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19 March 2013

The coalition’s new childcare policy: three problems

High-earners gain the most, 860,000 single-earner families lose out and the system won't be introduced until 2015.

By George Eaton

After months of negotiations, David Cameron and Nick Clegg will announce the coalition’s childcare plans today. Under the new system, parents on joint incomes of up to £300,000 (or £150,000 for a one-parent family) will be able to claim £1,200 a year for each child – or 20 per cent of childcare costs. The £750m scheme will initially cover children under the age of five and will be gradually extended to include all children under 12. Half of the funding will come from the abolition of the existing system of childcare vouchers, with the reminder switched from other Whitehall departments. An additional £200m of support will be provided through Universal Credit. 

The chief benefit of the new policy is that will offer support to those parents who do not currently benefit from the employer-funded voucher scheme, which is provided by only five per cent of employers. Around 1.3 million families will qualify for the scheme, rising to 2.5 million as it is gradually extended. In a joint appearance with Clegg later today, Cameron will hail it as “one of the biggest measures ever introduced to help parents with childcare costs” but here are three problems with the policy that the government won’t be so keen to draw attention to. 

1. High-earners will gain the most from the policy, with less support provided those on low and middle incomes. In order to be eligible for support, both parents must be earning over the personal allowance (which will rise to £9,440 this April) and 82 per cent of those families likely to gain from tax relief are in the top half of the income distribution. 

While low earners will benefit from increased support through Universal Credit, with 88 per cent of recipients in the bottom half of earners, the lion’s share of funding is devoted to tax relief (£750m against £200m for UC), meaning that the system is regressive overall. 

2. To qualify for the scheme, both parents in a two-earner family and one parent in a single-earner family must be in work. As a result, around 860,000 single-earner families with a child under five will receive no support. Following the withdrawal of child benefit from those earning £50,000 (but not two-earners on £49,000 each), this is another blow to stay-at-home parents. 

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3. The new system won’t be introduced until autumn 2015 at the earliest. The coalition had originally intended to implement it before the next election but the anaemic state of the economy meant it was ruled unaffordable by the Treasury. However, as shadow education secretary Stephen Twigg notes, the government has found £1.1bn to reduce the top rate of income tax from 50p to 45p this April.

“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 are promised help tomorrow, this government is only helping millionaires today.”

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