MPs take up LITRG concerns on Tax-Free Childcare Scheme

The report has recommended that the Government:

• Remove age restrictions on childcare support for parents in training to improve productivity
• Keep childcare voucher scheme open until winners and losers of discontinuing it are known
• Pay a higher hourly rate to local authorities for 30-hours free childcare scheme
• Improve awareness of Tax-Free Childcare scheme and quality of website

The report draws extensively on input from the CIOT’s Low Incomes Tax Reform Group (LITRG).

Lack of awareness and perception of costs

The Committee draws attention to LITRG’s suggestion that low up-take of Tax-Free Childcare was partly explained by lack of advertising and publicity for the scheme, and notes similar evidence from the National Day Nurseries Association.

The Committee concludes: “With a take-up rate 90 per cent lower than initially expected, Tax-Free Childcare is a clearly under-performing scheme. The Committee received evidence that low take-up can be explained by low awareness among parents of the scheme’s existence. It also received evidence that take-up may also be affected by the fact that some parents may prefer to remain on childcare vouchers scheme. The failure to publicise the scheme properly—a cornerstone of the Government’s childcare policy—is regrettable. The Government should now take all necessary measures to improve awareness and takeup of the scheme.”

The childcare services website and inadequate guidance tools

The Committee notes that LITRG highlighted areas where it considers the guidance provided by the Government to be insufficient. In particular it notes LITRG’s statement “that there is no single source of advice or guidance that covers all of the schemes. The tax credits helpline cannot answer questions about childcare vouchers or help parents carry out better-off calculations and similarly the Tax-free Childcare helpline cannot answer questions about tax credits or Universal Credit. […] We do not think that there is enough guidance and support at present to help people do this which means that people are at risk of making decisions that could be financially detrimental and in some cases irreversible.” The Committee also quotes extensively LITRG’s view that some key information is missing, and examples provided by the group of oversimplifications and inaccuracies.

The Committee concludes: “At present, there are multiple sources of official guidance for different childcare policies. The Low Incomes Tax Reform Group has highlighted factual errors and inaccuracies in this guidance which the Government should correct. Online guidance should be supported by a specialist childcare support helpline that covers all of the major childcare schemes, with advisers who can help individuals with more complex circumstances, explaining to them what their optimum choice of schemes may be.” The Committee also says that applications for all childcare schemes should be made through one single portal, to avoid confusion, and that the Government should ensure that its online childcare calculator can take account of Universal Credit entitlements.

Difficulties in choosing the right scheme

The Committee notes that LITRG highlighted a number of complex interactions between different policies. It highlights LITRG’s evidence stating that: “The majority of people who pay childcare costs are unlikely to understand this range of interactions and yet the consequences of failing to understand can be very serious. For example, take the interaction between Tax-Free Childcare and tax credits. Most people might see the logic in a rule that prevents you from claiming help with the same childcare costs from two schemes, and so it would seem logical that you cannot claim Tax-Free Childcare for the same childcare costs that you are claiming the childcare element of WTC for. However, the Tax-Free Childcare goes one step further and says that if an existing tax credit claimant, whether claiming the childcare element of Working Tax Credit or not, makes a claim for TaxFree Childcare their whole tax credit award (both Working Tax Credit and child tax credit) is automatically terminated. Similar rules exist between Tax-Free Childcare and Universal Credit, although according to the gov.uk website, the claimant is responsible for cancelling any Universal Credit claim. It is not clear whether there are punitive consequences if the claimant fails to do that.” The Committee also quotes LITRG’s explanation of how the optimum choice of schemes for parents depends on their income level and childcare needs and additional complexity can arise if these vary from month to month.

The Committee concluded that: “While the wide range of childcare schemes has provided parents with greater choice and flexibility, the level of complexity has become overwhelming. It is likely that for parents whose circumstances change from month to month it is almost impossible to make the best choice.” It stated that the Government “must set out how it intends to simplify its range of support for childcare costs, and address the complex interactions between different schemes.” It also states that the post-legislative review of TaxFree Childcare which the Government have committed to “must include parent feedback on the user experience of accessing the scheme and the ability to use the Government’s guidance to make the correct childcare choice. Once this detail emerges, the Government must make the necessary changes to address the scheme’s shortcomings.”

Read more about the report here.

By Hamant Verma.