As the Minister alluded to in her remarks on clause 20, there are complexities connected to clause 22 and withdrawals by an account holder who chooses to withdraw their money from a child care account, as allowed under clause 20. Clause 22 ensures that when an account holder makes a withdrawal, the account provider will pay the corresponding top-up payment back to HMRC. Subsection (2) provides a formula for calculating the top-up amount that must be repaid. To ensure that the top-up can be returned, subsection (3) requires that the maximum withdrawal from a child care account be equal to 80% of the funds left in an account. The other 20% can then be returned to HMRC.
Will the Minister clarify that my understanding is not correct and that the following scenario would not arise? As we discussed earlier, clause 19 allows for payments into accounts over and above the £2,000 a quarter that can receive the top-up. Someone could therefore have money in the account that is not eligible for the top-up. There could be a scenario in which a parent has, for example, £4,000 in their account, but only £500 of that is a Government top-up, because only the first £2,000 receives the top-up. In such cases the 80:20 ratio would not be valid, as only 12.5% of the money in the account would be the top-up payment; the remaining 87.5% would have come from elsewhere and not from the Government. On my understanding, the clause would prevent an account holder from taking out more than £3,200 of the £4,000, rather than the £3,500 they have put in themselves. Will she confirm that that is not the case and clarify how, in such circumstances, parents will withdraw the remaining funds that they have paid in over and above the top-up amount?
The Government have suggested that they want employers to be involved in the new top-up scheme. The consultation response in March suggested that their intention was to facilitate employers being able to pay directly into child care accounts if they wished to do so, describing it as a payment role for employers. Clause 22 does not make provision for parents withdrawing money that was paid in for the purpose of child care by somebody else—an employer or otherwise—but that they have not spent on child care. Will the Minister confirm whether parents will be free to withdraw money paid in by an employer or other source? If so, what safeguards will there be to ensure that parents cannot simply withdraw from employers money that is intended to support employee child care? Are the Government even concerned about that issue?
Finally, the consultation response suggested that the Government would limit the number of withdrawals an account holder could make from a child care account. The clause does not make any provision for that, so there seems to be an anomaly with the consultation response. Will the Minister clarify whether the Government still intend to pursue that point?
The clause sets out the rules that apply when amounts are withdrawn from a child care account for purposes other than to pay for qualifying child care. As we have discussed and explained before, account holders will be permitted to withdraw some or all of their funds from a child care account. However, when a parent makes such a withdrawal, steps must be taken to ensure that the corresponding Government top-up payment is returned to HMRC. To ensure that that happens, the clause imposes a requirement on the account provider to pay back to HMRC the element of a withdrawal that represents the Government top-up payment, meaning that parents will only be able to withdraw from their child care account funds that they deposited themselves. They will not be permitted to withdraw top-up payments. Instead, the top-up payment will be returned to HMRC.
That is why we have kept the rules simple. Without such a rule, someone could pay into their child care account, claim the top-up payment from Government and then withdraw their own money back out. The result would be that funds in the account would consist entirely of top-up payments. In effect, the parent could receive 100% support from Government with their child care costs, which is of course not the intention of the Bill, and the clause prevents that from happening.
In practice, if an account holder has deposited £80 into their child care account and received a Government top-up of £20, producing a balance of £100, and they subsequently withdraw their original £80 from the account, the account provider will be required to return the remaining £20 top-up payment to HMRC, leaving a zero balance. The rule is essential to ensure that child care accounts operate correctly. It guarantees that funds in any child care account will always comprise 80% money from parents and 20% Government top-up payments. At the same time, it gives parents the flexibility to withdraw their own money from their accounts, while ensuring that no one can receive Government support with their child care costs when they have not made the full 80% contribution themselves.
In some circumstances, HMRC may impose restrictions on accounts to prevent qualifying payments from being made. Parents’ behaviour will also be looked at. If a pattern of withdrawals appears too frequent, the motivation will be queried. We are conscious of that, which is why we have been clear with the rule.
Will the Minister acknowledge that referring to the 80:20 ratio is potentially confusing for parents when they pay over and above the amount that is eligible for a top-up? The 80:20 ratio would not or should not apply in such circumstances. It would be good to make it clear that parents who have paid in extra money can take that money out and leave in the money that is applicable to the 80:20 ratio and the top-up payment, although that does not relate to payments from third parties. I appreciate that it is quite complicated, but I want to put it on the record that it could cause confusion for parents who are nervous about depositing money into the account over and above the amount that attracts the top-up. They may fear that they will not be able to withdraw those funds because of an arbitrary 80:20 ratio that does not necessarily apply.
The child care account will always have that 80:20 ratio, which is to keep it simple. However, guidance about the scheme, which is vital, will obviously be given to parents.