Childcare Vouchers and Tax-Free Childcare, side by side – the boldest childcare support policy ever delivered by a UK Government

The Government’s current plan is to introduce Tax-Free Childcare as a replacement to Childcare Vouchers, but doing so could have disastrous affects as they actually serve different parts of the population.

Tax-Free Childcare is better for the self-employed and those that can already afford to spend large amounts on childcare. A family would have to spend £8,000 of their own money to get the headline £2,000 of support from Tax-Free Childcare.

This contrasts with the Government’s average family spend on childcare of £3,796 each year. This family would only receive £759.20 of support. Lower than the £933 that would be offered to a single parent, basic rate tax payer using Childcare Vouchers.

However Childcare Vouchers offer a number of benefits that will be lost altogether if the scheme was closed.

  • Childcare Vouchers is based on earnings, with lower rate tax payers able to claim more than higher rate tax payers.
  • Childcare Vouchers support families where one parent stops working to look after an elderly relative. These families would lose all support with Tax-Free Childcare alone.
  • Childcare Vouchers also provides support for Children between 12 and 16 while Tax-Free Childcare ends at 12.
  • Childcare Vouchers are a private sector-led solution, removing the administrative burden from Government and involving the employer.

Rather than replacing one system with another and creating a large population of losers in the process, we could combine the two.

We’d retain the private sector-run, targeted solution offered by Childcare Vouchers and incorporate it with Tax-Free Childcare that provides support to those unable to access Childcare Vouchers.