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Households earning up to £300,000 to benefit from childcare tax break
Updated 1:47pm Tuesday 18th March 2014 in News
A NEW £2,000-a-year tax break for childcare will allow parents to choose to go out and work longer hours, Prime Minister David Cameron has said.
The scheme, unveiled on the eve of tomorrow's Budget and due to come into effect in autumn 2015, will help around 1.9 million families where both parents work and has been welcomed by charities.
- Follow the Budget live at northernecho.co.uk from noon tomorrow with live analysis from experts at Brewin Dolphin
But it has come under fire from some quarters for excluding couples where one parent does not work and being made available to high-earning households with a joint income of as much as £300,000.
Labour said support for children and families had been cut by £15 billion since the coalition came to office in 2010 and dismissed the promise of a tax break after the next general election as "too little too late".
But visiting a south London nursery with Deputy Prime Minister Nick Clegg, Mr Cameron insisted it would be "a huge help to millions of families across Britain".
Mr Cameron said: "People I've been talking to are working two days a week, three days a week, who would dearly love to work another day or work some more hours, but they can't make the sums add up because the childcare is expensive and they are not earning enough.
"So this will help them to choose - do I want to work more? Do I want to take that choice to give more stability and security to my family? It's about helping parents to back the choice that they make."
Challenged over the decision not to give help to families where one or both parents do not work, Mr Cameron said: "In terms of parents at home, we help them through child benefit, we help them through the new married couple's allowance, we help them through the 15 hours of free national education for all three and four-year-olds, so we've done a great deal for all families.
"But this is specifically for families who want extra help with childcare, who are working hard, who feel the squeeze and who want to get greater assistance."
The system will effectively allow parents to escape paying basic rate income tax of 20% on childcare costs of up to £10,000 - up from the proposed £6,000.
Self-employed and part-time workers will also now be covered by setting the lower earnings threshold at £50 per week and provision will also be made for those running fledging businesses.
To counter criticism that tax-free childcare amounts to a sweetener for many better-off families, the package also includes a £50 million boost for nurseries looking after the most deprived three and four-year-olds, with the introduction of a new "early-years pupil premium".
And in what children's charity Barnardo's hailed as a "double victory" for the poorest families, it was confirmed that families claiming universal credit will have 85% of childcare costs met by the state, up from 70%.
Alison Garnham, chief executive of the Child Poverty Action Group, said the "fantastic" 85% announcement would create "positive work incentives for lone parents and second earners". The early-years pupil premium was a "vital injection of funds (which) could really begin to turn round the standard of provision for the most disadvantaged children", she said.
Fiona Weir, chief executive of single-parent charity Gingerbread, said the 85% support would "make a crucial difference for thousands of single parents who struggle to afford to work", but added: "The question now is when parents will be able to access this vital extra support, as the roll-out of universal credit continues to be delayed."
A recent report by the Family and Childcare Trust suggested that childcare costs were outstripping the average UK mortgage bill.
Chief executive Anand Shukla said: "Given that British parents pay more for childcare than in any other European country, today's news of extra help for families with the cost of childcare is both important and timely.
"We're delighted that the Prime Minister and the Deputy Prime Minister have today recognised that an investment in childcare is an investment both in our economy and in our future."
But the chief executive of parental charity NCT, Belinda Phipps, said: "We are hugely disappointed that the Government is still not addressing the appallingly low rate of statutory maternity and paternity pay, which remains £100 a week lower than the full-time minimum wage.
"NCT wants the 2014 Budget to end this parent penalty and demonstrate they value parents by raising maternity and paternity pay rise in line with inflation."
For Labour, shadow minister for children Lucy Powell said: "Of course, any childcare support is welcome but this Government has done nothing in this Parliament to help parents experiencing a cost-of-living crisis.
"Childcare costs have spiralled by 30% since 2010 and the Tories have rejected Labour's plan for 25 hours free childcare for working parents of three and four-year-olds."
But asked if he accepted Labour's claim that the coalition had slashed funding for families by £15 billion, Mr Clegg told ITV1's Daybreak: "No. If you tot up everything we are doing now to support childcare, we are providing about £5 billion-worth of money, taxpayers' money, in one shape or form to support childcare, and what I am talking about today amounts to roughly another £1 billion - £750 million for the tax-free childcare offer and the rest making up the early-years pupil premium and the 85% of childcare costs for those on universal credit."
Mr Clegg defended the decision to allow the help to be made available to workers earning up to £150,000 - or £300,000 for a couple - insisting it meant the system was simpler.
He told BBC Radio 4's Today programme: "People who are on higher-than-average incomes, yes, they will benefit from this.
"We decided to do that because the more we looked at introducing a cut-off point at different income levels, the more complex it became."
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