Childcare: Coalition’s helping hand to rich parents

The coalition is trumpeting its childcare support package, but campaigners have expressed bafflement that couples with a joint income of £299,999 will benefit.

Ministers are spending £750 million on the reforms, which will provide parents with up to around £1,200 from autumn 2015 onwards.

That equates to average childcare costs in the UK of around £6,000, the Department for Education said.

Children's minister Elizabeth Truss said the coalition wanted to give parents a "choice".

"At the moment a lot of parents can't go out to work because the cost of childcare is prohibitive," she told the Today programme.

"We believe in marriage and strong families and in families making choices."

"What we are recognising is that where families are earning between £20,000 and £40,000 a year, [they feel] it's not worth going to work because of the cost of childcare.

"What we need to recognise is that this new voucher system is much better than its predecessor. Now working families can access it."

Only children under five will initially be eligible for the scheme, which will eventually be expanded to include all those under 12.

Shadow education secretary Stephen Twigg pointed out the government would not provide any help for another two-and-a-half years, leaving parents of toddlers facing no support at all.

"While working parents won't get any help before the next election, David Cameron is happy to help millionaires with a tax cut now," he commented.

"This announcement will not make up for the up to £1,500 that families on middle and low incomes have lost in cuts to childcare support – part of the £15 billion of cuts to support for children which will have been implemented before this announcement takes effect.

"Those who have seen their incomes cut because tax credits have been cut will not get any help, while families earning up to £300,000 will benefit. That is deeply unfair."

Officials confirmed parents with a joint income of £299,999.98 would be eligible for the cover, so long as neither parent earned over £150,000.

"Spending large sums on tax relief that tends to benefit higher-income families does not recognise that low- and modest-income families face the highest barriers to work from childcare costs," Resolution Foundation chief executive Gavin Kelly said.

Thinktanks have suggested the government should consider far more radical solutions to the problem. Policy Exchange said nearly a fifth of the existing childcare budget was being claimed erroneously.

It suggested re-investing the £260 million of childcare funding into the system to cover 80% of childcare costs, unlike the 70% at the moment.

Civitas proposed the rollout of the French system of income-splitting, which allows couples to switch roles or share working or caring.

"The main problem with the government's support at the moment is that it gives a tax break to couples so long as they pay someone else to look after their children," Civitas' deputy director Anastasia de Waal said.

"It would be better – for both children and the economy – if the government let parents keep more of the money they have earned so that they can decide whether to care for their own children or pay someone else."

The French tax system counts each child as half a taxpayer in terms of qualifying for a personal allowance on income tax.

This week's Budget could see the personal allowance increased to £10,000, in line with the Liberal Democrats' manifesto. If that took place a couple have a joint personal allowance of £20,000. Under the 'quotient familial' a family with one child would enjoy an effective personal allowance of £25,000, with an extra £5,000 of untaxed income for each extra child.