THE BLOG

Childcare Vouchers: Supporting Working Families

31/01/2013 11:23 GMT | Updated 01/04/2013 10:12 BST

The vital debate around childcare has escalated this week, with Elizabeth Truss's announcement on Tuesday outlining reforms to early years' education. And it is vital - to mothers and fathers, the government and future generations. There remains, however, one immensely important announcement to be made - on childcare funding.

The issue is obvious. With childcare costs continuing to rise more quickly than wages, parents are having an increasingly difficult time balancing household budgets. The OECD has highlighted that British parents pay some of the highest childcare costs in the world; parents are spending huge proportions of their salaries on childcare costs. It is therefore crucial that government get any reforms right.

Media speculation around how a new system would look has been rife. With everything from new tax reliefs for parents to the extension of free nursery hours being touted as possible policy options - commentators have been whipping themselves into a frenzy trying to deconstruct what each of these proposals would mean. In doing so, however, some accuracy has been lost.

One such misrepresentation has been about childcare vouchers. This tax-exempt employee benefit is hugely popular. Used by over 500,000 working mothers and fathers, the voucher scheme enables the average two-parent working family to be able to save up to £1,866 a year on the cost of their childcare. The funding system uses what is often referred to as a "closed-loop" mechanism, in that it guarantees that the money can only be spent on registered childcare in an Ofsted-approved setting. It is, therefore, free from the threat of fraud and error that troubles so many other benefits.

However, it has recently come under some criticism. A key issue that is levelled against the voucher scheme is that it only benefits "higher earners." However, the facts here simply don't add up. Industry data highlights that over 80 per cent of voucher users are basic rate taxpayers - they are the squeezed middle who have been disproportionately impacted by the financial crisis. They are the working mothers and fathers of Britain who are vital to this country's economy and its future.

Recent research conducted by the industry asked voucher users what they would do if the scheme were no longer available. The results were staggering: one in five parents said that they (or their partner) would have to leave their jobs if childcare vouchers were taken away. Whilst an additional 38 per cent said that they (or their partner) would have to reduce the amount of hours they work. Given the number of voucher users there are, this would see over 100,000 mothers and fathers leaving the employment market, with nearly 200,000 parents working fewer hours. This would benefit no one - particularly not the economy.

Like all schemes, childcare vouchers have room for improvement. For example, the limit parents can salary-sacrifice has not changed since 2006, despite the rising cost of childcare - something that would be easy for government to rectify. They could also be extended to the self-employed and those on the National Minimum Wage.

By suggesting that childcare vouchers reach only the affluent, we are diminishing the real impact they have on some of Britain's most hardworking families.