53.Tax-Free Childcare is a relatively new scheme and there is therefore little evidence base at present to assess its contribution towards the Government’s policy objectives. However, the impact assessment identifies six indicators of success:
ii)Positive parent experience
iii)Positive childcare provider experience
iv)Positive reputation of Tax-Free Childcare
v)Minimise error and fraud with Tax-Free Childcare
vi)Efficient service providing good value for money
54.The uptake of Tax-Free Childcare has not been as high as the Government had initially forecast. In its November Economic and Fiscal Outlook, the Office for Budget Responsibility (OBR) revised down its forecast for spending on Tax-Free Childcare by 90 per cent, stating that it had forecast a caseload of 415,000 tax-free accounts by October 2017, but in practise only 30,000 had been opened. Initially the OBR had forecast childcare expenditure of £800 million in 2017–18, but instead the forecast in November was for spending of £37 million.
55.HMRC’s 2017–18 supplementary estimate memorandum stated that the estimated budget for Tax-Free Childcare had been reduced from £383 million down to £37 million, a reduction of 90 per cent due to “low-take up”.
56.The Committee has received evidence highlighting complexities, potential inconsistencies, and difficulties accessing the scheme, which may explain why the take-up has been much lower than initially expected:
57.The Government’s Childcare and Early Years Survey of Parents carried out in April 2017 found that 79 per cent of parents were unaware of Tax-Free Childcare. The report explained that:
Among families with a child aged under 4 on 31 August 2017 or with a disabled child aged up to 14, only 1 per cent claimed to have applied for a Tax-Free Childcare account, with a further 3 per cent saying they had not applied because it was not yet available to them.
58.The Low Income Tax Reform Group (LITRG) suggested that low up-take of Tax-Free Childcare was partly explained by lack of advertising and publicity for the scheme. The NDNA noted that there was a lack of awareness among providers, as well as parents:
Many childcare providers (across all types of settings) have not registered for Tax-Free Childcare meaning many parents may not be able to make use of funding to pay for places in their first choice setting. […] NDNA is concerned about the lack of an effective Government communications strategy targeted at providers and parents, for Tax-Free Childcare. It is often left to non-government organisations such as NDNA to promote the scheme.
59.With a take-up rate 90 per cent lower than initially expected, Tax-Free Childcare is a clearly under-performing scheme. The Committee received evidence that low take-up can be explained by low awareness among parents of the scheme’s existence. It also received evidence that take-up may also be affected by the fact that some parents may prefer to remain on childcare vouchers scheme. The failure to publicise the scheme properly—a cornerstone of the Government’s childcare policy—is regrettable. The Government should now take all necessary measures to improve awareness and take-up of the scheme.
60.There are a number of Government and Government-sponsored websites that parents may come across as they seek information about the childcare support on offer. The Government’s childcare website through which Tax-Free Childcare and 30-hours free childcare are accessed, was beset with a number of IT failures during summer 2017. The Committee received a large volume of correspondence regarding the website’s failures, and wrote to Jon Thompson, First Permanent Secretary of HMRC, asking him to set out what had gone wrong. In his response, he disclosed that:
61.In a Westminster Hall debate, John Glen, the Economic Secretary to the Treasury, advised that when online access cannot be secured, the childcare service helpline can be called. In an answer to a written parliamentary question, the Government confirmed that the helpline had received some 769,015 calls from parents. In an answer to a later written parliamentary question, the Government stated that it was not possible to ascertain precisely how many of these callers were able to subsequently complete their Tax-Free Childcare application.
62.The NDNA submitted evidence to the Committee stating that it had been contacted by dozens of nurseries complaining that:
Parents don’t understand the system, that they are unable to register or reconfirm and that this is causing them huge stress. 79 per cent of nurseries told NDNA they had spent time helping families apply for Tax-Free Childcare and 30-hours registration. 14 per cent had spent more than five hours each week supporting parents.
63.There were also website issues for childcare providers. The NDNA stated:
A third of nurseries struggled to register. One nursery took over a year to register, so their parents were unable to use Tax-Free Childcare to pay for their childcare. Other settings have taken many months to register. […] Some local authority areas had difficulties with their online provider portals and a further few were complaining of late payments.
64.In addition to the problems associated with the HMRC website, the Committee has received submissions from members of the public stating that the number of different websites and points of contact for parents seeking guidance is confusing for parents. One individual wrote:
The overly complicated system of having three bodies running the scheme [HMRC, NS&I and ATOS] is contributing to [the] difficulties and, in turn, impacting take up. The bureaucracy that this complex set up creates causes unnecessary inconvenience and stress to users. Customer services staff appear unable to undertake the simplest of tasks—such as viewing users’ accounts to identify missed top-ups—because they are on a different system from other parts of the service. This leads to situations where users are requested to send screen shots of their own accounts to provide evidence of technical issues and owed funds. On 7 February, the Tax-Free Childcare customer services team said to me ‘we do not have access to view your online account as they are owned by NS&I and they manage the front-end accounts.
65.The Committee also received evidence about the difficulties parents face in ensuring that personal contributions to childcare accounts—when combined with the Government’s ‘tax-free top-up’—are equal to the provider’s fees, stating:
There is no calculator tool provided to help users work out what amount should be paid into their account in order to have the correct funds, post top-up, to pay their childcare provider. While it sounds simple to work out £2 for every £8 paid in, in reality it can be considerably time consuming to work out how much to pay in when your fees are a very precise amount of pounds and pence.
66.A further issue raised was the inadequate information about Tax-Free Childcare. For instance, the Government’s guidance website does not explicitly say that only one parent can open an account per child; but this is the case. One member of the public submitted evidence to the Committee stating:
Nowhere on the site could I find information on whether both parents could apply for a childcare account so as a result my husband wasted time submitting applications that were later declined.
67.The LITRG highlighted areas where it considers the guidance provided by the Government to be insufficient. It states that in order for individuals to make the correct decision between the different available schemes, they need to be able to do all of the following:
68.The LITRG did not believe that the level of guidance currently provided is adequate to allow parents to understand all of this information. It states:
The main problem is that there is no single source of advice or guidance that covers all of the schemes. The tax credits helpline cannot answer questions about childcare vouchers or help parents carry out better-off calculations and similarly the Tax-free Childcare helpline cannot answer questions about tax credits or Universal Credit. […] We do not think that there is enough guidance and support at present to help people do this which means that people are at risk of making decisions that could be financially detrimental and in some cases irreversible.
69.In addition to guidance information being spread among different providers, the LITRG considered some key information to be missing:
One of the rules for Tax-free childcare is that you can only use the government top-up payments to pay for qualifying childcare—this means that the main reason, or one of the main reasons, for incurring the costs must be to enable the person to work. However, we cannot find that important rule mentioned on gov.uk or the childcare choices website—the former saying merely that ‘you can use it to pay for approved childcare’.
70.In addition to the omission of key information, the LITRG highlighted over-simplifications and inaccuracies, including but not limited to:
71.The Tax-Free Childcare website was intended to be available to parents in preparation for the start of the new school term in September 2017. But it failed consistently throughout the summer, causing stress and inconvenience to thousands. Having to close a system for repeated maintenance so soon after it has gone live is unacceptable. The Government should only launch websites when they are satisfied they are able to cope with the workload expected of them. If beta testing phases are necessary, Government should plan these so that problems can be resolved prior to full launch.
72.At present, there are multiple sources of official guidance for different childcare policies. The Low Income Tax Reform Group has highlighted factual errors and inaccuracies in this guidance which the Government should correct. Online guidance should be supported by a specialist childcare support helpline that covers all of the major childcare schemes, with advisers who can help individuals with more complex circumstances, explaining to them what their optimum choice of schemes may be.
75.LITRG highlighted a number of complex interactions between different policies. In some cases (e.g. 30-hours and Tax-Free Childcare), it is possible to obtain support from more than one scheme at the same time. In other cases (e.g. Tax-Free Childcare and tax credits), claiming support for one scheme makes one ineligible for the other. And in other cases, obtaining support under one scheme (e.g. tax credits) reduces entitlement under others (e.g. childcare vouchers). LITRG wrote that:
[…] The majority of people who pay childcare costs are unlikely to understand this range of interactions and yet the consequences of failing to understand can be very serious. For example, take the interaction between Tax-Free Childcare and tax credits. Most people might see the logic in a rule that prevents you from claiming help with the same childcare costs from two schemes, and so it would seem logical that you cannot claim Tax-Free Childcare for the same childcare costs that you are claiming the childcare element of WTC for. However, the Tax-Free Childcare goes one step further and says that if an existing tax credit claimant, whether claiming the childcare element of Working Tax Credit or not, makes a claim for Tax-Free Childcare their whole tax credit award (both Working Tax Credit and child tax credit) is automatically terminated. Similar rules exist between Tax-Free Childcare and Universal Credit, although according to the gov.uk website, the claimant is responsible for cancelling any Universal Credit claim. It is not clear whether there are punitive consequences if the claimant fails to do that.
76.The optimum choice of schemes for parents depends on their income level and childcare needs. Additional complexity can arise if these vary from month to month. LITRG explained that:
The most complicated part of these financial calculations is the potential impact of changes of circumstances. Very few people who we come into contact with have static lives. There are regular changes of working hours, income and childcare costs that can affect which scheme is financially the most beneficial and secure for them. It may also be the case that even if one scheme gives more financial support in the short term, it may be better to accept a lower level of support for longer term gains if circumstances are going to change.
In its submission to the Committee, Save the Children stated:
parents say that they struggle to understand how changing circumstances relating to: employment; hours worked; earnings; and the age of children effect their entitlement to different types of childcare support and the ways they interact”.
Suffolk County Council submitted examples to the Committee of how parents have reacted to these complexities within the system:
Feedback from our children’s centres has been that some parents did not take up their free entitlement at age two because they were concerned this would reduce other benefits they were in receipt of. We have also heard that parents find it difficult to ascertain which childcare entitlement will leave them better off. As a result, the council changed its communication to parents. The main issue we have heard is that parents are unable easily to see, which combination of childcare entitlements will work best for their circumstances.
77.While the wide range of childcare schemes has provided parents with greater choice and flexibility, the level of complexity has become overwhelming. It is likely that for parents whose circumstances change from month to month it is almost impossible to make the best choice.
79.The Government has committed to carrying out a post-legislative review of Tax-Free Childcare. The Government must include parent feedback on the user experience of accessing the scheme and the ability to use the Government’s guidance to make the correct childcare choice. Once this detail emerges, the Government must make the necessary changes to address the scheme’s shortcomings.
39 Office for Budget Responsibility, Economic and fiscal outlook, , November 2017, para 4.124
40 Office for Budget Responsibility, Economic and fiscal outlook, , November 2017, para A.22
41 A supplementary estimate is a document that provides an in-year update to a department’s budget.
42 A supplementary estimate memorandum is a document that explains the changes made within a department’s supplementary estimate.
43 , March 2018.
44 Department for Education, Childcare and Early Years Survey of Parents in England 2017 (December 2017)
45 National Day Nurseries Association ()
46 HM Revenue and Customs, Correspondence from the Chief Executive and Permanent Secretary of HMRC relating to HMRC’s Childcare Service website (17 August 2017)
47 PQ124116, 22 January 2018
48 PQ 127803, 8 February 2018
49 National Day Nurseries Association ()
50 National Day Nurseries Association ()
51 Mrs Victoria Begbie ()
52 Mrs Victoria Begbie ()
53 Mrs Victoria Begbie ()
54 Low Incomes Tax Reform Group ()
55 Low Incomes Tax Reform Group ()
56 Low Incomes Tax Reform Group ()
57 Low Incomes Tax Reform Group ()
58 Low Incomes Tax Reform Group ()
59 Low Incomes Tax Reform Group ()
60 Save the Children ()
61 Suffolk County Council ()
25 March 2018