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Families in Poverty? Make Childcare Tax Deductible

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The Guardian yesterday published research that shows 3.6m households in the UK are a short step away from poverty, but one simple measure would help these families and boost the wider economy - make childcare tax-deductible.

The Government knows there is a problem, commissioning a review of childcare provision this morning. There is not enough childcare, and sometimes doubts over the quality of childcare.

In its study, backed-up with some impressive statistics, The Guardian shows how swathes of the country are struggling to keep their families from financial disaster.

This study considered working families with two children earning between £17,000 and £41,000, or couples without children earning up to £29,000. They estimate 2.2m children are in this perilous state.

These families have no assets and no savings and may not be able to feed themselves adequately at the end of the month, once salaries have depleted. If something significant hit them, even a hike in fuel costs, then they could be in serious trouble.

The study suggests that these are hardworking people with jobs who cannot make ends meet, ripe for worse if they resort to disastrous 'payday loans'.

Interestingly, this is exactly the class of people the government claims to be helping and is determined to assist.

How and why can so many families find themselves so close to disaster?

If they are renting, they will have seen rents rise sharply in the last few years. Those with children pay staggering sums for nursery fees.

Inflation is high - currently at 3%, rising sharply since the financial collapse of 2008. Wages have been frozen or have even declined. Many have lost their jobs and may have taken work that is less-well paid.

And as we all know, the Age of Austerity means the welfare state is shrinking.

All of these factors add to the financial strain.

What has the government done to match its rhetoric on working families? Despite assurances that working families are the focus of their care and attention through the financial turbulence, the answer is plain - the government has done nothing, and left families to fend for themselves in the face of increasing uncertainty.

The Queen's Speech, announced in May, did include the Children and Families Bill, which will allow families to share leave and give divorcees better access to their children. Unfortunately, these measures will bring only marginal financial relief. There have been no increases in either tax credit allowances or childcare vouchers for as long as I can remember.

How about a solution that will help those with children, boost the economy and bring more money into the Treasury?

Better than injecting billions of pounds of imaginary money into failing banks, so-called 'quantitative easing', which may or may not even be achieving anything at all, why not support the real economy with a real injection of cash?

A neat suggestion for the brainboxes in the Treasury is to consider is this: nursery fees are exorbitant, but nurseries are not making vast sums from the profession. Families are struggling with finances. Marry the two.

Make childcare costs tax deductible.

This could be done in two ways - bring costs for pre-school children, which is where the biggest financial burden lies, tax deductible, or allow nurseries to become charities, and allow families to write-off fees or donations against tax.

The government's recent U-turn on charitable donations could come in handy in the second case. Childcare typically costs are up to a quarter of income, which is handily the same as the upper limit on charitable donations.

Either way, the result would be identical - to increase the money in parents' pockets, which would feed into the wider economy, and therefore into HM Revenue and Customs. Effectively, a boost to the whole economy.

This would also be widely distributed around the UK, particularly in some of the UK's most deprived areas as families spend their extra cash.

It would also help the nursery sector, allowing them to increase fees without hitting families hard, and allow them to increase their traditionally low pay, hire more people, or both, making nursery childcare a more attractive place to work.

The best part of the suggestion is that there is no downside. Costs would be small, and would help people falling into claim state benefits, which are a far bigger burden on the state.

The cost is to reduce the tax take by the Treasury, but this could be offset by the benefits fairly quickly. The price is the safety net struggling families need - the difference between destitution and a relative comfort, and a cash injection for some of Britain's poorest areas.

Seems worthwhile.