Government pledges extra help with childcare costs

Published on Tuesday, 18 March 2014 10:40
Written by Daniel Mason

Nearly two million families could benefit from a tax-free childcare allowance of up to £2,000 per child under a programme to be announced by David Cameron and Nick Clegg today.

The package was originally set out a year ago but, ahead of tomorrow's budget, the government said it would bring forward and expand the offer, with the prime minister pledging to help provide financial security for "hard-pressed families". Labour claimed it was "too little, too late".

Under the scheme, working parents earning less than £150,000 a year with children under 12 would be covered within the first year of the scheme, starting in autumn 2015 – faster than the initial proposal of a gradual introduction over seven years.

The government would provide up to 20% of annual childcare costs of up to £10,000 per child, meaning support of a maximum £2,000 for each child. Previously the upper limit was to be set at £1,200. The Treasury has estimated that 1.9 million families would be eligible.

Meanwhile, as part of the package, £50m would be provided in 2015-2016 as an 'early years pupil premium' for three and four-year-olds from the most disadvantaged backgrounds. And poorer parents on universal credit would receive help with 85% of childcare costs instead of the previously planned 80%.

Earlier this month research by the Family and Childcare Trust revealed that part-time childcare costs for a family of two children had overtaken the average UK mortgage bill by 4.7% – highlighting the impact of childcare on family budgets. It estimated that the average annual cost of childcare for a family with a two-year-old and a five-year-old was £11,700.

David Cameron said: "Tax free childcare is an important part of our long-term economic plan. It will help millions of hard-pressed families with their childcare costs and provide financial security for the future."

The deputy prime minister, Nick Clegg, added that he was "committed to making sure that we create a fairer society". "Today's package of support will provide a childcare boost for millions of hardworking families, and a £50m cash injection for early education providers to support those children who need extra help in their early years," he said. "We want to ensure that everyone can get on and succeed."

But Labour claimed the government had cut support for children and families by £15bn since coming to power in 2010 and pointed out that the new help would not arrive until after the next election. "This is too little, too late," the shadow minister for children, Lucy Powell, said.

"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. Childcare costs have spiralled by 30% since 2010 and the Tories have rejected Labour's plan for 25 hours free childcare for working parents of three and four-year-olds."

The Institute of Economic Affairs thinktank said tax-free allowances were not the right solution. Its director general, Mark Littlewood, said: "Childcare costs have swelled because of increased government intervention in the sector. Further interference is not the solution. Yet again, politicians have caused a problem and then claimed to have found a means to solve it.

"Childcare is not inherently expensive, but it has become one of the most heavily regulated sectors of the UK economy. The costs of compliance, monitoring and inspection have proliferated. Minimum staff-per-child ratios have ramped up prices. Strict planning laws have led to very high fixed costs for nurseries.

"It's high time the government realised that the lack of affordable childcare is not going to be solved by increasing subsidies, but by driving down costs. Restoring affordability through deregulation is a much more promising approach than pumping ever more resources into an unreformed sector."

And Dalia Ben-Galim, from the Institute for Public Policy Research, warned that it was no more than a short-term fix. "Overall, an expanded system of tax-free childcare is still regressive, skewed to benefitting higher income families and doesn't necessarily secure lower costs for parents or government.

"In fact, IPPR analysis shows that tax-free childcare on its own will not make childcare more affordable for families. The government has not got a plan to regulate the childcare market, nor control prices for parents, which makes pumping tax relief into the system a short-term fix with long-term price rise consequences."

She added: "Today's announcements are welcome, but the direction of travel is worrying. These reforms should be used as a down payment on a more radical extension to support childcare in the next parliament that delivers better outcomes for children, families and society."

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