News analysis: Who pays for childcare?

Proposals for a new government-funded childcare scheme have fuelled a debate about the future of childcare vouchers.

The National Childcare Contribution Scheme (NCCS), suggested in February by the Social Market Foundation (SMF) in its report A better beginning: Easing the cost of childcare, would allow working parents to borrow money from the government for childcare costs. This would be repayable in monthly instalments from parents’ gross income, based on the UK Student Loans Company model.

Ryan Shorthouse, researcher at SMF and author of the report, said: “We are seeing reduced public support for childcare through the reduction in the support available through the childcare element of the working tax credit (from 80% to 70% of overall costs, as of April 2011) and the fact that the value of the tax exemption on employer-supported childcare vouchers has been frozen since 2006.”

The Childcare costs survey 2012, published by the Daycare Trust and Computershare Voucher Services last month, found that childcare costs have risen by nearly 6% over the past year, while average pay has increased by only 0.3% during the same period. Shorthouse added: “That [reduction in] public support, combined with the rising costs of childcare, often above inflation, meant the amount parents are having to pay out of their own pocket for childcare is rising quite substantially.”

Paul Bartlett, managing director at Grass Roots and a member of the Childcare Voucher Providers Association, added: “The high point for childcare vouchers was 2005-06. The value of childcare vouchers has eroded since then.”

But, the SMF’s proposed NCCS could encourage working parents further into debt, said Iain McMath, managing director at Sodexo Motivation Solutions. “The risk is, we are getting them into a cycle,” he said. “It seems to be creating a whole negative population of parents who are just mounting up more and more debt. We are trying to steer people down a certain route, which conforms to our historic experience, rather than saying: ‘can we reinvent something’?”

Elizabeth Gardiner, head of policy at Working Families, added: “There is no evidence to suggest the scheme will bring down the cost of childcare, improve quality or make childcare more flexible. It simply addresses the how-do-we-pay-for-the-rising-cost question. In answer, it suggests adding to the personal debt of already struggling families.”

Instead of increasing debt, other forms of childcare funding should be looked at, including increasing the tax-free limit on childcare vouchers, said Bartlett. “Just in keeping track with inflation, this should be around £75 a week for basic-rate taxpayers, rather than the £55 it is now.” Another option would be for the government to encourage employers to create more flexible working opportunities for staff. McMath added: “It is about allowing employees to work when it is convenient to them, so they can be flexible about picking their kids up, work later, or work from home. It would be a better way to protect families than encouraging them into more debt.”

As part of its report, the SMF also conducted a survey which found that 50% of respondents thought the NCCS would be a good idea. Shorthouse added: “The increase in demand that will be triggered by this scheme will improve the childcare market and the provision on offer. It is a virtuous circle, in a certain respect.”

Read more about childcare voucher schemes and benefits for working parents