I beg to move,
That this House
has considered e-petition 200585 relating to childcare vouchers.
I am pleased to serve under your chairmanship, Mr Bailey, and to lead this debate as a member of the Petitions Committee. I must also declare an interest as a beneficiary of the childcare vouchers scheme. The e-petition, entitled “Keep childcare vouchers open beyond April 2018”, was signed by more than 116,000 people, including almost 400 across my own city. It reads:
“Hundreds of thousands of parents will lose out under the new tax-free childcare. The voucher schemes should be kept open alongside tax-free childcare to give parents a genuine choice for the support that best suits their family.”
The creator of the e-petition, Ellie Symonds-Lloyd, is in the gallery with her family. I am particularly pleased to be leading this debate, given the importance of the wider issue to our society and to the economy as a whole. Increasing the availability of affordable childcare, particularly for younger children, is one of the key issues for many of Britain’s families, with a huge impact on their standard of living.
As the Joseph Rowntree Foundation highlighted after the publication of the 2017 childcare survey by the Family and Childcare Trust last March:
“The biggest cost for many working households with children, after housing, is childcare. The cost of all types of childcare has risen much faster than overall inflation. The cost of childcare can affect the real increase in disposable income gained by a parent taking a job or working for more hours. This can affect families’ living standards directly and also indirectly by influencing whether parents work at all, what jobs they take and how much they work.”
The Family and Childcare Trust commented:
“British parents now pay an eye-watering average of £116 per week for a part-time nursery place—or over £6,000 every year, more than double what families spend on food and drink… It is a disgrace that so many parents are effectively shut out of the workplace by crippling childcare costs. Recent Governments have rightfully invested in childcare, but too many parents are still struggling to find and pay for childcare that they and their children need.”
I am pleased to have the opportunity to debate this issue. Does my hon. Friend recollect that when we were both on the Childcare Bill Committee, there was much discussion of the costs associated with provision for disabled children? It is therefore all the more important that we place on the record how tremendous the additional pressure is on parents in such circumstances.
My hon. Friend is right. Some of the changes introduced by the Government have been positive in that regard, but far more still needs to be done to support families with disabled children. He is absolutely right to raise the issue so early in the debate, and I will return to it as we progress.
It is critical, if we are to tackle increasing rates of child poverty and a lack of social mobility, that we address this issue. Increasing the availability of good-quality, affordable childcare clearly enables more parents to get into or return to work or access education and training, while also improving educational outcomes for their children. It is not just an issue for individual families; it is also of critical importance to our whole economy and our productivity levels.
That is why the Treasury Committee, of which I am a member, recently announced that we will be holding an inquiry into childcare policy and its influence on the economy. While examining the role that high-quality, accessible, flexible and affordable childcare can play in supporting labour productivity, our inquiry will also scrutinise the processes for delivering childcare schemes and the overall package of Government initiatives aimed at making childcare affordable, as well as how the individual initiatives interact with each other and their effectiveness and whether they have delivered an adequate provision of affordable childcare that facilitates parental employment.
I am delighted that we will be investigating that crucial issue. As the Family and Childcare Trust has commented:
“Childcare is as vital as the rails and roads for helping our country to run”.
I am not quite sure whether the Government have fully made that link, given that childcare received the briefest of mentions in the recently published industrial strategy, and no mention whatsoever in the autumn Budget speech, despite the Chancellor’s stated commitment to tackling the UK’s poor and downgraded productivity levels.
There are a raft of early years and childcare-related concerns that I could touch on, starting with the cuts to Sure Start. Funding for Sure Start services has fallen by a staggering 46% since 2010 across the north-east, which is my region. Parents were promised that 30 hours of free childcare would be in place for their three and four-year-olds by last September, but the Pre-School Learning Alliance recently reported that 18% of families registered for the scheme still cannot access that support. The long-term sustainability of the childcare sector is also at risk due to underfunding—more than 1,100 nurseries and childminders have gone out of business since 2015. However, this debate focuses on childcare vouchers and the new system of tax-free childcare, and whether one must replace the other, or indeed whether the two can coexist.
As hon. Members will be aware, the childcare voucher scheme was introduced in 2005 under the previous Labour Government, as part of the wider system of employer-supported childcare. Working parents signing up to the childcare voucher scheme agree to sacrifice up to £55 of their salary a week, or £243 a month, before tax and national insurance deductions, receiving in exchange vouchers that must be used to pay for Ofsted-registered childcare providers—nurseries, childminders, pre-schools, after-school clubs or holiday schemes—for children aged up to 15, or up to 16 for children with a disability. That equates to a maximum saving of £77.76 per month per parent for basic rate taxpayers, or £1,866 per year for a working couple who are both in receipt of childcare vouchers.
The Childcare Voucher Providers Association calculates that some 780,000 parents are currently using vouchers, with millions of parents having received support since the scheme was introduced almost 13 years ago. According to a Library briefing paper, the Government state that more than 50,000 employers currently offer childcare vouchers to their staff, which the CVPA estimates equates to between 20 million and 26 million of the 31 million UK employees working for organisations that offer the scheme. Indeed, one of the benefits of childcare vouchers has been that employers have used their membership of the voucher scheme as an incentive to attract potential staff, which has helped organisations recognise the importance of childcare and family life for their workforce, often leading them to consider what more they can do to support the working parents they employ. The CVPA highlights that childcare vouchers are the second most popular company benefit; only workplace pensions, which employers must offer by law, are more popular.
However, there are a number of well-documented flaws in the current childcare voucher scheme. A person’s ability to receive that support depends on their employer being registered for the scheme, which means that those whose employers are not registered cannot receive it. That includes the ever-increasing number of self-employed people in our economy, which the membership organisation IPSE estimates at around 4.8 million people in the UK.
A further concern is that the level of support available per family via childcare vouchers is linked to the number of parents, rather than the number of children. For example, a lone parent with three young children working full-time and facing high childcare costs is entitled to less tax relief than a couple, both claiming vouchers, with one older child who only attends an after-school club twice a week.
My hon. Friend mentioned lone parents. I wanted to flag the launch last week of a new all-party parliamentary group on single-parent families. There are all-party groups for every subject under the sun, but this is the first time that anyone has managed to create one on this subject. It is a fairly common form of family nowadays: according to figures from Gingerbread, more than 51% of families in some London seats are single-parent families. People talk about a benefits trap. Under tax-free childcare, some lower-paid single parents will automatically lose tax credits and universal credit. Does my hon. Friend not agree that the systems must be worked out better, so as to apply to all forms of family?
My hon. Friend makes a crucial point and I will go on to highlight that key concern. She is right that we must focus on all types of families, not just the notional two-parent family that this childcare scheme seems to benefit most.
As I have outlined, there are many downsides to the voucher scheme, which the Government cited to justify the introduction of the tax-free childcare alternative that was announced in March 2013. At that time, Ministers pledged that the new scheme would be phased in from autumn 2015 and that it would be available to families where all parents were in work and each earned less than £150,000 per year, as long as they were not in receipt of support for their childcare costs via tax credits or, when introduced, universal credit, as mentioned by my hon. Friend Dr Huq. Such families would receive 20% of their annual childcare costs up to a fixed limit, which was set at £6,000 per child, so parents would receive a payment of up to £1,200 per child per year. Eventually, that would cover all children aged up to 12, or up to 17 for children with disabilities.
Tax-free childcare is entirely independent of the parent’s employer, thereby dealing with the problems associated with the requirement for organisations to be registered for childcare vouchers. The value of the support available is linked to the number of children in the family and, therefore, to the likely childcare costs rather than to the number of eligible parents.
In March 2014 the Government published the outcome of their consultation into how tax-free childcare would work. They stated that the scheme was still on track to roll out from autumn 2015; that it would be rolled out much more quickly than previously announced so that all parents with children aged up to 12 would be covered in the first year; and that they would provide 20% of support for childcare costs up to £10,000 per year per child instead of the previous limit of up to £6,000, which equates to support of up to £2,000 per child per year, or £4,000 per year for disabled children.
Crucially, the Government confirmed that although existing members of childcare voucher schemes could choose to remain in receipt of vouchers, those schemes would close to new entrants once tax-free childcare was introduced. Quite understandably, it would not be possible for parents to benefit from both.
However, the original timescale for the introduction of tax-free childcare was significantly pushed back, partly due to the unsuccessful legal challenge from childcare voucher providers who were unhappy about the way in which the contract was awarded to National Savings and Investments. That meant that the new scheme could not be rolled out until April 2017, and then only for children born on or after
Eligibility requirements for tax-free childcare also changed. Each parent must now earn less than £100,000 per year to receive the support instead of the £150,000 limit previously envisaged. In addition, to access tax-free childcare, eligible parents must open an online account through the Childcare Choices website, pay money towards their childcare costs into that account, and have those payments topped up automatically by the Government at a rate of 20p for every 80p paid in by the parent, subject to the maximum limit. Parents then allocate that money to the qualifying childcare provider of their choice and the account provider makes the payment directly to that provider.
The ability for other parties to make contributions to those accounts and for parents to withdraw money from their childcare account—minus the Government’s contributions—should they need to do so, is clearly an advantage over the childcare voucher system. However, as we all know, the Childcare Choices website has been beset by technical difficulties since it launched in spring 2017 and many parents have been unable to access their tax-free childcare account or the 30 hours of free childcare that the website also supports.
As a consequence, Ministers confirmed to the House on
In July, the Financial Times’ personal finance, digital and communities editor, Lucy Warwick-Ching, published an article, “Why tax-free childcare account website makes me want to bawl”, that succinctly summed up the situation. She commented:
“What do you get when you take one frazzled parent and sit them in front of an officious government website? Answer: confusion. Add technical glitches to the mix and that bewilderment quickly turns to anger and frustration… No matter what time of day or night I tried to sign up, things kept going wrong. Once I had found the correct web page I had multiple problems logging on.
First, I had to set up a username and password. Then HMRC set me up with a government gateway user ID (via my mobile phone and email). This is a 12-digit number which you will need every time I log in…(you will need both parents’ national insurance numbers, payslips and/or your passport details—plus details of parental employment). If you go away to look for any of these, guess what happens? The website logs you out.
The last straw was the failure of the website. Even when I had the documents to hand, it repeatedly kicked me out, citing ‘technical difficulties’ and directed me to the government helpline instead… I finally managed to sign up to the tax-free childcare account. Can I sit back and relax now? No chance. HMRC says I must ‘manage’ my childcare service account, reconfirming my eligibility (by filling in a form) every three months.
If one of its aims is to encourage parents to stay in work, the new system appears to fall woefully short. Without rapid improvement, it risks becoming another chapter of disappointment in the saga of digital government.”
Crucially, the author highlighted that it is not possible to avoid those issues by signing up via post or over the phone; it must be done online. That leads me to ask the Minister: how many parents eligible to receive tax-free childcare will be prevented from receiving that support because they do not have easy, regular, and—crucially, given the type of data being provided—secure access to the internet?
When I was a member of the Finance Bill Committee in 2014, alongside my hon. Friend Alex Cunningham, I asked the then Exchequer Secretary to the Treasury, Priti Patel, how many families would lose out as a result of that requirement. I received the answer that the Government estimated that as many as 9% of those eligible—up to 200,000 parents—did not have access to the internet, and therefore would be unable to receive tax-free childcare. Will the Minister set out whether that figure has changed and, if not, explain what the Government intend to do about it?
Concerns around the tax-free childcare scheme are not restricted to its digital woes but include the inescapable fact that it provides the greatest benefits to families who can afford to spend the most on childcare, because it is effectively linked to parents’ expenditure rather than income. That could mean that some families, such as a lone parent of two disabled children with high childcare costs, receive more support than under vouchers, which I strongly welcome, or that a couple earning a joint income of £195,000 receive £2,000 towards the costs of their childcare.
As the CVPA has pointed out, the way that tax-free childcare is structured means that it disproportionately favours wealthier families living in London and the south-east, who are more likely to have higher childcare costs and be higher earners. Tax-free childcare provides the same rate of saving on childcare costs irrespective of income—whether a family earns £240 per week or just under £200,000 per year.
I must declare an interest, as my husband and I both claimed childcare vouchers when our two children were young, after I had gone back to work and needed to support our children through childcare while on a very average wage. I certainly would not have been able to do that without childcare vouchers, and I know from working with retail workers in Tesco and the Co-op, who also have access to childcare vouchers, that they are in the same boat. Does my hon. Friend agree that in order to keep women in work it is very important to allow the voucher scheme to continue?
My hon. Friend makes the point very well, because ordinary working families are more likely to be better off using childcare vouchers than using tax-free childcare. The vouchers are tapered, so that basic rate taxpayers save more than higher rate taxpayers, who in turn save more than additional rate taxpayers. Also, as we have already touched upon, lower-income families can benefit from accessing childcare vouchers alongside other forms of support for working families, including working tax credits and universal credit, while those using tax-free childcare cannot.
Crucially, tax-free childcare requires all parents in the family to be in work within each three-month qualifying period, meaning that any change in circumstances, for example one parent leaving work to care for an elderly relative, results in the family losing all eligibility for childcare support. That is not the case with childcare vouchers.
So how popular is tax-free childcare proving? The Office for Budget Responsibility has previously estimated that the tax-free childcare case load would reach 415,000 by October 2017. Instead, the case load was just 30,000 by that point. We were informed in today’s timely written statement by the Chief Secretary to the Treasury that the figure now stands at 170,000, which is still well below half the number forecast by the OBR for October last year. It would be helpful to have an explanation from the Minister about the ongoing issues with take-up of this flagship policy. I would be particularly interested to know what proportion of eligible self-employed parents have registered for tax-free childcare to date, given that an increase in uptake is one of the main reasons cited for moving to the new system.
“There have been some IT issues around the early rollout of the programme. It is in a much better place now. The Government have not yet conducted a paid-for advertising campaign to raise awareness of the tax-free childcare programme. We are doing social media advertising, but not a wider paid-for programme. There will be such a programme in the new year, and we expect that to increase registrations and use of the programme.”
Tellingly, he went on to say that
“it is also the case that the childcare vouchers scheme closes to new entrants in April next year. Once that scheme closes, because the tax-free childcare scheme will then become the most attractive scheme available to parents, we expect that that will increase the level of interest and take-up of the scheme as well.”
He also said:
“The voucher scheme is closing next year, and we expect that uptake of the tax-free childcare scheme will then increase. At the moment, they are alternatives to each other. There will be one route available.”
In other words, the Government accept that the only way to make tax-free childcare more attractive than the childcare vouchers scheme is to close the childcare voucher scheme to new entrants, forcing people to register for tax-free childcare instead.
In conclusion, this debate could perhaps be best summed up by early-day motion 755, which was tabled earlier this month by Caroline Lucas and has now been signed by around 50 hon. Members, including myself. It states:
“That this House
notes that childcare vouchers are a widely-used benefit that are popular with parents and employers alike, with more than 60,000 businesses of all sizes offering vouchers to more than 750,000 parents;
further notes that, with childcare costs having risen faster than incomes in recent years, a large majority of parents still find their decision to work dependent on the availability of good quality, affordable childcare;
regrets the Government’s decision to close childcare vouchers to new entrants from April 2018;
is concerned that the lack of any formal role for employers in the new Tax-Free Childcare scheme will lead to falling levels of engagement by employers in the support of working parents around their work-life balance and childcare needs;
calls on the Government to keep childcare vouchers open alongside Tax-Free Childcare, so that parents can choose the scheme that is most suitable to their needs and offers the most support to their family;
and further calls on the Government to consider how childcare vouchers could be extended to the self-employed.”
Like the instigators of the petition, the early-day motion is not arguing against tax-free childcare; it simply calls on the Government to allow childcare vouchers to co-exist alongside tax-free childcare for new entrants and existing recipients alike, to enable families to make a choice about the form of childcare that best suits their individual circumstances and their families’ needs, and that is a call that I support.
I welcome this debate. I will speak from a Northern Ireland perspective and contribute to it in that regard, but many of the issues are relevant across the United Kingdom.
In Northern Ireland, as across the rest of the UK, childcare costs are one of the most significant challenges faced by young and working families. Affordable childcare comes up time and time again when I talk to parents, when I rap on the doors and when I listen to constituents, because of the significant burden that it puts on young families and working parents.
I worked as a policy adviser to the First Minister of Northern Ireland for around 10 years and had the privilege to have policy responsibility for childcare and affordable childcare. I have sympathy with the Treasury and others who have worked on this problem because it is very difficult to find solutions. One of the issues that came across very strongly in the Office of the First Minister and Deputy First Minster was that the complexity of the problem is partly because of the different variables of the families who need childcare within the overall cohort. There is no one solution that fits all, which is critical when it comes to childcare vouchers.
From that work and from listening to parents, I am absolutely convinced that we need a comprehensive and holistic range of solutions to address the market challenges faced by parents. The reality is that families requiring childcare come in so many different variations—I will touch on just some of those different types of families and how they are impacted. The variety of incomes and situations have been outlined well—single-parent families, families with two parents working, unemployed families and families with one parent working—so I do not want to go into too much detail. However, I will touch on the range of different families and the challenges that they face. I will do so because I believe that, dependent on the variables, there are good policy reasons why there needs to be a set of tailored solutions for all of those groups and not just for one or two of the groups within the overall cohort.
I am strongly convinced that there needs to be not just a Northern Ireland solution or a Scottish solution or an English solution. We need a United Kingdom solution that provides affordable, good-quality and accessible childcare for all families.
I preface my comments by agreeing with those already made. The childcare vouchers system was not a perfect system—I know that from looking at it from a Government Department perspective and from listening to parents—but flaws within a process can be addressed. The existence of such flaws is not a good reason to throw out the scheme and impact detrimentally on a significant number of parents, including in my own constituency of Belfast South, where well over 200 parents have signed the petition that is the basis of the debate.
Low-income working families—single-income families or families with two very low incomes—is very much the group at which tax-free childcare was targeted. Undoubtedly, that group requires the most support and help in terms of a Government intervention—hon. Members from all parties would agree with that. We need to keep those low-income families in work, and also to keep them progressing and advancing so that they move out of being a low-income family and in to being a middle-income family.
There is no doubt that childcare is a significant barrier for those low-income families. It is not just a barrier in terms of the normal nine to five. Again, I know that we will all be aware of this, but many of those low-income families work in shift-work, work at night and work at weekends, whether they are nurses, care assistants or working in Tesco or other stores. It can be even more challenging for them to find childcare that is flexible, accessible and affordable outside of what would be termed normal working hours. We want and need to support those families, which, for me, are a priority group.
I commend the efforts that have been made to look at tax-free childcare, acknowledging the complexity of the childcare voucher system and how it depended on employers. I welcome how the new initiative has been framed to target and support those parents. However, that some parents might lose their eligibility for tax credits or universal credit if they claim tax-free childcare seems, to many, absolutely bizarre—it makes little or no sense. It is not clear whether there is a flaw in the system, but an urgent examination is needed. I suggest that the scheduled closure of the childcare voucher scheme be delayed to enable all the issues to be identified and considered in detail.
The second group is unemployed parents or those on very low incomes. When looking at the policy area of affordable childcare, it did not strike me that that group required childcare, but when I went out to speak to parents—to groups working within communities—they made it clear that the lack of affordable childcare was a barrier to getting qualifications, doing apprenticeships, and accessing and fully participating in the range of back-to-work and into-work schemes they need to get on to the first step of being a working family. In particular, it was a significant barrier for women in their late teens and early 20s who were single parents. I give huge credit to the many groups across Belfast and Northern Ireland—and, I am sure, across the United Kingdom—that have found creative ways to support those women by partnering them up with settings that can provide affordable childcare.
The second issue that became very clear when talking to people in this cohort—families facing challenges, teenage parents, and unemployed parents, with perhaps transgenerational unemployment—was the huge benefit to child development of a good quality childcare setting. I am passionate about tackling educational under- achievement, and what has struck me starkly in my work in that area is that, if a child is a certain percentage behind at the age of three or four, that continues to be the case right through primary school and post-primary, unless there is significant intervention. Early intervention is critical, and a huge amount of evidence shows that a good-quality childcare setting is absolutely instrumental in supporting a child’s development. It is an invest-to-save policy: we are investing in early education, which will hopefully prevent the need for significant educational intervention at a later stage. There is no doubt that the affordability of childcare comes into play when a parent is motivated to seek work. We need to ask how we can remove the barrier of childcare. Looking at affordability and accessibility is critical. It is also important to offer that cohort of families support and a solution within a holistic childcare setting.
I thank Employers for Childcare, which has been a huge support right from when I started working on childcare policy, feeding through data and information to parents and encouraging knowledge about childcare vouchers and other initiatives. It has supported huge numbers of families in Northern Ireland to take up childcare vouchers in a flawed system that was very complicated for parents. It has also encouraged employers to offer the scheme to their employees.
Finally, the group I believe is most affected by the proposed scheme closure is what would be termed the middle-income families. We know, as do I from talking to families in my constituency, that those families often feel the pressures and the squeeze, particularly if they have two or three children requiring childcare. Childcare is a huge cost for families who are struggling to pay their mortgages and are fearful about what will happen, with bills going up. They pay a huge range of bills and are under a lot of pressure.
A big issue here is keeping women in the workplace. Unfortunately, all the evidence indicates that it is still very much the case that, when it comes to caring responsibilities, it is much more likely the woman who decides to opt out of the workplace to look after children. When we looked at the research in Northern Ireland, those women were third-level educated with good qualifications—perhaps working as teachers or in other professions. The Government had invested right across the United Kingdom in that third-level education, and yet women were having to make a choice. They said to me: “I’m simply working to pay the childminder, to pay for childcare. There’s such a small margin that it’s not worth my while, so I’ll opt out of the workforce to look after the children”. We need to avoid that, for a number of reasons. As has been indicated, to grow our economy and productivity we need to keep those strong, intelligent, capable women in our workforce, and contributing to our economy. There has been investment in third-level education, and losing those women from the workforce is detrimental to the economy.
The second issue is gender equal pay. When we looked into that, it came out that caring responsibilities affect women’s decision to go to part-time work because of childcare costs or to opt out of their employment setting in their 20s and 30s, before coming back in their late 30s and early 40s. They miss a significant amount of time, during which their male colleagues get promotions and apply for managerial positions. In highly skilled and professional posts, that is a huge factor in the gender pay gap. We want, and I think we need, women to stay within the workforce, build their careers and apply for managerial and board positions as appropriate, as opposed to losing at least five if not 10 or more years of their working lives. The third issue is that a significant percentage of women who come back into the workplace decide to come in part time, and we know that part-time work is a significant variable in the gender pay gap.
In summary, middle-income families, for a whole range of reasons, are squeezed and are under huge pressure and we need to look at solutions for them. There is an agreement that there is a market dysfunctionality in relation to finding both affordable and flexible childcare, and that is an important issue in equal gender participation in the workforce and in the roll-out of tax-free childcare. It has become apparent that a number of families—not particularly high-income families—will be worse off, and issues need to be addressed regarding the targeting of the roll-out for that group.
Those two fundamental issues should at least give the Government something to think about in relation to pushing back the proposed closure to allow for a full inquiry—I understand an inquiry is taking place—and to have conversations and discussions about how we introduce a truly holistic and comprehensive childcare strategy that deals with all the variables and component parts, in order to grow our economy and support all our hardworking families across the United Kingdom.
It is a pleasure to speak under your chairmanship, Mr Bailey. I congratulate Emma Little Pengelly on her wide-ranging and thorough speech, and my hon. Friend Catherine McKinnell on her opening speech, which clearly demonstrated that she understands the issues and has tremendous knowledge in this area. I wish the new Minister, who I think is the third Children’s Minister we have had—I suspect he is the Children’s Minister.
He is not the Children’s Minister. I understand that we do have a new Children’s Minister, but I am sure that the Treasury Minister wants to understand childcare as much as anyone else does. Believe me, he has some way to go, being a member of the Tory Government.
Childcare delivered fairly for all children plays a major role in ensuring that no individual fails to get the chance of having a better start in life, even before they get into the school classroom. It also helps parents realise their potential and make the most of their lives. I served as the cabinet member for children and young people at Stockton Council, and I well remember speaking with head teachers after Labour’s groundbreaking Sure Start centres were developed and nursery provision was expanded beyond all recognition. They told me how children were far better equipped and ready for school than the groups that came before them. Their social skills were better, they were used to structure, they were already participating in activities and they had a level of confidence that made them ready to learn. That was all great stuff. The hon. Member for Belfast South spoke about how much more possible educational attainment is for children who have had proper childcare and proper nursery provision. We must not lose sight of that, as it drives results. We see those results in our primary schools and secondary schools today. The children coming out of secondary schools now were among the first to benefit from the Sure Start programme.
I always acknowledge that the coalition Government and the last Conservative Government helped build on Labour’s legacy—children continue to benefit even more—but it is crucial that that success is not undermined by the gap between the haves and the have-nots being widened. We have always had a two-tier system. Even when Governments of the past got sensible and first offered free childcare, those who could afford more and better provision gave some children an advantage. I doubt that will ever change, but surely there is no need for the current Government to make changes that will disadvantage those least likely to be able to afford top-up fees, effectively creating a two-tier system.
When discussing areas of policy relating to childcare and the education of children, it is vital that we focus not only on cost, but on outcome. We know that the early years are one of the most formative times of a person’s life and have significant influence over their development. That is why I urge the Government not to treat childcare as something that can be cut back. By cutting back or reducing access, we put a stop sign in front of the poorest children in our country. From what I see, the changes proposed around the voucher scheme will effectively do just that: reduce provision.
I have looked at the childcare voucher scheme, as other Members have—they have already talked about it—and I compared it with the tax-free childcare system that parents will have no choice but to use if they sign up after April. From my observations, tax-free childcare is considerably the less favourable of the two options. Existing users of childcare vouchers will be able to choose the system that benefits them most, whereas applicants after April will have no such choice. That creates a two-tier system, where some children will be more disadvantaged than others depending on the amount their parents can afford to pay.
The Prime Minister’s words on the steps of Downing Street 18 months ago are much quoted. She said:
“We will do everything we can to help anybody, whatever your background, to go as far as your talents will take you.”
It is a well-worn quote. I have to believe that those words applied to young children as much as to anyone else, and I just wonder if the Prime Minister knows how these particular proposals fly in the face of her pledge and affect the families she may have once described as “just about managing”. I doubt the new Education Secretary, with whom I served on the Education Select Committee and with whom I share a passion for early years’ provision, would really want to see his first few months in office marred by the creation of a system that was far from equal. Has he even had the chance to reconsider the policy ahead of today’s debate? Since we are debating childcare vouchers, I am sure many of us would tell the Prime Minister and her new Secretary of State that the new tax-free childcare service is not fit for purpose. It does not fairly replace childcare vouchers and they should think again.
There is a real opportunity for the new Secretary of State and the new Children’s Minister—it is a shame he is not here to debate with us today—to demonstrate their listening credentials and order a review of the whole policy area. Potential inequality is not just about the ability to pay; it is also very much about the status of an individual or couple. In the gig economy we are now living in, are we putting the provision for some children at risk because their parents are likely to face rapidly changing working environments? I raised that with the Minister of the day, Priti Patel, when the policy was being developed in 2014. I said:
“For many, particularly those with fluctuating incomes such as the self-employed, or those likely to have a change in circumstances later in the year, the complexity will be so great that it is likely to be impossible to provide a better off calculator that can cover many of the situations in which claimants find themselves.”—[Official Report,
Vol. 588, c. 90.]
My hon. Friend the Member for Newcastle upon Tyne North, who has spoken widely today, also spoke in that debate. She said:
“It is worth remembering that some 520,000 families currently benefit from ESC vouchers. The Government’s impact assessment sets out a number of case studies where families might be better off or, indeed, worse off under the new top-up payments.”—[Official Report,
Vol. 588, c. 68.]
That was three years ago, so the Government have had enough time to find answers to those particular problems and inequalities.
The Childcare Vouchers Providers Association highlighted that some families will actually lose money under tax-free childcare as compared with vouchers. That point has been repeated several times today, but it is worth repeating: people will lose out. Does the Minister know who will lose out and who will benefit? What is he doing about those who will lose out? Are there any plans to ensure equality of opportunity and access to provision? What happens when a parent in the gig economy earns less than £120 week for a while? At what point do they lose that tax-free childcare? I do not know the answer to that; I hope the Minister does. It seems to me that the system is a wee bit messy and confused. Until there is a proper understanding about the change to a complete tax-free childcare system, the Government should at least extend the deadline for childcare vouchers. Has the Minister or the new Secretary of State considered that?
I also note the difference in the age of a child receiving tax-free childcare. Vouchers can be used for children up until the September following their 15th birthday, but that figure drops to the September following their 11th birthday under the tax-free system. Can the Minister share with me the logic behind that decision? Are the Government suggesting that 11-year-olds can be left home alone while their parents are at work? Are they assuming that everybody has grandparents and other family members to stay with, or do they have to find the cash themselves to help pay for childcare? We cannot escape the fact that this all boils down to cash: the cash that the Government are prepared to invest in childcare and the cash that some parents will have to find if their children are to be looked after so that they can have peace of mind while they are at work.
I am very much enjoying my hon. Friend’s speech. He raises an important point that I did not elaborate on in my speech, which is the age difference between tax-free childcare and the vouchers scheme. That change seems to totally ignore the reality for the many working families who use the vouchers to fund activities for their children to keep them safe and occupied during the school holidays. Those activities not only have educational and social mobility benefits, but keep their children safe. I do not think the Government recognise that there are ongoing childcare costs up to a much later age than 12.
For me, it boils down to a matter of equality. Why should one person at one end of a street have their children cared for until the age of 15 while a person at the other end of the street has to apply under the new system and does not get the same provision? Surely there must be some sort of equality law associated with that. The Government should recognise that issue and take action.
We should not forget that these challenges for parents come at a time when working families are finding life very tough. We have public sector pay freezes, the increased cost of living, escalating transport costs and a lack of wage growth generally. Parents cannot afford to pay extra money over and above what everyone else is paying. I come back to the word “equality”—we should have equality of provision for everyone. Things should not be different from one person to another. It is time not for the Government to add to the burden of some families and exacerbate inequality, but for the Treasury Minister, the new Children’s Minister and the Secretary of State to step back and think again.
I thank my hon. Friend Catherine McKinnell for introducing this important debate, and all the people who set up and have supported the petition on childcare vouchers. I have been making this argument to hon. Members and Ministers for several years now, since tax-free childcare was first proposed. At that time I was working for the Union of Shop, Distributive and Allied Workers, and was responsible for speaking to employers about childcare vouchers. Many members of their staff benefited from the vouchers, particularly those looking to increase their level of seniority from that of a shop-floor worker, paid an hourly wage and often better off claiming tax credits, by stepping up into a management role that required much more flexibility in terms of hours. In retail, 24/7 flexibility is often required to undertake even a junior management position, so childcare is a very important factor in those decisions that are so important for parents’ social mobility and for ending child poverty in so many families.
At the moment, when parents do the sums, it all comes down to the basic family economics of whether it is worth taking an extra job. For too many parents—those who do not have access to childcare vouchers and can claim only the lower rate of relief available under tax-free childcare—taking on a junior management position paid between £18,000 and £20,000 per year is simply not worth their while. That sort of decision stops people, particularly women, single parents and second partners in a couple, increasing their family incomes, their prosperity and that of their children.
The difference between childcare vouchers and tax-free childcare—relief can be obtained at 32% under childcare vouchers, with national insurance relief as well as tax relief—is key for the majority of parents when it comes to childcare costs. As my hon. Friend the Member for Newcastle upon Tyne North said, each family can claim for costs of up to £243 a month per parent—£2,900 per year of childcare costs in a one-earner family, or up to £5,800 in a two-earner family, where the relief is at 32% under the childcare voucher scheme. Under tax-free childcare, someone may be able to claim for costs up to a higher amount, but at the lower rate of 20%.
Families with one earner are better off under childcare vouchers if their childcare costs are less than £4,660 per year, which the vast majority are, because the average cost of childcare is, I think, £3,796 per year. Two earners who can both claim vouchers, with childcare costs of up to £9,320 per year, will still be better off under vouchers than tax-free childcare. The vast majority of parents will therefore be better off under childcare vouchers. It is true that some people, such as those who earn a much lower rate—those people will be better off under tax credits, or universal credit as it will be—and those who have significantly high childcare costs may be better off with tax-free childcare. However, anyone paying childcare costs of more than £9,300 per year will also be earning a significant amount.
In the current economic climate, it is particularly important that childcare vouchers are kept on, for three key reasons. First, we have seen childcare costs increase by 48% since 2008—seven times the rate at which wages have gone up. The basic economies of scale regarding whether someone can stay in work within a family and still pay for childcare have simply gone, because the costs have increased so much. It is therefore important that they can receive the higher rate of relief on the costs they pay.
Secondly, there has been reduced eligibility for in-work support since the 2010 emergency Budget, which froze working tax credit, and child tax credit rates since the Welfare Benefits Up-rating Act 2013. Whereas a family with one child could claim tax credits up to an income of about £24,000 per year three years ago, it is now down to £22,800 per year. Under universal credit, the threshold will be £15,100 per year, above which people will not be able to claim universal credit. There is a huge group of families earning between about £15,000 and £22,000 per year that used to be able to claim in-work support, who did not need childcare vouchers and childcare support. Such support will now become crucial, enabling those parents to stay in work and to get a necessary reduction in the costs of their childcare.
Thirdly, there are the rising levels of child poverty and in-work poverty. The Child Poverty Action Group predicts that by 2020 an extra 1 million children will fall into poverty due to the reduced levels of support under universal credit. I would have thought that now more than ever it is crucial that the Government do all they possibly can to support families on low to middle incomes, to enable them to stay out of poverty and to give their children the best start in life. I therefore ask the Minister to please keep open the childcare voucher scheme that enables so many families to do that.
It is always a pleasure to serve under your chairmanship, Mr Bailey. I congratulate my hon. Friend Catherine McKinnell on the comprehensive case she made in support of the petition, which is essentially about allowing parents to continue to join the employer-supported childcare scheme after April this year. As we have heard in all the contributions so far, that is basically because the existing scheme is more generous to those on lower and modest incomes than the changes that the Government propose. I will not go through all the figures again, but clearly a basic rate taxpayer in a family with one parent working does reasonably well under the childcare vouchers scheme, but not at all well under TFC. If both parents are working and paying the rate and have average childcare costs, they can expect about £1,800 under childcare vouchers, but less than half that under the new arrangements.
Another important point that has been made today is that the scheme seems to be skewed towards London and the south-east. It is a bit difficult to make sense of that, given the Prime Minister’s expressed desire to create a fairer and more just society, and the Government’s oft-repeated claims that they want to narrow regional disparities. I am not quite sure in the design stage how the Government thought they were helping by creating a scheme that would be less generous to those struggling to get by and trying to do the right thing, and why they thought it was important to skew childcare support towards those living in London and the south-east rather than in the rest of the country.
My hon. Friend the Member for Newcastle upon Tyne North said that 50,000 employers offer childcare voucher schemes, according to a Library briefing paper. I saw in another briefing that it was about 60,000. The correct figure may be somewhere in the middle—I do not know—but I think the reality is that about two thirds of employees in this country are working for businesses that offer the existing scheme. That is the important point; it is a relatively well-established scheme. It has shortcomings, as my hon. Friend and Emma Little Pengelly pointed out, but in essence it is a well-supported scheme.
Employers, particularly some smaller businesses, are interested in the scheme because they argue that it has benefits for them, particularly when there are labour or skills shortages. It is a recruitment and retention tool for many of the very businesses that the Government are trying to encourage with things such as the northern powerhouse and the midlands engine—in other words, businesses outside London. Employers say that it is very easy to administer. A survey conducted by the Childcare Voucher Providers Association reported that 77% of employers said that it takes them less than 30 minutes per month to administer the scheme, so it does not exactly sound massively onerous.
In contrast, we have heard that there are problems with the policy and the technical design of the new scheme. As many hon. Members said, the Department for Education’s figures show that many families are going to be worse off under the new scheme than under the existing one. To obtain the full £2,000—the Government may not have advertised that figure widely, but it is a strapline that they have been happy to be associated with, and it is the benefit that most people will have seen to date—a family needs to be spending about £10,000 per year on childcare. Very few people on low and modest incomes are in a position to spend that sort of money, so it is obvious how skewed the scheme is.
My hon. Friend Alex Cunningham made an important point about the difference in availability depending on age. As someone who spends a lot of time listening to parents and other members of the community talking about the care that needs to be taken with teenagers to ensure they do not go off the rails and that they do the things we expect of them, I am not sure how the judgment could have arisen that it is all right to provide childcare support up to the age of 11, but that after that it does not matter. My hon. Friend put that issue to the Minister, and I hope the Minister will give some kind of an explanation for that rationale, because it does not just affect this policy, but has much wider implications if it is a reflection of current Government thinking.
On the technical front, I cannot quite get my head around the figures I have seen, so I wonder whether the Minister can explain them. I am not saying that I have got them all right. The Government initially told us that about 1 million people would register and benefit from the scheme but, as my hon. Friend the Member for Newcastle upon Tyne North said, it was announced this morning that about 170,000 are registered. It does not take a genius to work out that there is a bit of a gap there, and I cannot see it being made up in the next couple of months. In addition, I understand that only about 30,000 of those who have registered can expect to receive a payment this year. That implies that the system is in a bit of difficulty. The Government have had some problems with the introduction of other schemes and programmes, and I would hate to see them go down a road that leads to another problem. Certainly, Lord Bates has indicated that he thinks that there are problems that could go on for some time.
When I was reading up on the scheme, I noticed that Atos—like Carillion, it is one of these parastatal organisations, and of course it provided such an outstanding service in relation to work capability assessments—is building what is being called the Childcare Choices platform. As we have heard, there are problems with that website. There are reports of the release of sensitive personal information, which will not do much for people’s confidence in the system, and of system crashes. My hon. Friend gave a startling account of one person’s difficulties with trying to access the system. That is not the way to build confidence and give people assurance.
There also seems to be some confusion relating to communication, which is reminiscent of the Government’s problems with universal credit and their communication difficulties with the WASPI women—Women Against State Pension Inequality—as they have become known. It seems that Her Majesty’s Revenue and Customs has been writing to parents to tell them that they must leave the childcare vouchers scheme in order to access the Government’s promised 30 hours of free childcare. Parents have left the scheme, only to discover that that is not actually the case, but once they have done so on the basis of that inaccurate information, they are not able to rejoin it. Can the Minister shed any light on what has happened here? Is there an investigation ongoing? How will the Government offer redress in those circumstances?
Can the Minister give us any hard information about the number of self-employed parents who will receive TFC this year and in future years? The Government argued that one of the major benefits of the new scheme is that it is more effective to introduce an entirely new scheme than to adjust childcare vouchers to accommodate the self-employed. At the moment, we have no idea whether it is having any impact at all, so it would be useful to know that.
The point is, as other hon. Members said, that we are still in the roll-out phase. HMRC has not even published the final guidance, although I understood that the whole thing was meant to be live by April, and the legislation to close the existing voucher scheme has not yet been brought before the House. There is plenty of scope to make changes, if Ministers wanted to do so, without causing massive difficulty and without anyone losing face. The intention, as I understand it, is to grandfather the existing scheme for those currently in receipt of childcare vouchers, so it is obvious that there will be a need to retain this apparatus for some time, although interestingly those currently in receipt automatically lose their rights if they happen to change job. Again, that sounds rather punitive—I am not sure that is the intention.
Would it not make sense to let the existing voucher scheme operate alongside the new TFC scheme? Would it not make sense to give people a choice? There was once a time when the Conservative party was in favour of choice—in fact, the Minister is supposed to be in favour of choice. At the very least, would it not make sense to have a longer phasing-out period so that the problems that everyone has identified can be addressed, and so we do not do away with something that is working well for parents up and down the country and replace it with a scheme that will only cause problems that the Government are already aware of?
It is always a pleasure to serve under your chairmanship, Mr Bailey, and it is a particular pleasure in respect of this debate, which was brought to the Chamber through the Petitions Committee. I thank everyone who signed the petition—267 of my constituents, including Christopher Thomson, Steve Gibson, and Karen and Allen Kelly, who not only signed it but took the opportunity to write to me about how the changes will affect them as individuals and as families.
We have heard a lot about the problems, potential problems and inequity of the system that is coming down the line, so I will not rehearse those arguments, except to say that I support them. A particular inequity is that the lowest earners will be the ones who are hit hardest by the changes.
My constituents have asked me to raise a number of matters, and I am more than pleased to do so. First, I sincerely hope that we all agree that quality childcare is vastly and hugely important to this nation. There can be a 14-month difference between some children before they start school, because of their experiences and the income of the families they are growing up in. Both Governments, north and south of the border, have strongly advocated support for additional hours of childcare, which is hugely important to the future of the country. More free childcare is an easy and attractive promise to families who are struggling, but it is wrong to make that promise unless it has behind it the necessary investment. That goes for Governments both north and south of the border, as I say. It is important to this country, to families and, most of all, to children who are growing up that they have good-quality, safe childcare.
The second matter is the affordability and flexibility of the childcare needed today. As Emma Little Pengelly highlighted, people’s work patterns are so different from those of two or even one generation ago, and therefore the childcare system needs to be massively flexible to answer the needs of all families across the nation. I also raise the issue of internet blackspots—for the third time, I confess, in this Chamber—and problems that occur with a wholehearted shift to using the internet when the structure people need to use is not only inadequate but, at times, as some of my constituents feel, incapable of remedy. On a cautionary note, I suggest that care should be taken before rushing down the path of having another internet-based platform.
Finally, I will make a point that has been made by a number of my constituents but not yet in this debate. Childcare vouchers allow the opportunity for a discussion to take place between the employer and the employee about the needs of that specific family. As one of my constituents said, without that discussion, they would not have found out how flexible their employer was prepared to be about childcare needs; and as the employer said, they would not have been aware of the individual’s childcare responsibilities. In this day and age, when less and less face-to-face discussion takes place, and more and more problems are raised, we lose that opportunity for discussion at our peril. It is important for employers to understand and appreciate the family position of those who work for them.
In areas where there are skills shortages and employers struggle to recruit, it is important for employers to make the widest choices available. If it is right that a country and an employer should have choices, is it not right that a family has choices about the childcare provision, or funding for such provision, available to them? In 2018, is it too much to ask that that choice be made available and, if at all possible, expanded?
It is an honour, Mr Bailey, to serve under your chairmanship again. I congratulate hon. Members on the breadth of the case they have put so far. With that in mind, I will keep my remarks brief and focus them on one specific area.
Much of our time as politicians is spent finding solutions to problems, whereas at the moment we are in danger of creating a problem for which a solution is already in place. It is a solution to a problem, the cost of childcare, from which more than 75,000 parents and families benefit. As we have heard, there are clearly advantages for many parents to the new system, which was always intended to replace childcare vouchers. By sticking with the proposal, however, we will create the problem of which I speak, a problem with tax-free childcare, to which the existing childcare vouchers are the answer.
We must also remember that often those most affected by the cost of childcare are those least able to access the new system. As we have heard, to qualify for the £2,000 cash saving, families must spend £10,000, but the Department for Education has shown that the average family spend is about £3,276 a year on childcare. From my own experience of returning to work, the cost of having a child looked after pre-school or, once at school, after hours can make a major dent in a family’s income, and that cost might make it more difficult for those on lower incomes to return to work than for those on larger salaries. Indeed, they might not be able to afford to return to work at all if the proposals go ahead, because they will not be able to earn enough to reach the £10,000 threshold. Therefore, returning to work is not in their interest or best for their family. Those are the families to whom childcare vouchers make the biggest difference. Those are the families who will probably not be able to access the tax credits, because they will not spend enough to qualify.
The Liberal Democrats believe that there needs to be a more flexible system. The Government’s decision to close the voucher scheme in April of this year needs to be revisited. As other Members have said, we need to give parents the choice, the flexibility to find the scheme that best suits them. That may be tax-free childcare or childcare vouchers. I know that the vouchers were originally intended to be replaced, but surely having the schemes running side by side is evidently more sensible. That way we could provide the best, most flexible and wide-ranging support for all families needing help with childcare.
Thank you, Mr Bailey, for calling me to speak on behalf of the Opposition in this important debate. I declare an interest, as someone who has personally benefited from the childcare vouchers scheme.
I thank my hon. Friend Catherine McKinnell for introducing the debate. I also add my thanks to that of my colleagues to the tens of thousands of people who have made their opinions on this issue clear by signing the childcare vouchers petition. All those signatories have stated clearly that they are opposed to the closure of the scheme to new applicants and, as has been mentioned, to existing applicants merely because they have the misfortune of changing jobs. In addition, as colleagues have said, the petition has been echoed by early-day motion 755, which indicates that 49 Members of this House are displeased by the scheme closure scheduled for April.
I also thank my hon. Friend Tracy Brabin, who has been working hard on behalf of the Opposition to raise the profile of this issue, as well as other problems with the delivery of Government promises on childcare, not least the patchy implementation of the 30 hours’ free childcare pledge, as my hon. Friend Martin Whitfield has rightly underlined.
I congratulate John Glen on his appointment as Economic Secretary to the Treasury, rather than as Children’s Minister. It is good to see him in this debate and I am looking forward to his response to the very detailed points made by my colleagues. Evidently, as a number of colleagues have made the point, we need a Government response on the extent to which childcare costs are outstripping wages. My hon. Friend Ruth George maintained that the cost of childcare has risen at seven times the rate of the increase in wages in recent years. Therefore, it is necessary for the Government to offer stretched parents more support.
I am sure that the Economic Secretary will refer to today’s announcement about the extension of tax-free childcare. I, like others, was absolutely astonished to see that announcement being made today, given the context of this debate.
I take on board the points made by colleagues that the tax-free childcare scheme benefits some parents. For some self-employed people who were not able to access the childcare vouchers scheme, there had to be some kind of new approach, although I underline the comments made by hon. Friends that we need to see figures on how many self-employed people benefit. Many will also see, to an extent, an increase in the support that they can obtain but, as my hon. Friend Steve McCabe pointed out, most of the gainers will be those who are already better off. That is very concerning. None the less, although some people have benefited, there are still significant problems with the roll-out of tax-free childcare, some of which may be shorter- run and some longer-run problems. It is disappointing to see the Government going ahead with cancelling childcare vouchers for new entrants and those changing jobs and not acknowledging those continuing problems.
I do not want to go on at too much length, but I shall reprise some of the comments made by colleagues and pose them directly to the Minister. I hope that we will have some answers to the important points. First, there are the substantial IT failures that have accompanied the provision of tax-free childcare. Unfortunately, they are very similar to the problems that have been experienced by people trying to ensure access to 30 hours’ free childcare. As we saw in the media again this morning, thousands of people have been unable to access their 30 hours for this term because of technical glitches. My hon. Friend the Member for Batley and Spen informed me that one nursery owner she is in touch with understands that one of her parents has had to call the helpline more than 100 times.
It was reassuring that the technology underlying the childcare vouchers appears to work—certainly, in my experience and that of parents I have talked to. Sadly, the complete opposite has been the case for tax-free childcare. It shares the same platform, as colleagues have mentioned, with the delivery of the 30 hours provision and sadly, it has experienced many similar problems. We have heard many examples of those problems already. My hon. Friend the Member for Birmingham, Selly Oak talked about how he had heard that there was inappropriate release of data, which was worrying to hear. As a member of the shadow Treasury team, I have been contacted about some of those problems.
One person who contacted me said that it has been a “Kafkaesque nightmare”. He is a single parent—a widower—and he stated an issue that others have referred to:
“The government childcare service requires those who are claiming government support with childcare costs to reconfirm every three months. This requires going through a number of screens on the relevant website and pressing a button to either confirm that nothing has changed or to outline changes. The trouble is that there is a serious bug in the system.”
The bug was so serious that every time he pressed this button, it reset the system. It was a complete and utter system breakdown.
My hon. Friend is making a passionate argument about why the system has failed so many families in our constituencies. Is she aware that the Childcare Voucher Providers Association said that thousands of parents will have no access to any form of childcare support come April 2018, because of the system failing? Does she share my shock and astonishment about that?
I absolutely share those concerns and I am grateful to my hon. Friend for mentioning that fact. There is a worrying combination of technical glitches, many of which seem to be ongoing and many of which have lost parents thousands of pounds—we are not talking about small amounts of money. Those parents are so frustrated; they have continually contacted helplines and different team managers, who have just said, “I’m very sorry; there are technical problems that we have been raising with those more senior.”
As well as that side of the issue, as we have heard from other colleagues, many parents do not have access to the kind of internet service that they need for the application every three months. As my hon. Friend the Member for Newcastle upon Tyne North and my hon. Friend the Member for East Lothian underlined, people need a secure, reliable and high-speed internet connection every three months to make this application. Parents I have talked to have told me that this is not a one-shot application, because of the numerous technical glitches that people have experienced.
Can the Minister offer us an iron-clad guarantee that no parent will be locked out of access to tax-free childcare, either because of IT glitches or because of a lack of access to safe, secure and permanent internet services? I would be grateful if he could let us know what precisely he has done or will do, given he has just got his feet under the table, to push Atos in particular to speedily resolve these very concerning technical issues. I have no doubt that these kinds of technical problems, as well as many of the others that were referred to by colleagues, offer part of the reason for the low take-up of tax-free childcare.
There are nearly 800,000 families using childcare vouchers, as my colleagues mentioned, and the vouchers are provided by more than 60,000 businesses and employers, including every Government Department. Occasionally, the Government maintain that there is a low proportion of employers offering vouchers. That is the case for one-man and one-woman bands, but if we take them and very small businesses out of the equation, there is a much higher proportion of businesses that offer those childcare voucher schemes. There is an enormous gulf between the usership rate of childcare vouchers and that of tax-free childcare, even with existing restrictions.
Colleagues mentioned that the OBR report before the Budget indicated that the Government would pay out only £37 million this year for tax-free childcare, despite setting aside £800 million for it. There is also a strange issue of exactly how many people actually benefit from tax-free childcare. I am slightly confused, as are colleagues, about today’s announcement and what the figure of 170,000 referred to. In her statement, the Chief Secretary to the Treasury, Elizabeth Truss, maintained that 170,000 people have opened an account for tax-free childcare. I am interested to know whether those are live accounts—whether those accounts have paid anything out—because I understand that, as of November, only 30,000 accounts were actually live: a tiny proportion of the people who could have access to the scheme have done so.
I am also concerned that the parents of disabled children may be considerably under-claiming. I was pleased that my hon. Friend Alex Cunningham mentioned that, as well as my hon. Friend the Member for Newcastle upon Tyne North. I was surprised to hear in the response to a parliamentary question by my hon. Friend the Member for Batley and Spen that there are only 1,187 tax-free childcare accounts registered for disabled children. Of course, tax-free childcare is already fully rolled out for disabled children, so it would be helpful to hear the Minister’s assessment of the relative number of parents of disabled children who used tax-free childcare, compared with those who use vouchers, and why there is a disparity, as I expect there will be. I would also be interested to hear what the Minister has to say about the disincentive effect of the design of the tax-free childcare system. As many colleagues mentioned, parents need to pay around £10,000 into their account before they can receive the headline £2,000 per year. That enormous sum is simply impossible for the vast majority of parents to afford. It does not reflect their working patterns or their wages.
[Mark Pritchard in the Chair]
For that and other reasons, tax-free childcare will benefit people on large incomes who consume large amounts of childcare the most. As many colleagues said, the new scheme will generally leave people on lower incomes worse off. Indeed, the charity Employers For Childcare calculated that approximately 70% of the parents who approach it for help would be better off with childcare vouchers, tax credits or universal credit, or with a combination of those things, than with tax-free childcare. My hon. Friend Dr Huq rightly mentioned that the new system may negatively impact low-income single parents in particular.
Further calculations indicate that people in lower-paid areas and people on lower wages generally are more likely to lose out as a result of losing access to childcare vouchers following the adoption of tax-free childcare. That is because—we might have discussed this issue more—tax-free childcare does not incorporate the progressive elements of the voucher scheme, which enables basic rate taxpayers to save more than higher rate taxpayers, who may in turn save more than additional rate taxpayers. In her insightful speech, my hon. Friend the Member for High Peak pointed out some of the disbenefits of tax-free childcare for low-income parents compared with people on low incomes who are already in the voucher scheme.
I would be grateful if the Minister indicated whether any impact assessment has been undertaken of how the closure of the childcare vouchers scheme will affect people who spend an average amount—not the very high amounts in Government projections—on childcare. It would also help to hear how the Minister expects the new system to affect people on lower incomes, who will largely see the support they receive proportionately reduced by these changes. That assessment should take into account the impact on employees’ ability to progress to higher paid jobs that require them to be more flexible with their working hours, which my hon. Friend rightly mentioned.
I would also be grateful if the Minister explained how the Government are promoting activity by employers to support employees who are parents. A number of colleagues made the point that childcare vouchers start a conversation about employers’ responsibility to consider their employees’ childcare responsibilities. Along with other benefits for working parents, vouchers often play a key part in recruitment and retention. Given that we will lose the vouchers scheme, will the Minister indicate what other measures the Government are putting in place?
We also need a response to the question that my hon. Friend the Member for Stockton North asked: why is there a tighter age restriction for tax-free childcare than for childcare vouchers? Have the Government considered the impact of that on parents who want to ensure that their children are properly cared for when they are not at school? My hon. Friend the Member for Birmingham, Selly Oak ably underlined that point—his speech was very important in that regard.
Given the low take-up of tax-free childcare, the extensive technical problems with its roll-out, its regressive impact and the apparent problems that parents with disabled children are having with accessing it, will the Minister see sense and keep the vouchers scheme open, as the petitioners request?
I am pleased to serve under your chairmanship, Mr Pritchard. I thank everyone who signed the petition and made their views heard. I understand that the petition has attracted more than 115,000 signatures, which goes to show the importance of the Government’s support for childcare costs. This is a key issue, and we have had a thorough debate. Seven Members made very full and thoughtful contributions, and I will respond to as many of their points as I can.
For many parents, being able to afford good-quality childcare is essential to working and supporting their families, so it is right that we have this debate. I am responding to the debate rather than the Minister with responsibility for childcare because tax-free childcare and childcare vouchers operate through the tax system. The Government have introduced tax-free childcare, which will benefit more than 1 million working households and mean that parents are eligible for up to £2,000 per child per year to help towards childcare costs.
Let me make my introductory remarks, and then I will give way.
Let me draw Members’ attention to the three key reasons why we support the replacement of childcare vouchers with tax-free childcare. First, the Government believe that childcare vouchers are unfair. Tax-free childcare is fairer and better targeted than the voucher scheme. For example, only about 5% of employers offer vouchers, which limits their reach to about half of working parents, not to mention that self-employed parents are completely excluded from the scheme, which pays no regard to the number of children in each family and disadvantages lone-parent families.
Secondly, tax-free childcare has a broader reach. It is open to all working families with children aged under 12 that meet the earnings criteria. That ensures that families who were excluded from childcare vouchers can be brought into tax-free childcare, and benefits families with the highest childcare costs—namely, most of those with young children.
Thirdly, tax-free childcare is simpler to use—I will come to the IT issues that Members raised. Employers usually pay third-party providers to administer childcare voucher schemes. The Government do not believe that paying third-party providers is a good use of taxpayers’ money. Some £220 million has gone on such administration since the scheme began. A voucher scheme is therefore an ineffective way of delivering support to families. Under tax-free childcare, parents manage their own accounts online. The case for change is clear, as it was to the Labour party when it announced at its 2009 conference, when it was in government, that the existing system would be shut down.
I will now happily give way to the hon. Lady.
I thank the Minister for giving way. I was simply going to ask about his earlier comment that 1 million families will benefit from tax-free childcare. Is that the number who will benefit in comparison with having no support with childcare at all, or does it take into account the approximately 550,000 families who would actually be better off under vouchers than under tax-free childcare?
Clearly, in any benefit system there will be those who are better off and those who are not better off, but the bottom line is that the current system prevents large numbers of parents from accessing childcare support. That is why we are making the change.
I am certainly very discontent with a situation where only half of employees are able to access childcare support and no self-employed parents can access any childcare.
I am going to make a little progress, and then—[Interruption.] Go on, I will take a third intervention, as the hon. Lady opened the debate.
I thank the Minister for giving way. He is making an argument for broadening access to support with childcare, with which no one would disagree, but he is not making a compelling case for closing down the support that hundreds of thousands of working families already access. He needs to explain that before he can convince anyone, in the Chamber or outside, that it is a good idea to shut the voucher scheme.
I thank the hon. Lady for her remarks and for the way in which she introduced the debate. She must reflect on the fact that the Government are closing the scheme, but not to existing recipients. There is no question of existing recipients not being able to continue making their current arrangements. It is unrealistic to say that that is the case—we are not shutting it down to existing claimants.
Let me make some progress. As the hon. Lady said in her remarks, tax-free childcare will be rolled out by
Emma Little Pengelly made a thoughtful point about female employment and the gender pay gap. The female employment rate is at a joint-record high of 70.8%. Since 2010, the number of women in work has increased by 1.4 million. I acknowledge that there is more work to be done, but the gender pay gap for full-time employment is at a record low. While I am not complacent—three days into my job at the Treasury, I am already focused on pay equality—we must acknowledge that some progress has been made.
Beyond introducing tax-free childcare, we have demonstrated our commitment to supporting families through multiple measures, to ease the burden that bit more. That is why the Government will be spending more money on childcare support than ever before. By 2020, we will be spending about £6 billion to help parents with the cost of childcare. That includes doubling the free childcare hours for working parents of three and four-year-olds from 15 to 30 hours a week, saving families around £5,000 per year per child. That is making a real difference to the lives of families across the country.
We are supporting working families on the lowest incomes who receive universal credit. We have increased the amount that working parents can get towards their childcare costs through universal credit from 70% to 85%. As wages increase, parents can use the online calculator to decide which offer best meets their needs: staying on universal credit or moving to tax-free childcare.
The Government have been gradually introducing tax-free childcare to replace childcare vouchers since April 2017 and, as I have said, tax-free childcare has a greater reach than childcare vouchers. Today, we announced that the offer is now open to families whose youngest child is under nine, and on
Because tax-free childcare does not require any input from an employer, many self-employed parents will be able to get help with childcare costs for the very first time. Tax-free childcare is also a simpler system for parents to navigate. Parents open an online account and manage their deposits and childcare payments through it themselves. The system will also be easier and simpler for childcare providers to manage as they will no longer have to deal with multiple voucher providers. Tax-free childcare also offers more generous support for parents of disabled children, who can get up to £4,000 a year and remain eligible for tax-free childcare until the age of 17.
I will have to look into the assessments and write to Steve McCabe. At this point, I do not know whether that data exists. However, once tax-free childcare is open to all eligible parents and fully established, we expect it to be worth around £1,100 a year per household. That additional support is essential for many parents to return to work. It is clear that the replacement of childcare vouchers with tax-free childcare will bring huge benefits to parents.
I want to address points made by a number of hon. Members on delivery. The childcare service is a groundbreaking new digital service and, as of today, more than 300,000 parents have opened an online account. The hon. Members for East Lothian (Martin Whitfield) and for Newcastle upon Tyne North (Catherine McKinnell) referred to internet access, and the hon. Gentleman referred to banking issues, which we discussed on Thursday. The childcare service helpline can be called when online access cannot be secured.
We have seen a reduction in errors on screen down to 2%—it was 5% to 6% last summer. Enormous progress has therefore been made. Anneliese Dodds asked about an iron-clad guarantee, which is a little unrealistic given what has happened to Government IT projects for all parties over all generations since we have had IT. However, HMRC is working closely in partnership with National Savings and Investments, and with Atos as a delivery partner. Significant progress is being made to reduce those error screens significantly, to give a greater level of confidence on the roll-out of the new scheme.
While the vast majority of parents have used the service without difficulties, I acknowledge that some have experienced them. I can only apologise to those individuals. HMRC has apologised to those parents and has already made significant improvements to the childcare service, as I just set out. Overall, parents are receiving eligibility results more quickly, with the vast majority receiving a response within five working days, if not immediately, and fewer parents are experiencing technical difficulties.
HMRC will continue to implement technical updates to improve further the experience for all customers. It has arrangements in place to ensure that no parents miss out as a result of technical issues, and it is providing payments directly to parents in lieu of the Government top-up. Where individuals have missed out, compensation is available for those sums missed out on due to those technical issues. As I mentioned, a dedicated helpline is provided.
I want to address the reach of tax-free childcare. The scheme is designed to be responsive to parents’ needs. All parents who would have been eligible for childcare vouchers will be eligible for tax-free childcare provided that they have a child aged under 12 and that they and their partner, if they have one, earn around £120 a week. The generous upper earnings limit of £100,000 per parent means that the vast majority of working parents will be able to claim help with childcare costs.
However, the Government recognise that a small number of parents who were eligible for vouchers will not be eligible for tax-free childcare. Most of those parents will no longer be eligible as they are couples with only one partner in work, or where one is earning over £100,000 a year. Government spending has to be prioritised where it will have the biggest impact. We have struck a balance between universal childcare offers and those targeted to support families who need help the most with the costs of childcare. Tax-free childcare is better targeted than vouchers, where support is dependent on who a parent works for rather than the needs of their household.
I sense that the Minister is getting towards the end of his speech. People in the gig economy see tremendous fluctuations in their income and might not meet the £120-a-week threshold at any one time. What will the Government do about such people? Will they just drop out?
The hon. Gentleman makes a characteristically sensible point, and I am happy to look into the matter and write to him. I do not have a detailed answer that I am happy to give him now.
Although I welcome the fact that female participation in the workforce is at record high levels of about 70%, male participation in the same age cohort is about 79% to 80%—a significant gap. The Minister has outlined the targeting of measures at those most in need, but has the Treasury given consideration to the productivity gap between males and females? Research has indicated that a significant percentage of women, when asked about participation, give caring for children in the home as the primary reason, but there is a significant economic impact. That policy agenda should also be targeted by a childcare policy.
As a former policy person, I acknowledge the detail of the hon. Lady’s analysis, and that there is more work to be done. I shall take that back to the Treasury as we try to address all dimensions of the productivity challenge.
The Government think it is right that we replace childcare vouchers with tax-free childcare from April 2018. However, I would like to reassure any parent who is currently receiving vouchers but is not eligible for tax-free childcare that there will be no automatic withdrawal of the voucher scheme. If they currently receive vouchers and their employer continues to provide them, they can continue to receive vouchers as long as they stay with that employer.
I think they will be eligible for the tax-free childcare scheme.
Again, I thank all those who signed the petition, and all hon. Members who spoke this afternoon. As I have set out, tax-free childcare will help more households, and is better targeted and simpler, than childcare vouchers. HMRC has done extensive work to ensure that the childcare system is ready for full roll-out. It is therefore right that we continue with the reform as planned, to the benefit of millions of households around the country.
Although I welcome the Minister to his new post, I do not think that anyone listening to the debate will be impressed by that response. It does not provide the reassurance that people are looking for—they want reassurance that the Government are serious about providing options so that families with children can meet and manage their childcare costs. I pay tribute to every Member who made a speech today, because if this was a football match, although we do not quite have the numbers, it would be 9-0 given the arguments that have been rehearsed. The Minister’s response does not adequately address the sincere and genuine concerns expressed by hon. Members, and by 116,000 members of the public who signed the petition.
I and hon. Members thank the person who started the petition, and everyone who signed it. They are right: the Government are wrong to close the voucher scheme to new members. The Minister is not being entirely clear when he says that it will remain open and that those within it should retain their confidence in it, because the Government’s actions are undermining it. Obviously, the numbers in the scheme will diminish. Who knows what the future holds? How far will employers be able to remain involved in the scheme as numbers inevitably diminish when the children currently benefiting from it grow up and no longer require the vouchers, and there are no new entrants?
That is obviously the Government’s strategy, but it is a mistake to close a scheme that works for so many families. Each of those families currently has the option to sign up for the tax-free childcare scheme, yet they either choose not to, or would not be eligible. The Government do not seem to acknowledge that, potentially, they are letting a huge number of those parents down. Unless they can give a cast-iron guarantee—the Minister has already said they cannot give one on the IT system—that every parent currently benefiting from the voucher scheme will benefit by the same amount or more from the tax-free childcare scheme, they are doing the wrong thing in closing it to new entrants. They should retain both schemes and give a much longer period to see how the tax-free childcare scheme performs. The issue is ultimately the children and the benefit that they will get if their parents can go to work and be provided with high-quality, affordable, or at least supported, childcare by the Government.
I make a final plea: I hope that the Minister can take this away and come back with a different answer. I hope he will hold the voucher scheme open for the huge number of parents and children who currently benefit from it, and that the Government will not undermine it.
Question put and agreed to.
That this House
has considered e-petition 200585 relating to childcare vouchers.