports.

The government already spends £700m a year on tax relief for childcare through employer supported childcare vouchers which look likely to be scrapped following the introduction of tax relief. It’s a voluntary scheme that employers can offer which gives their employees basic rate tax relief on £55 a week of childcare costs (less if they are a higher rate taxpayer). Resolution Foundation analysis shows that 50 per cent of people who used vouchers in 2010-11 were in the top 20 per cent of households (see graph). Almost no voucher recipients were found among the poorest 40 per cent of households.

Position of childcare voucher recipient households in the income distribution, 2010-11

At the moment, whether or not you can benefit from vouchers depends on whether your employer offers them. In this respect, the government’s proposal could be an improvement if it is available to all. But assuming it works in a similar way to the existing vouchers, it is likely to be of little benefit to low paid working families who struggle most with the costs of childcare. Under the current scheme, those who do not earn enough to pay tax cannot benefit at all and those who qualify for tax credits are only marginally better off if they also take up vouchers. The argument may be that tax credits are there for those on low income and tax relief is there to help the rest. But let’s be clear that the government may be about to make a major investment in childcare that barely benefits low income working families, while offering help to the richest.

Other choices would have been possible. The Resolution Foundation’s Commission on Living Standards recommended an extension of the universal entitlement to childcare for three and four year olds from 15 hours a week for 38 weeks a year to 25 hours a week for 47 weeks a year. This would make it easier for more mums to work part-time than the current childcare entitlement which is what most say they would like to do. The extension would have benefited all families with young children, including the better off, but importantly would have also helped the least well off.

Among the details of the government’s proposals that will be made clear next week is how the scheme will be administered. There seem to be three choices. The government could extend the current employer scheme but make it compulsory for employers to take part. This seems unlikely given prior commitments to cut red tape. Tax relief could be claimed by individuals through the self assessment process but this also seems unlikely given criticisms about a similar approach introduced to deal with the messy child benefit change. The third option is to force providers to administer it and claim tax relief on behalf of parents. If this is the preferred option, the government will need to ensure that the extra money is passed onto parents in lower fees. Otherwise, this could end up being a subsidy to struggling providers rather than a benefit to squeezed parents.

David Cameron during a visit to a London Early Years Foundation nursery in London. Photograph: Getty Images.

Vidhya Alakeson is deputy chief executive of the Resolution Foundation

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PMQs review: Theresa May shows how her confidence has grown

After her Brexit speech, the PM declared of Jeremy Corbyn: "I've got a plan - he doesn't have a clue". 

The woman derided as “Theresa Maybe” believes she has neutralised that charge. Following her Brexit speech, Theresa May cut a far more confident figure at today's PMQs. Jeremy Corbyn inevitably devoted all six of his questions to Europe but failed to land a definitive blow.

He began by denouncing May for “sidelining parliament” at the very moment the UK was supposedly reclaiming sovereignty (though he yesterday praised her for guaranteeing MPs would get a vote). “It’s not so much the Iron Lady as the irony lady,” he quipped. But May, who has sometimes faltered against Corbyn, had a ready retort. The Labour leader, she noted, had denounced the government for planning to leave the single market while simultaneously seeking “access” to it. Yet “access”, she went on, was precisely what Corbyn had demanded (seemingly having confused it with full membership). "I've got a plan - he doesn't have a clue,” she declared.

When Corbyn recalled May’s economic warnings during the referendum (“Does she now disagree with herself?”), the PM was able to reply: “I said if we voted to leave the EU the sky would not fall in and look at what has happened to our economic situation since we voted to leave the EU”.

Corbyn’s subsequent question on whether May would pay for single market access was less wounding than it might have been because she has consistently refused to rule out budget contributions (though yesterday emphasised that the days of “vast” payments were over).

When the Labour leader ended by rightly hailing the contribution immigrants made to public services (“The real pressure on public services comes from a government that slashed billions”), May took full opportunity of the chance to have the last word, launching a full-frontal attack on his leadership and a defence of hers. “There is indeed a difference - when I look at the issue of Brexit or any other issues like the NHS or social care, I consider the issue, I set out my plan and I stick to it. It's called leadership, he should try it some time.”

For May, life will soon get harder. Once Article 50 is triggered, it is the EU 27, not the UK, that will take back control (the withdrawal agreement must be approved by at least 72 per cent of member states). With MPs now guaranteed a vote on the final outcome, parliament will also reassert itself. But for now, May can reflect with satisfaction on her strengthened position.

George Eaton is political editor of the New Statesman.