Why the Government's new childcare scheme is unfair to stay-at-home parents

By Paul Goodman
Follow Paul on Twitter

"Parenting is the most important job there is…I have always wanted this Government to do everything it can to help families of all shapes and sizes…All families, including those relying on a stay-at-home parent, will continue to receive more financial help towards childcare".

Claire Perry's recent article on this site about the Government's plans for childcare tax breaks was nothing if not defensive: it was crafted to persuade readers that they're fair to those "families of all shapes and sizes" - including single earner and two earner couples.  But they're not.

Let me explain why.  Government affects both the supply and demand sides of childcare.  Its main lever on the demand side is the tax and benefit system.  The most important childcare element of that system is child benefit - which, as Andrew Lilico has explained on this site, is not a welfare benefit, but a tax rebate.  Since the Government has withdrawn child benefit, in some circumstances, and wants to bring in the new childcare tax breaks, it makes sense to look at both measures together.

First, George Osborne announced that child benefit is to be restricted for better-off parents.  Families where one parent is earning more than £50,000 a year are longer be able to claim the total amount of child benefit.  Now, he has announced that parents earning up to £150,000 each are to get the new tax breaks.  Since child benefit is paid both to one earner and two earner couples, but the new tax breaks won't be available to one earner couples, it follows that the Chancellor is shifting tax help from those couples to two earner ones.

There would be a strong argument for this were the two earner couples who will benefit all poorer parents.  But, as we have seen, this is simply not the case: a parent could be earning £149,999 a year, and still be eligible for the new scheme.  (Indeed, the Treasury website says that "to be eligible, families will have all parents in work, with each earning less than £150,000 a year" - which suggests that both parents could be earning £149,999, and still benefit from it.) "They will receive 20%...of their yearly childcare costs up to £6,000 per child."

The same sort of argument would apply were two earner couples more likely to be poor than one earner ones.  But according to Samantha Callan of the Centre for Social Justice - formerly the family and society policy adviser in the Conservative Policy Unit - one earner couples "are taxed 43% more than the same familes in the rest of the OECD, and the Institute of Fiscal Studies says they're clustered in bottom half of incomes".  This helps to explain why Callan is a supporter of the Conservative Party policy of making tax allowances transferable between married couples.

That policy made it into the Coalition Agreement, but it hasn't been brought into effect.  (George Osborne resisted pressure to make it a quid pro quo for backbench support for same sex marriage.)  In short, a big part of Government childcare policy seems to be as follows.  First, take support away from richer couples, one earner and two earner couples alike, by restricting child benefit.  Second, give support back to richer couples by introducing the new tax breaks - but only if they are two earner ones.  (And poorer one-earner couples won't gain from them either.)

Finally, delay bringing in the transferable allowances that would even the balance up: a very dangerous move, since the Chancellor has only two more budgets left to him, and the Coalition may well not be in place when he is due to deliver his final one - the spring of 2015.  So when Perry writes that the Government's plan "will help to give families a choice", she can only mean that it "will help to give some families a choice", since one-earner couples, by definition, won't be eligible for it.

However, perhaps I am as much at fault, if blame is the appropriate action here, as Perry - who, after all, put a case in which she believes, and put it extremely well.  After all, the scheme "will be phased in from autumn 2015".  In other words, it won't come into effect until after the next election, and therefore may never come into effect at all.  Why is there so much palaver over a plan which may never happen?  By the way, there seems to be some unhappiness, even among supporters of childcare tax breaks, over the phasing out of Employer Supported Childcare.

There were far more good measures in George Osborne's budget than bad.  Two days before he delivered it, I called for more capital spending, cuts in NICs and a fuel duty freeze.  Since the Chancellor delivered all three (though much of the capital spending boost won't come until 2015), I am scarcely likely to complain.  But his new childcare tax plan shows the lack of interest in one earner couples that I remember from my time in his Shadow Treasury team.  And since they vote, it the move was also a tactical blunder amidst an otherwise politically astute budget.