Treasury committee ask for continued use of childcare vouchers

27 June 2018

The chair of the treasury committee has written to the chief secretary of the treasury to convey the committee’s disappointment with the government’s response to some of their recommendations.

On 25 March 2018, the treasury committee published its Ninth Report of Session 2017–19, Childcare which included recommendations regarding Tax-Free Childcare (TFC) replacing childcare vouchers and the need to properly understand the impact their removal will have on certain families.

Recommendations and comments from the committee included:

  • The government could eradicate the employer national insurance relief costs of the voucher scheme if it changed the terms of the scheme to only allow employee national insurance relief

  • When the committee asked the chief secretary to the treasury to provide an economic analysis of who will gain and who will lose out from the transition from vouchers to TFC, she was not able to do so. The government has also failed to provide when asked a comparison between the programme and administrative costs of the two schemes

  • The government has committed to carrying out post-legislative scrutiny of TFC. This commitment must be adhered to and should occur before the scheme closes to new applicants in October. The government should, therefore, consider keeping the childcare voucher scheme open, at least until this information is available

  • The government has committed to providing more help to working parents with their childcare arrangements. Some families will be worse-off under TFC than they would have been with childcare vouchers. For such families, it will be difficult to reconcile the government’s policy with their own personal experiences. Moreover, it has not been confirmed whether any impact assessments have been conducted to confirm the extent to which low-income households will be affected by the closure of the childcare vouchers scheme


The government published their response to the committee on 18 May 2018. Specifically, around childcare vouchers, responses included:

  • The government is pleased that the committee recognises the disadvantages of the childcare vouchers scheme in that it only supports parents whose employers provide such vouchers, does not take account of the number of children in a household, excludes self-employed parents, and favours two-parent households over single-parent households. TFC was designed to address these concerns and a number of options were considered and consulted on as part of the design of TFC

  • Most childcare voucher schemes operate under salary sacrifice arrangements. When running a scheme, an employer will incur an administrative cost either directly or through using a voucher provider. These costs are generally offset by the National Insurance contributions (NICs) saving the employer makes. The government does not believe that having different employer and employee NICs is a feasible way forward. Such a treatment would make the scheme significantly more difficult and costly for employers to administer

  • The estimated annual operating costs for the childcare service through which parents apply for both TFC and 30 hours currently stands at £35.6million in 2018/19 and £47.5 million in 2019/20. These figures demonstrate that the cost of administering TFC is significantly lower than the estimated foregone employer NICs of £220 million a year. This is money that does not go directly to parents to help pay for their childcare costs. It is not possible to accurately calculate the costs of administering childcare vouchers as these costs are incurred by individual employers and voucher providers, who do not share this information with the government

  • The government has always been clear that TFC was being introduced to replace childcare vouchers. The decision to phase out childcare vouchers and directly contracted childcare, and replace this support with TFC was made in 2013 and received parliamentary approval through the Childcare Payments Act 2014. To reflect concerns about the timing of the closure of childcare vouchers and the transition to Tax-Free Childcare, the government took the decision to keep childcare vouchers open for a further six months until October. This will allow more time for Tax-Free Childcare to bed in, for awareness to increase and for families to understand the support they can receive under the scheme

  • Through TFC all families who are eligible can get support, regardless of who their employer is or whether they are self-employed, and support is based on the number of children in a family rather than the number of parents. TFC is targeted at a similar income population as childcare vouchers but will provide support to nearly 1 million more families compared to the number currently using vouchers

  • Analysis of the impact of TFC on working parents will need to take place once the scheme has had time to bed in, parental awareness has increased, and families have had more time to understand the support they can receive under the scheme. This is why the government has committed to carrying out a post-implementation review of TFC two years after it was implemented

  • Parents currently using vouchers will see no change when the scheme is closed to new entrants in October—they will continue to be able to claim vouchers providing they remain with the same employer. If they move to a different employer they will no longer be eligible for vouchers but they may be eligible for TFC. Robust estimates for the number of employees that will change employer after October, and details of their characteristics and whether their employer would have offered vouchers, are not available. Therefore it is not possible to make an estimate of the number of parents who may be worse off if they are no longer able to access vouchers as a result of the transition to TFC

  • An impact assessment was published in March 2017 on the rollout of TFC and the closure of childcare vouchers to new entrants. This assessment highlights the benefits of TFC to low-income parents earning close to the National Living Wage. These parents are unable to salary sacrifice and many are therefore unable to use childcare vouchers. These working parents will, subject to the other eligibility conditions, be able to use TFC to receive support. However, most low-income families will access their support via the welfare system through which the government has increased the support available from 70% of childcare costs covered under Tax Credits to 85% of costs covered under Universal Credit

 

The Chair of the Treasury Committee has since written a letter (20 June 2018) to the Chief Secretary of the Treasury to convey the Committee’s disappointment with the government’s response to some of their recommendations. In particular, it states that:

The Committee was clear in its recommendation that the government should not close the childcare voucher scheme without knowing its impact on working parents. By carrying out a post-implementation review of Tax-Free Childcare two years after its commencement, the government will be ending childcare vouchers - a scheme that has been extremely popular with working families - without seeking to understand what the consequences will be.

As was evident from the 2017-18 HMRC Supplementary Estimate, and the OBR's November 2017 Economic and Fiscal Forecast, the uptake of Tax-Free Childcare has been 90 per cent lower than the government had expected.

The Committee again urges the government to reconsider the Committee's recommendation and commit to publishing an analysis of the take-up of Tax-Free Childcare compared to the continued use of childcare vouchers during the first year of the scheme - and the subsequent impact on households-prior to making a decision on whether to discontinue vouchers in October 2018.


The letter is publicly available; we await yet another response from the government on this contentious issue.

 


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