Childcare Payments Bill

Written evidence submitted by the Childcare Voucher Providers Association (CP 07)

Introduction

1. This submission to the Childcare Payments Bill Committee is made on behalf of the Childcare Voucher Providers Association (CVPA). The CVPA represents providers of Employer-supported Childcare vouchers, who have enabled parents to access this crucial form of childcare support for over ten years. There are currently over 600,000 users of childcare vouchers.

Childcare Payments Bill

2. Members of the CVPA were heavily involved in the discussions that led to the formulation of Tax-free Childcare, and most of the views expressed below are known to the proposed scheme’s architects. However, we believe that if they are not addressed, they could have significant implications for parents, employers, childcare providers and the taxpayer.

Impact on parents

3. Tax-free Childcare, as currently designed, is regressive in nature. The scheme, which will eventually replace the current Employer-supported Childcare (or ‘childcare vouchers’) scheme, will benefit wealthier families to a greater extent than lower income families.

4. This is because the level of support that one is entitled through Tax-free Childcare will depend on ones childcare costs. Wealthier families who can afford to spend £10,000 on one child’s nursery fees will reap the full £2,000 benefit of Tax-free Childcare. With childcare vouchers, the level of support a parent can get is dependent on their tax-bracket – i.e. basic rate taxpayers can make greater savings than higher rate taxpayers.

5. As a result of basing the benefit attainable through Tax-free Childcare on childcare costs, government risks inflating childcare prices. Wealthier parents will be able to spend more on childcare, therefore increasing the value of the service for childcare providers.

Impact on employers

6. The Childcare Payments Bill, in its current form, does not provide for a role for employers in delivering Tax-free Childcare. This is in contrast with the existing system of Employer-supported Childcare, which operates as a salary sacrifice employee benefit.

7. The removal of the employer link appears to be at odds with the aim of increasing maternal employment rates, and risks undermining existing engagement from businesses in proactively assisting their staff to remain in, or return to, work.

8. The removal of the employer link will also have a detrimental impact on employers’ recruitment and retention strategies.

9. A survey of 23,000 users of Employer-supported Childcare conducted by the CVPA found that fewer than nine per cent of parents think that removing the role of the employer is a good thing.

Impact on providers

10. The design of Tax-free Childcare also creates significant issues for childcare providers. Firstly, the system of funding is already confusing. Free entitlement, working tax credits, childcare vouchers and parental fees mean providers are receiving their revenues through different sources. Tax-free Childcare represents an additional complication.

11. Moreover, providers favour childcare vouchers, because they are paid directly and on time. The CVPA has significant concerns that this will not be replicated under Tax-free Childcare.

12. The salary sacrifice mechanism in childcare vouchers ensures that payments are received by childcare providers on a timely, pre-determined basis. Unlike funding that comes from local authorities, the funds reach providers in their total amount. However, childcare providers are not assured the same regularity under Tax-free Childcare. The scheme will depend on parental inputs – which can be delayed for various reasons – followed by a government top-up. This will rely on HMRC, NS&I and Atos’s IT infrastructure. It is therefore likely, given the complexity of Tax-free Childcare, that funds to childcare providers will not be reconciled in the timely fashion that they are now.

Impact on the taxpayer

13. The decision to deliver Tax-free Childcare through a non-ministerial department places the burden of developing the necessary systems, including the IT infrastructure, upon the taxpayer. It would have saved taxpayers money to deliver Tax-free Childcare through the existing private providers – there would be no significant development cost, and no new complex IT system would have to be developed.

Clause 5: Entitlement periods

14. Quarterly re-validation of eligibility (as required by Clause 5 of the Bill), increases complexity and could impact negatively on participation rates. The provision will require parents to reconfirm that they are eligible to receive Tax-free Childcare every three months. This differs from Employer-supported Childcare, for which eligibility confirmation is only needed once until parental circumstances change.

15. The CVPA recommends the Committee consider making it a requirement for parents to alert HMRC when their circumstances change. Building complexity into the system will only dissuade parents from accessing the support available to them.

Clause 12: The person and his or her partner must not be in a relevant childcare scheme

16. The Bill introduces the need for a ‘childcare account notice’, which would require parents to present written notice to their employer in order to cease receiving Employer-supported Childcare, and therefore become eligible for Tax-free Childcare.

17. The Bill does not indicate who will have responsibility for processing ‘childcare account notices’.

18. This is introducing a new layer of complexity and bureaucracy, which will not only burden the parent but also the parent’s employer, who will receive no additional support for administering these notices.

19. The terminology used in the Bill of ‘eligible employee’ is unclear. The CVPA understands this to mean somebody who is eligible to receive childcare vouchers, however the legislation indicates that it includes someone who has received childcare vouchers within the last year and is in the same employment.

Clause 15: Childcare accounts

20. One of the elements of Employer-supported Childcare that is particularly valued by parents is the ability to use the support where their needs are at that point. Childcare costs can vary over the year, with two different children requiring different levels of care throughout the year. Using childcare vouchers, parents can move their funds between their children to ensure that they are being used where they are most needed.

21. This flexibility is not afforded to parents under the Childcare Payments Bill. Instead, parents will be required to maintain one account per child, and will not enjoy the ability to move funds between different accounts.

22. The CVPA recommends that the Committee considers allowing parents to be able to move funds between childcare accounts, as per the parent’s requirements.

Clause 30: Power to provide for automatic termination of universal credit

23. The Bill allows for regulations to provide for the automatic termination of universal credit to somebody who has made a declaration of eligibility for Tax-free Childcare. The CVPA is concerned that individuals may apply for Tax-free Childcare without understanding the full implications. This could have serious negative consequences for those who are reliant on universal credit.

Clause 41-45: Penalties

24. Clauses 41 – 45 of the Bill permit HMRC to impose penalties upon parents for making inaccurate declarations of eligibility, for failing to comply with information notices, for providing inaccurate information or documents, for making prohibited payments, and for dishonestly obtaining top-up payments.

25. The penalties imposed can be of an amount up to £3,000.

26. The CVPA recognises that the Government must ensure that the Exchequer is not defrauded. However the CVPA believes that many working parents may not be accustomed to filling out forms of this nature. Under the current system of Employer-supported Childcare, this administrative work is undertaken by the employer.

27. The CVPA is concerned that honest, hardworking parents may face fines that they will struggle to pay due to the onerous administrative requirements to claim Tax-free Childcare.

28. The current system of Employer-supported Childcare operates through a closed-loop, salary sacrifice mechanism. This ensures that the amount sacrificed by parents can only be spent on childcare facilities registered with Ofsted, or the equivalent organisations in Northern Ireland, Scotland and Wales. This, in turn, ensures that there is no fraud within Employer-supported Childcare.

Conclusion

29. Ultimately it is the firm belief of the CVPA that many of the stated objectives of Tax-free Childcare could have been achieved by making some relatively simple changes to the Employer-supported Childcare scheme:

· The amount parents can salary sacrifice could have been uprated so as to increase the level of support parents are entitled to.

· The scheme could have been extended to the self-employed.

· A right-to-request childcare vouchers could have been introduced to reflect flexible working. This would ensure the scheme is accessible to as many as possible.

30. In addition to addressing the issues as outlined with the Bill, the CVPA is calling for the Childcare Payments Bill Committee to remove Clauses 62 and 63 from the Bill. This would have the effect of allowing the existing and popular Employer-supported Childcare system to continue in operation.

31. Doing so would give parents and employers a true choice and ensure that working families are able to access a childcare support scheme that meets their needs.

October 2014