Finance Bill

[back to previous text]

Mr. Prisk: I formally welcome you to the Chair, Mr. McWilliam.

The schedule is the result of a review by the Government of the way in which the tax system can affect the provision of employer-assisted child care. According to the Government's original documentation, the aim of the review was to

    ''widen the current workplace nurseries tax exemption, simplifying the requirements that employers need to meet to qualify for the exemption and offering a better incentive for employers to support a wider range of good quality childcare provision.''

That same document correctly concludes that, therefore, the

    ''requirement for the employer to have management responsibility of the childcare facility would be removed.''

That is a clear statement of intention by the Government.

Those are worthy aims. Unfortunately I am not clear, nor are most experts, that the schedule will achieve those aims. In particular, the employer's responsibilities for management and funding will be retained, not removed, unless the costs are under the new £50-a-week ceiling.

The Daycare Trust estimates that average child care costs are around £128 per child per week. Most provision for most parents will reach the £50 cap and will not be eligible. In a representation to the Committee, the Chartered Institute of Taxation says of that aspect of the provision:

    ''This is very disappointing. The new provisions will do nothing to increase workplace nursery provision. Employers can now choose between the existing burdensome workplace nursery rules (which require significant involvement in financing and management) and new rules which are subject to the £50 cap. Neither is attractive.''

That feature of the schedule, the original aims of which were entirely worthy, is a real letdown. I am sure that all Committee members recognise the advantage of good child care provision in the workplace. Given the understandably proud boasts of the Government about the review, many, in particular working families who were trying to make best use of the provision at work, feel let down. I hope that the Paymaster General will confirm the actual amounts of money that are involved. By all accounts, the figures involved are small—at most, according to the Red Book, £20 million in the first full year.

The second disappointment of the schedule is that it does not include the self-employed. Why have they been omitted? I cannot believe that we cannot find some means of assisting working parents who happen to be self-employed, yet there is no provision in the schedule. After IR35, section 660A and the latest turn around in clause 28 for the self-employed, I am sure that the Paymaster General will understand that many self-employed people will feel let down by the omission. Conversations and reviews continue. Is the Revenue preparing separate provisions that would

Column Number: 199

inform the debate? The Opposition would look favourably on any Government proposals to help self-employed parents, so perhaps she can enlighten us on the issue.

4.15 pm

Without such provision for the self-employed—for unincorporated enterprises—the schedule could give firms a further incentive to incorporate. That would run entirely counter to the spirit and the letter of clause 28, which deals with the difficulty into which the Government got themselves over incorporated and unincorporated firms. There is a danger that some small enterprises will look at the provisions and say, ''If we attract working parents into our enterprise and we remain unincorporated, we'll be at a significant disadvantage to incorporated businesses.'' So there is a genuine problem, and I hope that the Paymaster General can respond positively. If the self-employed were considered as part of a wider review, that would send a positive message—incorporation should, as the Government have said, and we have always felt, be for business rather than tax reasons. I hope that she will understand and respond.

Essentially, schedule 13 has two aspects. First, it revises section 318 of the Income Tax (Earnings and Pensions) Act 2003, which deals with the rules and management of company creches. Secondly, it deals with the introduction of the £50 exemption for child care vouchers, under which there would be no tax or national insurance liability.

Earlier, I mentioned the disappointment at the retention of employers' management and funding responsibilities over the £50 limit, but that was clearly not the intention at the beginning of the consultations. The words that I quoted at the start made it clear that the Government wanted to remove those responsibilities, so why the change? That is the question to which I seek an answer.

The change will impose a new administrative burden. Let me briefly enlighten the Committee as to how that will work in practice. We are talking about a weekly limit, so employers will have to track child care provision weekly. If one is in a market sector in which there is a reasonably high turnover of staff and one finds that staffing levels have dropped or increased, one's ability to stick to the limit of £50 per week per parent—it is not per child—could suddenly change, and the danger is that one could go over the threshold. For a couple of months or, indeed, only six weeks in the year, businesses may find that they have exceeded the weekly limit, so tax and national insurance would apply. Of course, the sums involved may be small, but the Government have rightly and continually said that any tax and national insurance liability should be identified by the business. Given that the limit is not annual or quarterly, but weekly, there could be quite an administrative burden.

Dawn Primarolo: I think that the hon. Gentleman is going the wrong way. Businesses do not have to do the tracking; that is the whole point of the voucher going directly to the child care provider. The requirement in the Bill is there, so that businesses do not have to

Column Number: 200

undertake all that tracking. The £50 is simply passed over. In the consultation, business said that it wanted us to do precisely that to avoid the issues that the hon. Gentleman is outlining, but which do not arise in the Bill.

Mr. Prisk: I am interested by that because it mirrors the Revenue's advice to businesses at its open day. That view is understandable until one stops and thinks about the implications. The valuation problem to which the Paymaster General has just referred does not remove the compliance burden. Rather, it moves it from the company to the child care provider. If the provider finds that their costs have gone over the £50 limit, tax and national insurance will still be a liability for them, and they will need to ensure that they comply with the law. The employer's compliance burden is simply shifting to the provider. I see the Paymaster General shaking her heard vigorously. I hope that she can set providers' minds at rest because it appears, on first reading the schedule, that, if a provider goes over the £50 threshold, they will have liability, and will be responsible for making sure that they are within the rules. I would appreciate it if she could clarify that. My initial reading of the schedule is that what she has described merely moves the problem from one group of organisations to another—that is, from the employer to the provider.

I hope that the Paymaster General will consider an alternative. I put this forward as a suggestion, not an amendment, because it is a complex, although important, point. Will she consider removing the need for the employer to manage and fund the provision, irrespective of the value placed on it, if the child care is provided by a qualified agency? If a clause were brought forward to that effect, we would certainly be willing to look upon it favourably, because we feel quite strongly that there is a danger of potential liability. Companies will rightly wish to account for that and track it, and that represents a compliance burden.

There is an anomaly in the schedule that must be borne in mind. The measure will bring more financial benefit to higher rate taxpayers than to some low-paid workers. That is because most employees take up child care provision from employers in the form a salary sacrifice or on a salary swap scheme. The best way of illustrating my point is to run through the examples.

A higher rate taxpayer would give up £29.50 in income to get £50 of vouchers. That is obviously after 40 per cent. income tax relief and 1 per cent. on national insurance. The basic rate taxpayer would give up a net £33.50 to get the taxable benefit of £50, but a low-paid worker who gets tax credit—that is obviously an important group—would have to give up the full £50 to get the £50 because of the impact on working tax credit. The danger is that the poorest will get the least. I hope that the Paymaster General will be able to tell us whether that was the Chancellor's original intention.

I have two last detailed and important points. First, the provision of child care can sometimes, although not always, incur VAT. It is unclear from the schedule whether the £50-per-week limit is inclusive of VAT. I

Column Number: 201

hope that the Paymaster General will clarify that. Secondly, there is the issue of nannies and grannies. When the announcement was made in March, there were proud statements from a number of outside organisations—I am not saying from the Government—to say that nannies would now be eligible. However, having trekked through the Government's statements, I am unclear about whether that is so. Can she clarify whether grandparents and nannies are eligible in the circumstances that we have mentioned? She will be aware of the conditions about people's homes and so on that relate to that. I am sure that the Committee would be appreciative if we could identify whether nannies and grannies are eligible.

The widening of provision for workplace child care is a worthy aim and one that we support in principle. However, it is not quite clear whether elements of the schedule will achieve that in practice. Concerns were expressed by the Chartered Institute of Taxation, which said:

    ''Overall, we think that the promises of tax reliefs for employer-supported childcare have not been fulfilled and we would be very surprised if, as a result of these new rules, there was any increase in the amount of childcare funded or provided by employers—there may even be a decrease because of the change to the NICs''—

the national insurance contributions—


It concluded:

    ''Dawn Primarolo, in her foreword to the Consultation Document, said that it 'represent(ed) a major step forward in the Government's strategy to increase childcare support.' We fear that it may in fact be a step backwards.''

I hope not, and I am sure that the Paymaster General will want to demonstrate that it is not. It is important that we clarify not necessarily the aims of the legislation but what is set out before us. I hope that the points that I have raised will enable us to do that.

Previous Contents Continue

House of Commons home page Parliament home page House of Lords home page search page enquiries ordering index

©Parliamentary copyright 2004
Prepared 13 May 2004