Childcare Payments Bill

Written evidence submitted by 4Children (CP 02)

1. 4Children welcomes the opportunity to submit written evidence to the Childcare Payments Public Bill Committee.

2. 4Children is the national charity all about children and families. We have a long history of both delivering and shaping policy around childcare provision, including our Millennium Childcare Commission which was launched in 2000 and chaired by Harriet Harman MP. We currently run daycare nurseries across the country, giving us a first-hand understanding of the issues affecting today’s childcare providers and parents, and successfully campaigned for the introduction of the Early Years Pupil Premium in the March 2014 Budget. Over the past year, we have engaged extensively with Government on the design and implementation of the Tax Free Childcare scheme which the Childcare Payments Bill will enable.

3. In this submission, we will consider the legislation which is currently passing through Parliament, and highlight a number of key points arising from it which the Committee may wish to take account of during its discussions. In particular, we will address three specific issues: the importance of provisions which provide a backstop against parental charging; the possibility of introducing a mechanism to annually review the level of Government subsidy available through Tax Free Childcare so that this rises in line with inflation; and the complexity of the interactions between Tax Free Childcare and other benefits, and the potential value of adding a legislative duty on Government to provide information to parents about these. Finally, we also set out our broader views on the need for Government to develop a long-term vision for the provision of universal and affordable childcare, and the potential role of the Tax Free Childcare scheme within this.

Parental charging

4. One aspect of the legislation that we particularly welcome is the inclusion of a clear provision which establishes that parents will not be charged for the administration costs of the Tax Free Childcare scheme (Clause 15, Sub-section 9). During the course of our discussions with officials in HMRC we have continually stressed that in order for the scheme to support parents effectively, and to command their full confidence, it will be crucial that they are not made in any way liable for the costs of delivering the scheme.

5. We recognise that the current Government has made clear that it does not intend to implement parental charging, and that the recently announced decision regarding childcare accounts means that National Savings and Investments will be fully liable for administration costs. Nonetheless, we believe that the inclusion of Clause 15, Sub-section 9 within the Childcare Payments Bill provides an important element of insurance for parents, should the Government change or the delivery of childcare accounts be reviewed for any reason, and we therefore feel it is very important that the provision is part of the final Act.

Annual review of maximum subsidy

6. The maximum limit on the amount that the Government will pay into a childcare account each year (£2,000) is set on the face of the Bill (Clause 19, Sub-section 5). Further provisions in Sub-sections 6 and 7 allow this limit to be varied in regulations.

7. There is currently no mechanism built into the Bill which would require Government to review the maximum limit each year, for example to take account of inflation. While we recognise that there is nothing in the Bill which prevents this from taking place, the absence of any provisions requiring the limit to have annual uprating applied means that it could be maintained at £2,000 indefinitely, which would constitute a real terms cut year-on-year for parents who make the full qualifying contribution.

8. The Committee may therefore wish to consider whether it would be beneficial to insert a provision within the Bill mandating an annual review of the maximum subsidy, to ensure this rises in line with inflation. The following suggested amendment would establish this broad principle on the face of the Bill, and allow the details of the review to be determined within regulations:

"HMRC will, on an annual basis, review the relevant maximum for an entitlement period. Regulations may make further provision about the nature and scope of this review."

Such a provision could prospectively sit quite comfortably within Clause 19, following the existing Sub-section 7.

9. In addition, any discussion of the amount of annual subsidy available through Tax Free Childcare also connects to broader debates surrounding the level of childcare support available through other schemes such as tax credits and Universal Credit. As well as ensuring that mechanisms are in place to make sure that the maximum limit on Tax Free Childcare top-ups remains at least constant in real terms, it is equally important that the amount available to parents who claim childcare support through other Government schemes is also sufficient. For example, within working tax credits parents can claim support with 70% of their childcare costs, up to a limit of £175 per week for one child and £300 for two or more children (which effectively caps support at £122.50 and £210 respectively). However, as with Tax Free Childcare, these limits do not rise annually with inflation. Equally, under Universal Credit parents are currently able to claim support with 70% of costs up to limits of £532.29 per month for one child and £912.50 for two or more children, although once again these limits do not rise annually (it has been announced that parents will ultimately be able to claim support with 85% of childcare costs, leading to a corresponding increase in the maximum limits to £646 per month for one child and £1108 for two or more children, but these changes will not come on-stream until 2016).

10. While we recognise that these issues go beyond the scope of the Childcare Payments Bill itself, the Committee may wish to take the opportunity to review the levels of support available to parents through other schemes as well, and what measures are in place to ensure that these reflect parents’ needs. Furthermore, the issue of how these various schemes interact when claimants’ transition between them is also crucial, and we offer further thoughts on this below.

Interactions with other benefits and the potential role of an information duty

11. Smooth interactions between Tax Free Childcare and other benefits, particularly tax credits and Universal Credit, will be fundamental to the success of the scheme, especially for those who may be on the fringes of the labour market and quite legitimately transitioning between the two systems as they move in and out of work.

12. Clauses 29 to 32 of the Childcare Payments Bill set out how such interactions will work in practice. They specify that tax credit claimants will see their award automatically terminated if they make a valid declaration of eligibility under Tax Free Childcare, to prevent them from being able to claim support from both schemes. Universal Credit claimants will also be required to leave that scheme before claiming under Tax Free Childcare. Equally, the legislation also provides that a material change of circumstances will need to take place in order for those receiving support under Tax Free Childcare to legitimately move in the other direction, onto tax credits or Universal Credit (in which case they will be able to briefly claim support under both systems, until the end of their quarterly eligibility period for Tax Free Childcare).

13. Transitions between the two systems are therefore likely to be complex, and any assessment of which scheme a family will be better off under will be highly dependent on parents’ individual circumstances. Consequently we believe that it will be incumbent on Government to ensure that parents are fully informed about the impact of moving between the two systems, to enable them to make the right decisions about which scheme is best for them. In particular, given that tax credits and Universal Credit include a variety of elements which are not related to childcare, termination of such awards under Tax Free Childcare will prospectively have broader financial implications for claimants beyond just the support they receive with childcare costs. There could also be additional issues surrounding, for example, the potential loss of "passported" benefits once a tax credit or Universal Credit award ends.

14. Furthermore, the interactions between tax credits and existing Employer Supported Childcare schemes are quite different to those which will be taking place under Tax Free Childcare (under existing arrangements, those claiming vouchers through Employer Supported Childcare are required to deduct the value from the childcare support claimed through tax credits – however, those with high costs can still claim under both systems, and there is no automatic termination of a tax credit award). It will therefore be important to manage the expectations of those parents who have previously claimed under Employer Supported Childcare appropriately, to ensure that they recognise that the new system will operate in a completely different way.

15. In legislative terms, there is no provision within the Childcare Payments Bill as presently drafted which places responsibility on the Government to ensure that parents have the information they need to make effective use of the scheme. We recognise that in the Government’s formal response to the original consultation on Tax Free Childcare there was a clear commitment that "The Government will provide detailed guidance to support parents in making an informed choice about which scheme to access", [1] and anticipate that the development of the messaging around these aspects of the scheme will form an important part of HMRC’s work between now and Tax Free Childcare’s launch in autumn 2015. However, given the complexity of the decisions that may be involved for some parents, the Committee should consider whether it would be beneficial and appropriate to enshrine HMRC’s commitment to provide appropriate guidance within legislation, by including some form of specific duty or requirement on Government within the Bill.

The role of Tax Free Childcare within a long-term childcare settlement

16. The Public Bill Committee’s discussions also offer an opportunity to consider the potential role of the Tax Free Childcare scheme within the longer-term shape of childcare provision, and in the course of its deliberations the Committee may wish to reflect on whether the Bill offers sufficient flexibility to enable the scheme to respond to future changes in the landscape of childcare support.

17. Given the enormous economic and social benefits of investing in high quality childcare, 4Children believes we have a unique opportunity to develop an ambitious settlement which will ensure effective support for parents over the long-term. Central to this is our vision for a universal guarantee of affordable childcare for all children aged 0-14, and we are calling for the adoption of a ten-year staged plan to achieve this by 2025.

18. 4Children’s view is that we should aim to build towards a point where parents and Government share the costs of childcare evenly, so that the overall level of subsidy across all the various strands of support available is set at 50%. From the perspective of Tax Free Childcare specifically, this could involve increasing the level of subsidy available through the scheme (in real terms) over time.

19. In addition, there are a number of other changes to the overall childcare offer which we believe would complement this, including:

· An extension of the number of free childcare hours over the next ten years, so that 25 hours of free early education are available for all children aged between 1 and 4, available straight after maternity/parental leave ends.

· Requiring schools to open their doors throughout the year from 8am-6pm to allow expanded provision of before and after school care and holiday activities.

· The creation of a new out of school development fund to support communities to set up local out-of-school clubs.

· Extending 4Children’s own model of Childcare Hubs pilots across the country. These bring together all the childcare providers – schools, nurseries, childminders, out-of-school (wraparound) providers and Children’s Centres – in an area to provide co-ordinated and blended high quality early learning and childcare for children of all ages at times that parents need it.

· Measures to address the current shortage of childcare places in areas of disadvantage, including by maximising opportunities to deliver childcare through Children’s Centres where this is viable – incentives will be more effective than requirements in achieving this.

· Continuing efforts to drive improvements in the quality of childcare provision , to ensure that all children receive the best possible support in the crucial early years of life.

20. We would therefore encourage members to give due consideration to the scope for the Tax Free Childcare scheme to contribute to this broader package of childcare support, and whether the provisions in the Childcare Payments Bill are flexible enough to facilitate this.

October 2014