Childcare Payments Bill

Written evidence submitted by the National Day Nurseries Association (CP 05)

1 About NDNA

1.1 National Day Nurseries Association (NDNA) is the national charity representing children’s nurseries across the UK. We give nurseries and the early years workforce information, training and support, so they can provide the best possible early education and childcare for young children. NDNA is the voice of nurseries, a sector of over 18,000 nurseries employing 200,000 people and an integral part of the lives of one million children and their families. NDNA works with local and national government to develop an environment in which quality early years education and childcare can flourish. For more information please visit our website at

1.2 NDNA has made strong representations throughout the consultation process for Tax-Free Childcare. We have facilitated direct engagement between officials and childcare providers, participated in consultation meetings and submitted formal responses. NDNA is a member of the HMRC Tax-Free Childcare implementation advisory forum.

1.3 NDNA welcomes the opportunity to submit evidence to the Public Bill Committee, in advance of our oral evidence on 14 October 2014.

2 Overview

2.1 NDNA welcomes the introduction of Tax-Free Childcare. Parents need more support with the cost of childcare. Tax-Free Childcare will widen access to tax relief to more self-employed and employed people, whilst also providing support on a per child rather than employee basis, thereby better supporting larger working families.

2.2 In its current form, Tax-Free Childcare is a useful starting point for reform to demand-side funding for childcare. However, issues remain with the scheme, in particular the regressive nature of support, with those able to spend the most on childcare getting the greatest benefit, whilst those able to spend the least on childcare and people in less regular employment will benefit least.

3 NDNA comments

Clauses 1-2 – Entitlement and Qualifying Childcare

3.1 By the launch of the scheme in 2015, provision must be in place in devolved administrations to ensure that all qualifying childcare for children up to age 12 and disabled children is in the scope of Clause 2. We understand measures are needed by the Welsh Assembly with respect to provision for over-eights. The current Welsh criteria under Employer Supported Childcare require out­-of­-school childcare to be provided by a school on the school premises, or by a local authority, meaning private, voluntary and independent provision off a school site would not be eligible.

3.2 It should be clear that where there is shared responsibility for a child, for example, in a couple where both partners are working, qualifying childcare would normally be to cover the hours when both partners are unavailable due to work.

Clauses 3-13 – Eligibility

3.3 We agree with the approach to run on eligibility if a person’s circumstances change during the three-month eligibility period. This will support transition between jobs and looking for work whilst retaining childcare arrangements, so that the child benefits from continuity of early learning and childcare.

3.4 We agree that responsibility for eligibility checking and verification should fall upon HMRC and not on childcare providers.

Clauses 15- 25 Childcare Accounts

3.5 Clause 16 provides for National Savings & Investments to be the account provider for Childcare Accounts, in accordance with any arrangements made with the commissioners for HMRC. Efficient operation of the scheme will be essential to its success for parents. It is vital that Tax-Free Childcare is implemented in a way that minimises the administrative burden on childcare providers. The decision to commission NS&I as the single provider of childcare accounts has an advantage in that childcare providers will be dealing with a single source of account payments. However, the use of a single provider removes competitive pressure to drive up customer service for parents and childcare providers, so other measures must be taken to ensure that the scheme operates with maximum efficiency.

3.6 In commissioning, HMRC should set out exacting service standards in consultation with stakeholders including the childcare sector, and there should be regular, public reporting on performance by NS&I against these standards. Relevant key performance indicators should include speed of payment, notification of remittance, speed of set up of childcare providers to be able to receive childcare account payments and inclusion of standard information on all transactions so the child account can be identified. There should also be a clear and accessible complaints procedure for parents and childcare providers, with external monitoring and publication of performance. For reference, The Childcare Voucher Providers Association, the organisation for providers of Employer Supported Childcare vouchers, has a code of practice with minimum standards, including payment to the childcare provider within one working day of instruction; Tax-Free Childcare should work to this standard at least. Efficient processes will also be required between HMRC and NS&I so there is timely payment of the top-up into the childcare account, with funds readily available to pay the childcare provider.

3.7 Opening childcare accounts must be flexible to allow parents to set up accounts well in advance of taking up a childcare place. This will enable them to access Tax-Free Childcare for their initial payments to the childcare provider, who will typically require payment one month in advance. If this facility is not available, then parents will be unable to benefit from tax relief on their initial childcare costs at the point of moving into work.

3.8 For payments to be made to childcare providers, they will need to recognised by HMRC/NS&I as eligible and their banking details held. The process for this must be accurate, quick and efficient so that there are no delays in parents accessing Tax-Free childcare top ups and payment to providers is not delayed. We understand that HMRC will be beginning a registration process several months in advance of the launch of the scheme. Consideration should be given to the churn in the childcare sector and the need to add new provision and remove closed provision from data. To minimise the administrative burden on childcare providers, we would propose a default inclusion of all registered eligible childcare in the scheme with providers merely required to populate the additional information required by HMRC/NS&I such as bank details.

Clauses 26-28 - Information

3.9 We agree with the power for HMRC to request information and childcare providers are in the scope of this in the draft regulations. Exercise of this power must be proportionate and not place undue administrative burdens upon providers. Guidance will be needed for providers to ensure they understand and can comply with their responsibilities, including with respect to wrongful disclosure.

Clauses 34-40 Recovery of top-up payments

3.10 We agree with the liability for repayment to HMRC of top-up payments made to childcare providers falling on the childcare account holder where the person knew or ought to have known it was a prohibited payment. We agree with liability for repayment in the case of dishonest action falling on each person involved.

Clauses 62 & 63 - Withdrawal of existing tax exemptions

3.11 There is likely to be a rush to Employer Supported Childcare over the coming months for parents who are better off on it. Parents and providers need to understand that ESC will remain, but also have clear information and assurances about what would happen if ESC providers pull out of offering vouchers. This may be a scenario if voucher providers make strategic decisions to move away from the business or over the years as their volumes decline.

4 Comments on implementation of Tax-Free Childcare

4.1 The Tax-Free Childcare scheme must be simple for childcare providers to operate. Nurseries and other childcare providers are key ambassadors for the scheme – if it is well-designed, they are communicated with and resources are available, then they will promote it to parents.

4.2 Uptake will be supported by early information on the scheme in a user-friendly format via all the channels parents use – childcare providers, social media, parenting websites and advertising.

4.3 In the run up to launch of Tax-Free Childcare HMRC should provide parents and childcarers with a comparison table showing different family scenarios and whether they’d be better off on Tax-Free Childcare or ESC vouchers.

5 Future policy

5.1 A long-term solution is needed to the current overly-complex funding system. Childcare and early education are supported by four funding streams: tax credits, Employer Supported Childcare, incoming Tax-Free Childcare and free early education. The recent addition of the Early Years Pupil Premium in England will further complicate the picture. The funding landscape reflects the dual policy objectives of supporting employment and promoting child outcomes. However, it is complex to navigate for parents and inefficient. It is difficult to communicate parents’ entitlements in a timely way and there is a risk that return to work appears even more challenging with a confusing picture of support.

5.2 Funding should be protected and go direct to the parent’s choice of provider, meaning parents would pay less at the point of delivery. All the entitlements relating to an individual child should be brought into a single pot that the parent can pay via an electronic account to the childcare provider of their choice, bringing the advantages of supply side funding whilst maintaining parental choice. There is a great opportunity to achieve this by building on the childcare accounts being set up for every family claiming Tax-Free Childcare. Recent proposals for a pre-paid card for benefits follow a similar principle. It would be challenging to make such reform, involving several government departments and complex systems, however, the present approach is building on complexity with incremental changes, rather than taking a long-term view and developing a system that makes sense for parents, providers and taxpayers.

October 2014

Prepared 15th October 2014