Poorest families lose the Budget 2013 childcare war

21st Mar 2013

The Budget announced measures to help parents pay for childcare. But those in most need miss out on the biggest chunk of the support, argues Helen Barnard.

So there was a big battle. The Chancellor, Prime Minister and Deputy Prime Minister fought the good fight and got an extra £1 billion to help families with childcare costs. The question is whether they were fighting for the right measures.

Tackling poverty by cutting living costs is laudable, as is supporting work by addressing the childcare barrier. However, that £1 billion could have been much better targeted to achieve both aims.

There are two parts to the changes:

  • a new childcare voucher scheme for those earning too much to claim tax credits but under £150,000 each – couples can earn up to £299,000 between them;
  • changes to the element of Universal Credit related to childcare costs.

Donald Hirsch examined the tax credit part of this, concluding that it will go some way towards helping low-income parents who have been hit by previous cuts in the childcare tax credit. However, it only supports families where all parents are working and all earn over the personal tax allowance threshold.

What struck me most is the balance of where resources are being directed. Of the new money, £750 million will be spent on the voucher scheme for better-off families, starting in 2015. £200 million will go to lower-income families through Universal Credit, a year later. Most of the extra support will go to families in the top half of the income distribution.

The new voucher scheme has a complex mix of winners and losers, as compared with the old one:

New scheme: Old scheme:
1.3 million families with children under 5 (rising to up to 2.5 million families when children under 12 are included 45000 families
Doesn't rely on employers choosing to offer it Did
Includes self-employed people Didn't 
Pays up to £1,200 per child Paid up to £900 for each parent regardless of how many children they had
Children under 5, expanding to under 12's 'some time in the future' Children up to 15
Families where all parents are working Families where at least one parent worked

The Financial Times quotes calculations comparing the gains from each scheme for basic- and higher-rate taxpayers. Basic-rate taxpayers can currently get up to £1,800, around a 33 per cent reduction in childcare costs. Under the new scheme they will only be able to get £1,200; 20 per cent. Some higher-rate taxpayers (a small group) will be able to get more under the new scheme than previously. Some bigger families will benefit, but those with older children will lose out.

All of this will become clearer if the policies are implemented after the next election. However, the main point is already clear: this was not a budget which prioritised poverty.