Dawn Primarolo: My hon. Friend is correct. Let me explain. This is an exemption in the tax system, so it honours independent taxation. If both parents were in employment and both parents' employers made the voucher available to them on a weekly basis, both would be entitled if they were responsible for care of the child. That is cross-referenced to tax credit regulationshence my needing to tidy up a few things earlier with Government amendmentsand to definitions of ''parent with care'', because that operates well for tax credits, as it did for the working families tax credit.
I was asked how much national insurance employed parents would save with the £50 a week exemption. It is important to remember that it is a voucher that goes to the child care provider, and nowhere else. The situation is simple: it involves the employer and the child care provider. The answer depends on the employee's earnings and the value of the qualifying child care that the employee uses, but let us take a couple of examples. A higher-paid employee, paying income tax at the highest marginal rate, would save up to £20.50 a week on his or her child care costs. That relates to 40 per cent. tax and 1 per cent. national insurance. An employee paying the basic rate may save up to £16.50 a week. That relates to 22 per cent. tax and 11 per cent. national insurance.
I considered providing the relief only for the basic rate, but to be honest that would be too complicated. It would cause a problem for employers and I am seeking to encourage employers to make the provision, not to put more obstacles in their way. Higher rate taxpayers benefit by a greater amount, but of course they are unlikely to have access to tax credits.
We expect the number of employees using child care vouchers for under-fives to grow from the current 30,000 to 90,000. With regard to other forms of child care provision by employers, we expect the number to go from 30,000the number currently using workplace nurseriesto 85,000. That will include
Column Number: 209holiday play schemes and out-of-school clubs as well as nursery play schemes. It is difficult to be precise, and I apologise to hon. Members, but the number of employers currently offering child care vouchers is between 1,200 and 1,500, and we expect that to rise to 5,000 by 2009-10.
Mr. Laws: I apologise for doubting whether the Paymaster General would provide us with those figures. She says that she expects the number of places to rise from 30,000 to 90,000. Does she anticipate that all those additional apparent places will be extra child care places that did not exist before, or does she expect there to be switching from other forms of child care?
Dawn Primarolo: I cannot rule out some switching. It would be impossible to give an undertaking. The measure is about seeing a growth in the provisions for child care made by employersbecause employers are doing a lot. We do not see it as a substitution. Frankly, if people were to move across from one child care provision to another as a result of the voucher, they would free up the child care place that they have left for someone else.
The hon. Gentleman chided me earlier on, saying that I should ensure that we track the provision. It is cash-limited for a specific purpose. The tax planning industry would even have to surprise me, which takes some doing now, if it could tell us how £50, cash-limited, only for child care, paid direct to the child care provider and then cashed in from the voucher issuer, with a complete audit trail, could fail to be transparentlet us wait and see. I think the hon. Gentleman was trying to have a bit of fun, given what I have had to say before about tax planning.
I turn now to the question of the self-employed. Allowing a tax deduction for the cost of child care for all working parents rather than through a targeted exemption would be expensive and poorly targeted. I will not make any bones about thatthe Government just would not do it. We believe that financial help towards child care cost for low to middle-income families should be provided in the tax credits. Self-employed people can receive help with the cost of formal child care through the child care element of the working tax credit.
We believe that the whole point of the arrangements is that employers have an important role to play in helping their staff to balance their work and family lives. The measure provides the incentive to encourage employers to support their employees with child care. The Daycare Trust estimates that only one in 10 large employers currently help their staff with child care. We believe that the measure is targeted at employers, and it is right that it should be. There is help elsewhere for the self-employed and it is impossible to see how we could make a voucher system work in such a way.
Mr. Prisk: In her last few words, the Paymaster General may just have answered my question. However, I have two concerns. First is the natural
Column Number: 210sense of disappointment that the self-employed will feel because they are not included in the measure. I do not know whether she has other schemes through an enhancement of the working tax credit that would enable the self-employed at least to feel that they are getting reasonable support equivalent to that received by the employed. Just as importantly, given the concern that the Government have had about the difference between incorporated and unincorporated enterprise and the nature of the incentive that that might provide for companies to incorporate on a tax basis and not on a business basis, we would be happy to work in a positive manner with herI know that the Government are looking at the taxation of owner-managed businesses in general, so there is a opportunity there if she is willing to consider how we might help the children of the working self-employed.
Dawn Primarolo: I will come to the points about incorporation, because I think that they are a bit daft. I cannot think of any other way to describe the idea that a £50 voucher will drive companies to incorporate. There is a huge range
Mr. Prisk: Staffing.
Dawn Primarolo: We are talking about the self-employed, not staffing.
Mr. Prisk: They employ them.
Dawn Primarolo: That is interesting and we will come back to it.
The self-employed are within the tax credit system and very generous support is available to them through the working tax credit because of that. There are many examples demonstrating clearly that the presence of the tax credit, including the payment of child care through the working tax credit, enables the self-employed to start their business in the first place and to develop it. The idea that there is nothing for the self-employed is wrong.
The point was also made, and I hope that I have now disposed of it, that there will be a far greater administrative burden on employers. The Chartered Institute of Taxation might think that, but employers do not. They are saying, ''This is the method that's easiest for us to administer. We want to provide for this but you, the Government, have to give us more help and encouragement with the way that the rules operate.'' We have responded accordingly. It is totally unrealistic to suggest that people would incorporate simply to provide themselves with a child care voucher.
The hon. Gentleman also made the point about applying the exempt limit to a tax week. As the exemption is subject to a financial limit, it is necessary to apply it on a per week basis. That is how the tax system works. It ensures that an employer knows how much of the benefit is exempt for a PAYE period, as they will not have to consider accrued or future exemptions.
The weekly limit will ensure that there is no duplication of the exempt limit when an employee changes employment during the tax year and,
Column Number: 211therefore, no subsequent tax underpayment. The weekly limit will allow exact alignment of the national insurance rule, something that the hon. Members for Hertford and Stortford and for Yeovil have impressed on me on several occasions. We should have closer alignment, and that will ensure that the exemption is applied in accordance with the national insurance PAYE period.
The question of the burden on the company of a provider is simply not an issue. The limit is simply the cost to the employer of providing the voucher or child care, and no complex evaluations need to be undertaken.
Mr. Prisk: The Paymaster General has identified several issues and satisfactorily answered several questions, but will she answer this question to reassure people? If a provider finds that the value of the child care provision that it makes is over that limit in any one week, is there a tax and national insurance liability?
Dawn Primarolo: If there is an increase in the provision, the parents will have to make up the difference. The provider of the child care will determine whether it is within the national insurance levels and how its employment is accounted for. Calculation is on the excess.
Mr. Prisk: So there is a liability.
Dawn Primarolo: Yes, but the provider already has a liability by virtue of the fact that it is a provider earning, so anything in excess of £50 would be treated in the same way. If an employer had paid the excess, it would come out of the system through the employee's national insurance and tax in the same way as it currently does with the necessary tax, whether it came within the benefit in kind or from the national insurance exemption.
Mr. Prisk: I just want to clarify for those who are affected that the parents would have a liability and that the Government would expect them to pay if provision were to cost more than £50. Is that what the Paymaster General has just said? How are they to account for it?
Dawn Primarolo: It will be accounted for in the same way as with the current benefit-in-kind legislation. We are discussing people who currently have to account for all of it. Why is it such a huge intellectual challenge to take £50 off it? This is getting a bit daft. Sorry, I should not have used the word ''daft''.
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