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

Photo: Getty Images/AFP
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Is Yvette Cooper surging?

The bookmakers and Westminster are in a flurry. Is Yvette Cooper going to win after all? I'm not convinced. 

Is Yvette Cooper surging? The bookmakers have cut her odds, making her the second favourite after Jeremy Corbyn, and Westminster – and Labour more generally – is abuzz with chatter that it will be her, not Corbyn, who becomes leader on September 12. Are they right? A couple of thoughts:

I wouldn’t trust the bookmakers’ odds as far as I could throw them

When Jeremy Corbyn first entered the race his odds were at 100 to 1. When he secured the endorsement of Unite, Britain’s trade union, his odds were tied with Liz Kendall, who nobody – not even her closest allies – now believes will win the Labour leadership. When I first tipped the Islington North MP for the top job, his odds were still at 3 to 1.

Remember bookmakers aren’t trying to predict the future, they’re trying to turn a profit. (As are experienced betters – when Cooper’s odds were long, it was good sense to chuck some money on there, just to secure a win-win scenario. I wouldn’t be surprised if Burnham’s odds improve a bit as some people hedge for a surprise win for the shadow health secretary, too.)

I still don’t think that there is a plausible path to victory for Yvette Cooper

There is a lively debate playing out – much of it in on The Staggers – about which one of Cooper or Burnham is best-placed to stop Corbyn. Team Cooper say that their data shows that their candidate is the one to stop Corbyn. Team Burnham, unsurprisingly, say the reverse. But Team Kendall, the mayoral campaigns, and the Corbyn team also believe that it is Burnham, not Cooper, who can stop Corbyn.

They think that the shadow health secretary is a “bad bank”: full of second preferences for Corbyn. One senior Blairite, who loathes Burnham with a passion, told me that “only Andy can stop Corbyn, it’s as simple as that”.

I haven’t seen a complete breakdown of every CLP nomination – but I have seen around 40, and they support that argument. Luke Akehurst, a cheerleader for Cooper, published figures that support the “bad bank” theory as well.   Both YouGov polls show a larger pool of Corbyn second preferences among Burnham’s votes than Cooper’s.

But it doesn’t matter, because Andy Burnham can’t make the final round anyway

The “bad bank” row, while souring relations between Burnhamettes and Cooperinos even further, is interesting but academic.  Either Jeremy Corbyn will win outright or he will face Cooper in the final round. If Liz Kendall is eliminated, her second preferences will go to Cooper by an overwhelming margin.

Yes, large numbers of Kendall-supporting MPs are throwing their weight behind Burnham. But Kendall’s supporters are overwhelmingly giving their second preferences to Cooper regardless. My estimate, from both looking at CLP nominations and speaking to party members, is that around 80 to 90 per cent of Kendall’s second preferences will go to Cooper. Burnham’s gaffes – his “when it’s time” remark about Labour having a woman leader, that he appears to have a clapometer instead of a moral compass – have discredited him in him the eyes of many. While Burnham has shrunk, Cooper has grown. And for others, who can’t distinguish between Burnham and Cooper, they’d prefer to have “a crap woman rather than another crap man” in the words of one.

This holds even for Kendall backers who believe that Burnham is a bad bank. A repeated refrain from her supporters is that they simply couldn’t bring themselves to give Burnham their 2nd preference over Cooper. One senior insider, who has been telling his friends that they have to opt for Burnham over Cooper, told me that “faced with my own paper, I can’t vote for that man”.

Interventions from past leaders fall on deaf ears

A lot has happened to change the Labour party in recent years, but one often neglected aspect is this: the Labour right has lost two elections on the bounce. Yes, Ed Miliband may have rejected most of New Labour’s legacy and approach, but he was still a protégé of Gordon Brown and included figures like Rachel Reeves, Ed Balls and Jim Murphy in his shadow cabinet.  Yvette Cooper and Andy Burnham were senior figures during both defeats. And the same MPs who are now warning that Corbyn will doom the Labour Party to defeat were, just months ago, saying that Miliband was destined for Downing Street and only five years ago were saying that Gordon Brown was going to stay there.

Labour members don’t trust the press

A sizeable number of Labour party activists believe that the media is against them and will always have it in for them. They are not listening to articles about Jeremy Corbyn’s past associations or reading analyses of why Labour lost. Those big, gamechanging moments in the last month? Didn’t change anything.

100,000 people didn’t join the Labour party on deadline day to vote against Jeremy Corbyn

On the last day of registration, so many people tried to register to vote in the Labour leadership election that they broke the website. They weren’t doing so on the off-chance that the day after, Yvette Cooper would deliver the speech of her life. Yes, some of those sign-ups were duplicates, and 3,000 of them have been “purged”.  That still leaves an overwhelmingly large number of sign-ups who are going to go for Corbyn.

It doesn’t look as if anyone is turning off Corbyn

Yes, Sky News’ self-selecting poll is not representative of anything other than enthusiasm. But, equally, if Yvette Cooper is really going to beat Jeremy Corbyn, surely, surely, she wouldn’t be in third place behind Liz Kendall according to Sky’s post-debate poll. Surely she wouldn’t have been the winner according to just 6.1 per cent of viewers against Corbyn’s 80.7 per cent. 

Stephen Bush is editor of the Staggers, the New Statesman’s political blog.