PM to decline childcare tax break
Published 18/03/2014 | 02:22
David Cameron has revealed that he will not be taking advantage of the new tax break for childcare, worth up to £2,000 per child each year.
The scheme, unveiled on the eve of the Budget and due to come into effect in autumn 2015, will help around 1.9 million families with children aged under 12 where both parents work, at a cost of around £750 million.
Mr Cameron said that the policy would be "a huge help to millions of families across Britain", allowing parents to make the choice to work longer hours.
But it has come under fire from some quarters for excluding couples where one parent does not work and being offered to high-earning households with a joint income of as much as £300,000.
Visiting a nursery with Deputy Prime Minister Nick Clegg to launch the scheme, Mr Cameron revealed that he "won't be taking it up" for his own children Nancy, Elwen and Florence.
But Downing Street brushed off suggestions that he was seeking to send a signal to other wealthy parents that they should decline the cash. The Prime Minister's official spokesman said: "This is about giving families support for the choices they make. We are not here to give financial advice."
Labour said support for children and families had been cut by £15 billion since the coalition came to office in 2010 and pointed out that the policy will help far fewer families than the 2.5 million predicted when it was first outlined last year.
Describing the package as "too little too late", the party's spokeswoman 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."
But M r Cameron said: "People I've been talking to are working two days a week, three days a week, who would dearly love to work another day or work some more hours, but they can't make the sums add up because the childcare is expensive and they are not earning enough.
"So this will help them to choose - do I want to work more? Do I want to take that choice to give more stability and security to my family? It's about helping parents to back the choice that they make."
The system will effectively allow parents to escape paying basic rate income tax of 20% on childcare costs of up to £10,000 - up from the proposed £6,000.
Self-employed and part-time workers will also now be covered by setting the lower earnings threshold at £50 per week and provision will also be made for those running fledging businesses.
The £1 billion package also includes a £50 million "early-years pupil premium" for nurseries looking after the most deprived three and four-year-olds.
And in what children's charity Barnardo's hailed as a "double victory" for the poorest families, it was confirmed that families claiming universal credit will have 85% of childcare costs met by the state, up from 70%.
The Institute for Fiscal Studies noted that the more generous scheme announced today was not accompanied by any additional cash. The Treasury sums added up because it had " significantly revised down" its estimate of how many families are likely to be eligible, said the thinktank.
Meanwhile, Labour pointed out that, even split between 1.9 million families, the cash available amounts to less than £400 each - well short of the £2,000 maximum. Claiming that the policy was "unravelling", Labour highlighted a forecast in the Government's own documents which suggested that the number of families with "qualifying childcare costs" would in fact be around 1.26 million.
But Economic Secretary to the Treasury Nicky Morgan said that the scheme was designed to be "simple and flexible" enough to respond to different families' arrangements. She told BBC Radio 4's World at One: "Families have different childcare needs: some will want to spend up to £10,000 or more on childcare - that's where the Government will be paying up to £2,000 - for some it will be less."
The IFS raised a note of caution over hopes that the policy will enable more parents to work.
"There is no consistent evidence from other countries that childcare support has large effects on parental labour supply," said the thinktank.
"While today's announcements bring welcome simplifications to the new taxfree childcare scheme, and an increase in generosity that will certainly be welcomed by families on Universal Credit using childcare and better-off families who spend more than £6,000 a year on childcare, the extent to which it will deliver its intended goals is essentially unknown."
The chief executive of the Pre-School Learning Alliance, Neil Leitch said he was "concerned" that the policy was "fixated on getting parents back to work and is not sufficiently targeted to benefit those most at need".
Mr Leitch said: "We would also challenge the wisdom of giving families with joint incomes of £300,000 per annum the same benefit. Many high-earning parents must be uncomfortable with this additional tax break."
Julia Unwin, chief executive of the Joseph Rowntree Foundation, said: "Our research shows that childcare costs have risen by 37% in the last five years, so we welcome the Government taking steps to tackle this huge expense for families, and especially welcome the inclusion of all families on universal credit."
But she added: "Of the new childcare funding, £750 million is being used for tax-free childcare for potentially very high earners - only £200 million will support those who are worse off. Funding for childcare for poorer families must be prioritised."
Mr Clegg told BBC Radio 4's Today programme: "People who are on higher-than-average incomes, yes, they will benefit from this.
"We decided to do that because the more we looked at introducing a cut-off point at different income levels, the more complex it became."