Childcare Vouchers: What Will the Conservatives Do?
As innovative tax breaks go the one I always loved the most was the childcare voucher scheme. Now this isn’t just because I was once an enthusiastic recipient (consider my interest therefore declared), it was because I loved the principal of the thing – of all government attempts to socially engineer through the tax system this was the one that hit the mark:
- Vouchers mean you can assure that the tax-break really is used for the purpose it was intended. This isn’t money direct in the bank account like every other benefit and government hand-out – this is the right to buy, from pre-tax pay, a voucher for a specific purpose. Unlike, for instance, child benefit which has nothing to stop you spending your eighty quid a week or whatever down the bookies rather than feeding your child – if you don’t use childcare you cannot gain any fiscal advantage through the existence of this scheme.
- These vouchers can only be spent on OFSTED approved childminders or nurseries. Whilst you and I may, or may not, have philosophical reservations about the burden OFSTED places on pre-school providers we taxpayers have now invested a great deal of our money in setting up this inspection regime. We therefore have a right that we benefit from our investment. Personally, I would wish for lighter regulation for this age-group, but any regulatory regime is only worth jack if people work within it. If there are not incentives to work ‘legitimately’ then you will always have people working outside of the regime and a skewed market. Linking the ability to receive voucher payments to compliance obviously improves compliance dramatically. This is a good thing. How we lower the bar of compliance requirements is a debate for another day.
- Because the money can only be spent on childcare (per above) – you guarantee jobs for tens if not hundreds of thousands in the childcare industry. Those folk who work at nurseries or as independent childminders provide a valuable service – and also, obviously, pay tax on the money they earn through receipt of vouchers making the overall cost to the taxpayer less that it may seem at face value (more on this point in a moment).
- The pre-school providers funded in part through this money are largely private, this gives parents greater choice and a more efficient market bringing overall better quality provision. This competitive drive for quality can only be in the best interests of our infants.
- Having private companies administer the back-office side of the scheme kept the administration costs down through competition. Again, a win for the taxpayer compared with other policy implementations.
It is now a few months since the Labour party scored a whopping own-goal by announcing they would dump this, possibly one of their best implemented ideas. The first toe-dip in the language of ‘class war’ ahead of the election was probably the branding of this a ‘posh-parent tax-break’. The spin seemed to be ‘Why should Joe public subsidise the childcare of accountants and solicitors? We’re in a recession, we have huge debt, this is one area of spend that can go.’
The masses arose. Web forums like ‘mumsnet.com’ showed a level of digital militancy that caught ministers on the hop. A U-Turn came. Of sorts. In the unlikely event Labour win, the scheme would remain with tweaks.
Dumping the vouchers was a stupid idea on both a political level and for macro-economic reasons.
- For many so-called ‘middle-class’ women even very high earners, the sheer cost of weekly childcare (well over a hundred pounds a week in most cases) made the choice of going back to work uneconomic without the tax discount. If woman are not going back to work you get less tax revenue from their earnings – the money forfeited as income tax revenue would likely be more than the amount sacrificed to provide the break.
- To compound this the fall in demand would inevitably result in a loss of jobs in the child-care industry with a consequent loss of tax income and increase in welfare burden from those child-care assistants impacted.
- We go on and on about trying to create a society where families make their own choices about the way they balance work/life and that we should shy from the automatic assumption that ‘Mum stays at home’. Instead we have been angling for a time where mum (or dad) can stay at home if they want to OR if they want to return quickly to their career then there is no monetary barrier to returning to the workplace. This policy was the enabler of that choice-led ideal.
Admittedly, the voucher scheme did have one valid flaw which does leave it open to charges of unfairness. The Achilles heel was that it was entirely optional for employers to provide it. Big forward thinking employers did. Most small companies, presumably put off by perceived red-tape, did not. That you do or do not get such a tax advantage depending on your employer doesn’t seem quite right. The answer though is not to simply close the scheme – no, the answer is to extend it. The take-up level by employees at companies that did offer the scheme was high enough to prove the popular demand. It cannot be beyond the wit–of-man to empower the private administrators of the scheme to collect national insurance numbers of those buying the vouchers regardless of employers and then providing the data on the actual vouchers bought back to HMRC for future reimbursement through the tax-code or some similar simple innovative solution? I came up with that with about five seconds thought, it may have flaws – but I am sure bright people put in a room for a few hours could come up with a way that would work.
In all the talk this week of cuts – and I do not dispute the need for very many, very swift, very deep, very painful cuts in public spending– I am still not clear where the Conservative Party stands on this particular area. I can come up with many ill thought out tax breaks which miss the mark and are ripe for the axe. This is not one of them. The Party would be foolish to swing at it.