Public outrage at the proposal to scrap tax relief on childcare vouchers - and thereby effectively end employer-supported childcare schemes - is borne out by the enormity of the petition on the Downing Street website. At the time of going to press, there were 74,000 signatures, and the list continues to grow on a daily basis.
Over 600,000 parents have used vouchers since tax relief was introduced in 2005. Currently around 30,000 employers offer them and 95 per cent of corporate companies list them as a staff benefit. But it is not just the blue chip, early adopters who recognise their value. Thirty per cent of small and medium enterprises (SMEs) are also now on board.
Vouchers can represent a significant saving for families, particularly when both parents claim them. Substantial savings of up to 20 per cent can be made on an annual childcare bill.
At Computershare Voucher Services, formerly Busy Bees and the UK's largest provider of childcare vouchers, managing director Simon Moore says, 'Without a shadow of a doubt, employees will be worst hit by this proposal. There will be no winners. Employers will lose a key motivation and retention tool; childcare providers will lose a valuable stream of income. For a nurse, this move is the equivalent of someone taking £800 from their wallet.'
Funds where needed
At the Labour Party conference Gordon Brown stated that tax relief was being abolished in order to fund ten hours of free childcare a week for two-year-olds in England. The Government asserts that by the end of the next Parliament, it 'will be able to give the parents of a quarter of a million two-year-olds free childcare for the first time'.
In the meantime the Conservative Party appears to be broadly in favour of retaining vouchers, although at a recent Day Nursery Policy Group meeting, shadow Minister for the Family Maria Miller said that the Conservatives could not pledge to keep them as there was no way of knowing what money was available.
Part of the argument against vouchers hinges on the need to redirect funds to where they are needed most, and on the idea that it is mainly higher-rate taxpayers who benefit at the moment. At Northern Ireland charity and campaigner Employers for Childcare, director Marie Melvin says, 'Around 340,000 taxpayers across the UK rely on the tax relief on childcare vouchers to help them pay for good-quality registered childcare while they go out to work. The vast majority of these parents are not wealthy, as the Prime Minister is suggesting.'
This is corroborated by Iain McMath, managing director of leading voucher company Sodexho Pass. 'This misconception relates to the fact that the early adopters were big financial companies,' he says. 'But at the current time, over 74 per cent of voucher recipients are standard rate taxpayers.'
Financial advisor and GMTV's resident money-man Martin Lewis recently addressed accusations that vouchers disadvantage families with annual incomes of under £25,0000 by reducing their eligibility for childcare tax credits. In August Mr Lewis met with Treasury minister Stephen Timms to discuss ways in which the system could be changed to allow any childcare payments made with vouchers to be taken into account. This remains unresolved.
However, Mr Lewis does not welcome the Government's current proposal. 'It's like throwing the baby out with the bath water,' he says. 'There were some problems with the scheme in that it was not worthwhile for some lower-paid workers, but this could have been solved with more joined-up thinking. Basically, it was a good scheme - helping more parents into work and making childcare less costly. Solutions could be to give vouchers only to those up to 20 per cent taxpayers, or cap those who could use it. This would have been less of a hit.'
At the Daycare Trust, joint chief executive Emma Knights does not believe the existing scheme is flawed. While supporting the extension to the free entitlement, she says her organisation has common cause with the signatories to the petition.
'The voucher schemes are voluntary for employers,' she says. 'If vouchers had become uneconomical, then a large number of employers would be dropping their schemes. There is no evidence that this is happening. By offering vouchers, employers receive tax relief on National Insurance contributions and are able to recruit and train staff by offering such a useful benefit.'
Big business
Voucher administration has become big business in the past five years, with over 30 voucher companies operating in the UK. Last year ABC Learning Centres, then owner of nursery group Busy Bees, sold its UK childcare voucher business for £90m to share registration company Computershare. At that time its annual turnover was £240m, involving almost 12,000 employers and 100,000 parents.
While there has been consensus among childcare settings that vouchers are a benefit, there have also been well-documented problems with their administration. Nurseries often find themselves dealing with many different companies and redemption systems. Some systems leave providers waiting a number of weeks for money, or have processes that make it hard to match payments with the particular child they are for. Earlier this year Computershare, Sodexho Pass and the Grass Roots Group launched a consultation with a view to setting up a voluntary code of practice for voucher companies - something that is still in the pipeline.
Large voucher operators that have a diversification of business areas appear sanguine about the effects of the Government's move on their profitability, and think it is the smaller and more specialist companies that will be hit hardest.
'Whether or not the Government's proposal will affect the future of voucher companies will depend on the particular company and its wider business,' says Computershare's Simon Moore.
This view is echoed at Accor, which operates in 40 different countries. 'It is a significant part of our business, but we have many other products so it won't stop us operating,' says director Patrick Langlois.
But there can be little doubt that the abolition of tax relief will deter employers from providing any sort of vouchers. 'I personally believe that it is extremely unlikely that there will be demand for childcare vouchers without it,' says Sodexho's Iain McMath. 'As a business, why would I outsource something to another company if I will lose money? Once a business loses its tax relief, it would be the equivalent of giving a company a £5 note, then paying £1 for the service. Business leaders just won't do it.'
Universal benefits
Most in the sector believe that the end of vouchers will have negative implications for employers, employees and ultimately children themselves.
'Vouchers can only be used for registered care, so that means the quality of care has necessarily improved,' says Mr McMath. 'If parents have to juggle their care, it's like going back to the old days of putting children at greater risk through informal arrangements.'
Mr Langlois says that while he welcomes the funding for two-year-olds, he believes it should not be given at the expense of vouchers. 'It will prevent a lot of women from returning to work, and it will mean companies lose talented staff.'
Ultimately, the future of vouchers will depend on whether the Government can make its argument stack up: will the free entitlement and tax credits combine to be more effective in providing universal childcare?
Emma Knights says, 'If the free entitlement was extended to 20 hours a week for all two- to four-year-olds, then there would not be such high demand for childcare vouchers. Supply-side subsidy offers greater sustainability and in the long term, this is where funds should be targeted. Daycare Trust believes the tax credit system needs to be improved and will shortly be publishing costed proposals.'
She adds, 'We are picking up a lot of concern from parents about the future of childcare vouchers. Most pressingly, people are unclear about the specifics of the proposal. We are advising parents to sign up for childcare vouchers as a matter of urgency before tax relief is removed.'
Computershare's Simon Moore expects this to prove the case. 'I think we will see a surge in employers registering before the cut-off period,' he says. 'People want to take advantage of tax relief, and who can blame them?'
FURTHER INFORMATION
- http://petitions.number10.gov.uk/keepvouchers
- www.moneysavingexpert.com
- www.daycaretrust.org.uk
- www.employersforchildcare.org
