- David Cameron said new policy will help get parents into work
- The scheme will allow Government to contribute to ‘tax-free’ childcare
- But some Tory MPs complained the handout ignores stay-at-home parents
23:45 GMT, 18 March 2014
11:46 GMT, 19 March 2014
Getting more parents out to work with up to £2,000 a year in childcare subsidies for every child will be ‘good for the economy’, David Cameron said last night.
The Prime Minister said the scheme, details of which will be confirmed in today’s Budget, was not about ‘pushing people into a particular choice’.
His comments came after some Tory MPs complained the handout will only be available to couples in which both parents work, discriminating against stay-at-home mothers and fathers.
Boost? David Cameron, pictured at a nursery school yesterday announcing the policy, said the scheme will be ‘good for the economy’
But Mr Cameron suggested there was an economic reason for targeting two-earner families, saying: ‘I think it’ll make a big difference to families across the country, it’ll be good for them and good for the economy too.’
Under the scheme, couples will be able to open new online ‘tax-free childcare’ accounts, to be run by HM Revenue & Customs, and National Savings & Investments. Any money paid in to them will attract a 20 per cent subsidy from the Government. The accounts can then be used to pay any registered childcarer.
It is not technically tax relief, because people will pay in using taxed income and it is not administered through the tax system.
But the 20 per cent top-up means that effectively, participants will have their basic rate tax refunded, and this is why Treasury has called the scheme ‘tax-free childcare’.
Labour branded the scheme ‘an au pair subsidy’, because it will be available to families earning as much as £300,000 a year.
The inclusion of couples earning up to the top 45p tax band – £150,000 each – is seen as an attempt to assuage Tory MPs calling for action on the 40p tax band to help squeezed middle-class professionals.
Working parents: David and Samantha Cameron won’t qualify for the new subsidy
The Prime Minister insisted other measures were being brought in to help stay-at-home parents, including 15 hours of free childcare for three- and four-year-olds.
But former Conservative children’s minister Tim Loughton said further measures would be necessary to avoid penalising stay-at-home parents.
‘One-earner married couples make great sacrifices to save the state the cost of bringing up their own children and deserve a level playing field,’ he said. There were also doubts about the administration of the scheme, which will open in autumn next year and benefit an estimated 1.9million families.
Last night the Institute for Fiscal Studies expressed concern about how officials will police a system in which one member of a couple only has to earn £50 a week in order to qualify.
It said it appeared people would ‘only need to self-certify that they are earning more than £50 a week’.
‘There will be a very large incentive for some second earners to claim they are earning that much: it could be worth thousands of pounds in childcare subsidy,’ it said.
Critics also questioned the coherence of removing child benefit from higher earners, only to give them similar sums back in the form of childcare tax breaks.
Lucy Powell, Labour’s childcare spokesman, said: ‘The Government is implying everyone will be £2,000 a year better off. But for the average family it will be less than £500. It will be only those with the highest childcare costs, like expensive nannies, who will get the full amount.’
Mr Cameron said: ‘We chose the cut-off point at the higher rate of tax, because if you set these schemes at different levels, it becomes more form-filling, more complications. This is targeted at couples when they’re working hard and struggling to pay childcare bills.’
He and Mr Clegg indicated they would not claim the allowance. It is thought their family incomes are likely to breach the earnings threshold.
Anand Shukla, of the Family and Childcare Trust, welcomed the move, saying: ‘An investment in childcare is an investment both in our economy and in our future.’
A Treasury spokesman insisted the system would not be abused: ‘The tax-free childcare registration process includes checks to ensure that parents are eligible and further checks will be made on their quarterly updates.’
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Childcare subsidy will boost economy, says PM David Cameron
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