Examination of Witnesses

Part of Childcare Payments Bill – in a Public Bill Committee at 12:00 pm on 16 October 2014.

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Spencer Thompson: It is difficult to put specific numbers on those. We are generally talking about a policy where the maximum amount claimable is somewhat fixed and not expected to be uprated with inflation every year—that is probably a good idea. If it was uprated with inflation every year, there is a chance that some large providers might potentially game the system. I mentioned international examples such as the Netherlands and Australia, where they introduced a form of tax-free child care and also increased the proportion that could be claimed back some years into the policy, so that you could track that against the inflation of child care prices and there was a clear relationship between the two. No one has done any detailed work on or rigorous analysis of that in those countries, but some smaller-scale studies have been done in the US that looked at child care vouchers in a couple of individual states and found some evidence of a link between child care inflation and the introduction of a child care voucher.

Essentially, our concern would be that, when you are talking about injecting a lot more money into the system, providers can use that, often justifiably, as a way to either become profitable or become more profitable  because they see that there is more purchasing power and can then increase their prices accordingly. The danger over some time horizon—I do not think we can be specific about that—is that child care providers raise their prices and eventually you find that the value of the extra money inherent in tax-free child care is eroded. That is one of our main concerns about this kind of demand-side subsidy.