
The end of childcare as we know it?
The new plans
Prime Minister, Gordon Brown announced plans to phase out tax and national insurance contribution exemptions for childcare vouchers in his keynote speech to the Labour Party Conference in Brighton, instead offering free childcare for 250,000 two-year-olds.
Given there are over 732,000 two-year-olds in the UK, the offer of 250,000 free childcare places does very little to encourage highly skilled mothers back into work after childbirth, which ultimately damages the UK economy and extends the gender pay gap.
Employers introducing the scheme after April 2011 will not be able to apply the current tax and NIC exemptions. Under current salary sacrifice arrangements, childcare vouchers can be redeemed for government-approved childcare, which can result in savings of up to £904 for a basic rate taxpayer and £1,195 for a higher rate taxpayer (saving on both income tax and NIC) and employers saving NIC at 12.8%.
Childcare Vouchers are not just for under 5s - they can be used to pay for all types of registered childcare for children aged up to 16, including childminders, nurseries, nannies, play schemes, crèches, before and after school clubs and even holiday schemes.
The good news
An employer may introduce a childcare voucher scheme at any point between now and April 2011, and an employee may choose to receive childcare vouchers at any point between now and April 2011 to enjoy the exemptions until 2015. Therefore, the first change is 18 months away, and the main change is over 5 years away.
With over 35,000 employers providing childcare vouchers, the proposed changes have caused public outrage, resulting in over 52,000 people having currently signed the official Downing Street petition. Despite this public backlash, Gordon Brown stood firm on his plans to axe tax and NIC relief on childcare in a recent Q&A session with Mumsnet (16 October 2009). Gladly, Brown did also reiterate that the current system would remain until 2015, asserting, “Firstly, no one who is currently using the scheme will be affected in the next 5 years, so please don’t worry about any sudden changes.”
With savings over the next five years of up to £5,975 for every higher rate taxpayer and up to £1,865 for the organisation per employee who joins the scheme*, organisations who have not yet implemented the scheme should consider introducing it before it is too late. Given current pay freezes and reduced reward budgets, employees will appreciate any savings their company can make for them. Besides, it is usually the case that the savings in NIC made by the employer can fund the scheme, often with residual savings remaining.
*Savings are in absolute terms and do not take account of future
changes in National Insurance Contribution rates.
If you have a young family you should also consider family income protection or a family health plan.