Martin Lewis campaign tackles childcare vouchers

Martin Lewis, the founder of moneysavingexpert.com (pictured), is due to meet with Stephen Timms, financial secretary to the Treasury, today (13 August) to discuss flaws within the existing system, which were first highlighted by the Low Incomes Tax Reform Group.

The meeting was set up after Mr Lewis set out his concerns in a letter to children's secretary Ed Balls and in an article that appeared in the News of the World in July.

Campaigners backing Mr Lewis say that families with annual incomes of below £25,000 are worse off if they use childcare vouchers because it reduces their eligibility for childcare tax credits. The amount of tax credits awarded to families depends on the amount they pay out for childcare. However, any payments made using childcare vouchers are not counted towards their total costs. Therefore, families who use vouchers are entitled to fewer tax credits because their childcare costs are calculated as being lower.

Mr Lewis said, 'This means that the net result of this scheme can be a massive loss - and that simply shouldn't be allowed. Worse still, it actually means that many parents whom the childcare voucher scheme is intended to help aren't being helped, leading it to be a benefit primarily for higher earners.'

One parent commented on the moneysavingexpert.com website, 'My wife and I signed up for the vouchers because of the monthly savings, but we were not told that we had to tell the HMRC and as a result we have found ourselves £2,500 overpaid. The form we complete each year does not ask you how you pay for your childcare.'

HM Revenue and Customs admits that families will generally be worse off by taking childcare vouchers if they receive over £545 per year in childcare tax credits and their eligible childcare costs are less than £175 per week for one child or £300 per week for two or more.

Moneysavingexpert.com has published three alternatives for reform to the voucher system:

- Changes to the way tax credit allowances are calculated, so any childcare costs that are paid with vouchers are taken into account

- A neutral system, where the loss of tax credits could be no more than the gain from vouchers

- A one-year amnesty for parents who start using childcare vouchers, so they receive advance notification that their tax credit allowances are to be reduced.

FURTHER INFORMATION

Mr Lewis is asking for people submit their comments and suggestions for reform at www.moneysavingexpert.com.