Government Announces Increase in Childcare Subsidy for Working Parents
Government plans announced in March 2014 could see working families entitled to claim up to £2000 per child in subsidy against the cost of their childcare. This might be some consolation to the many tax paying parents who have been dragged into the 40% tax bracket recently, and those have lost out on child benefit due to changes last year.
The coalition Prime Minister and Deputy Prime Minister believe it will help many hard working families (the so-called squeezed middle). The online system is also expected to be a much simpler process than previous benefit systems.
The plans were announced ahead of the 2014-15 budget and Labour were quick to attack the plans as “too little, too late”; they are offering their own plan to ease the burden of childcare – both the government and the opposition noted that childcare costs had increased by 30% since 2010.
Charity Family Childcare Trust claims that a typical family pays £109.89 for 25 hours of childcare every week, though a tax-free voucher scheme available through participating employees can reduce the cost of childcare. It is estimated that only around 5% of employers in the UK have signed up to the scheme.
The new scheme will commence in September 2015 (after the next general election) and is expected to double the number of eligible parents, particularly the self-employed who are not included in the current scheme. When announced in 2013, the initial plan was for the support to be capped at £1,200 per child and open to families with two working parents who earn a combined income of under £150,000 per annum.
The scheme is expected to be phased in over the course of the next seven years.
Ministers agreed, following an extensive public consultation, to increase the value to £2,000, extended it to all under 12s within the first year of the scheme, and speed up the process of implementing it.
Users will set up a simple online account; this will entitle them to 20% rebate per child against the annual cost of their childcare (up to £10,000). If a couple’s annual childcare bill was £6,000 for example then they would pay £4,800 into the account and the government would add the remaining £1,200 to make up the total bill.
It is expected to cover:
- Part-time workers earning more than £50 per week
- Those receiving maternity / paternity pay or on adoption leave
- The self-employed
Prime Minister David Cameron and Deputy Prime Minister Nick Clegg visited a London nursery to talk about the scheme. “This is about helping all families, but particularly those families that do feel their finances are squeezed. I want to give families greater stability, greater peace of mind, greater security. And obviously being able to have £2,000 tax relief per child is going to be a huge help to millions of families across Britain,” said the Prime Minister.
“This is really simple,” added Mister Clegg. “For every 80p you pay, the government will pay 20p. It’s as simple as that.” He went on to say that introducing staggered cut-off points would have unnecessarily complicated the scheme.
Critics have pointed out that that homes where just one parent works, and the other stays at home, are ineligible.
Mr Clegg reiterated that: “This scheme is aimed at parents who are both at work,” and added that raising the income tax threshold to £10,000 a year will help many households.
Labour counterclaimed: “What the government have announced today is £750m which they say will be shared between £1.9m families – I work that out to be around £400 a year for the average family. So they are making this sound a little bit more attractive than it actually is,” was the view of shadow Children’s Minister Lucy Powell.
Treasury minister Nicky Morgan spoke to World at One on Radio 4, and pointed out that there was no such thing as the “average family”, insisting that families would be entitled to up to £2,000 per child: “The point about the scheme is it is simple and flexible.”
The current Employer Supported Childcare Scheme as it presently stands will continue but will be closed to new members from August 2015. Those who wish to switch from it to the new scheme will be able to do so, but they may not be part of both schemes at the same time.
With an election in May 2015, all three main parties are seeking to appeal to working families. Earlier, the government increased early schooling entitlement for 3-4 year olds from 12.5 to 15 hours per week. The opposition promised that a Labour victory would double this to 25 hours.
Further warnings from Labour stated that as a result of government policies, parents were likely to see more of their disposable income going towards funding childcare by 2018. “Of course any childcare support is welcome but this government has done nothing in this Parliament to help parents experiencing a cost-of-living crisis,” said Labour’s Lucy Powell. “[Prime Minister] David Cameron has cut support for children and families by £15bn since he came to office, And today he confirms that no help will arrive until after the election. This is too little, too late.”