Childcare voucher scheme extended but not for all

8th August 2013

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Parents who are full time carers or on parental leave will qualify for tax efficient childcare vouchers under new proposals from the Government. But those who chose to stay at home to raise their children themselves will be excluded writes financial journalist Jill Insley.

The Government is inviting parents to give their views using this online survey about the consultation on a new childcare voucher scheme, which could be worth up to £1,200 for every child whose parents qualify.

Families where both parents are working and earning up to £150,000 can each buy vouchers, meaning a household with an income of up to £300,000 will qualify for tax relief on some of their childcare.

In further details released this week, the Government revealed that parents acting as full time carers for disabled relatives and others or those who are on maternity and paternity leave will also be able to take part in the scheme. Carers are defined as people who spend at least 35 hours a week looking after a disabled person, including adults.

But Chancellor George Osborne has stipulated that parents who stay at home as part of a lifestyle choice to look after their children full time would not be eligible.

Osborne said: “This is help for formal childcare. Obviously it’s not for stay-at-home mothers. I have huge regard for mothers who want to stay at home and look after their children. That’s their lifestyle choice.”

Parenting groups have claimed the proposed rules will penalise parents who want to raise their children themselves.

But Osborne added that a proposal on married couples’ tax break which he intends to introduce in the Autumn Statement later in 2013 would help some of those who want to stay at home with their children.

The new tax-free childcare scheme will replace the existing employer-supported childcare vouchers from Autumn 2015. While the existing scheme is only available to parents who work for the 5% of employers offering childcare vouchers as an employee benefit, the new system will be offered to all eligible parents – 2.5million families according to government figures.

The scheme will cover 20% – equivalent to the basic rate of tax – of working families’ childcare costs up to a limit of £6,000 per year per child – equivalent to £1,200 for each child. The government says the average cost of a part time nursery place for a child aged under two is more than £5,000 a year.

Children born in or after September 2010, so aged five or younger, will be the first to qualify for the scheme, increasing to include those aged six in the second year and so on until children under the age of 12 are eligible. Once the scheme has been fully phased in, eligibility will end in the September following the child’s 11th birthday.

The scheme will be aligned with the school year so that all children within a class will be treated in the same way.

All parents in the family must be working, earning less that £150,000 a year each and not receive tax credits.

The new scheme will operate online with the government paying in 20p for every 80p contributed by parents, up to the total limit of £1,200.

A separate scheme will operate for parents who claim universal credit: they will qualify for help with up to 85% of their childcare costs, up from 70% under the existing system.

Stephen Burke, founder of the charity United for All Ages and the Good Care Guide, is sceptical that the new scheme will benefit those who really need help with childcare costs. He said that childcare was in crisis with the number of places falling as children’s centres, nurseries and childminders close down, while the number of babies being born was booming.

He said: “Those who will benefit will be wealthier families (except for the highest earners over £150,000 a year) who are most likely to be able to afford childcare. To get the full tax break, you must be able to spend at least £4,800 per year on childcare in the first place.

“Those really struggling with paying for childcare are middle and low income families; very few of these parents and their children will be helped by the tax breaks, and they need help now, not the promise of a little jam in 2015 and beyond.

“Tax breaks for wealthy families won’t help create affordable childcare where it is most needed. Instead a two tier childcare system will be created.”

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