Childcare loan scheme could help businesses keep staff

Within its Business Manifesto, ‘A Business Plan for Britain’, the British Chambers of Commerce (BCC), which represents thousands of businesses across the UK, argues that to retain the ‘best talent’ and develop ‘business leaders of tomorrow’ increased financial support for working parents to access childcare is needed.

It proposes introducing a Childcare Contribution Scheme (CCS) for working parents with a child under five, similar to a student loan, which could be used to pay for ‘high-quality’ childcare.

The proposal comes two years after Ryan Shorthouse, former researcher at the Social Market Foundation (SMF), originally put forward the idea.

Families eligible for the CSC would need to be in a household where the main earner is on at least £12,000 per year, the equivalent of full-time work at the minimum wage.

Under the scheme, working parents would be able to borrow £10,000 to pay for childcare, which would be paid to them upfront by the Government through a voucher system. Parents would then pay their childcare provider using a ‘smart card’.

A limit of £10,000 has been set by the BCC as, according to a poll by the Social Market Foundation (SMF), it would cost parents on average this much for childcare a week over two to three years.

The main earner of a household would be responsible for paying back the Government through their wages (PAYE) at a rate of six per cent of their gross income above the income tax personal allowance, set at £10,00 for 2014-15. If their income drops below the personal allowance, no money would be taken from their wages.

Parents would have to pay interest on the loan set at three-per-cent above the rate of inflation.

If the loan were not paid back after 20 years any outstanding amount owed would be wiped.

The British Chamber of Commerce says that households could use the CSC to build up a balance in their Tax Free Childcare Account, being introduced in autumn 2015.

According to the BCC, there are significant differences to the CSC and student loans, which have faced criticism. They are:

• The CSC is capped at £10,000 per family compared to the maximum £9,000 per year, usually over three years, for student loans;
• Interest earned from the CSC is designed to cover families that default on payments;
• Payback contribution to the Childcare Contribution Scheme is set at six per cent of a main earner’s gross income, rather than 9 per cent with a student loan.

Commenting on the BCC’s recommendation for a Childcare Contribution Scheme, Ryan Shorthouse, now director of the Bright Blue think tank, said, ‘Past Governments and the Coalition should be applauded for increasing financial support for childcare through the tax credit system, the free entitlement and vouchers. But, with costs still rising above inflation, it is clear something more is needed to help parents on all incomes afford childcare.

‘I'm delighted an alliance is forming in support of my proposal - parliamentarians, civil servants and now British businesses. It would be complementary to existing Government support for parents and could be designed in a way that was costless to HM Treasury. The evidence is clear: good pre-school care can boost educational attainment and parental employment. My idea will bring us closer to achieving the universal, high-quality system we desperately need in this country.’

Sarah Jackson, chief executive of Working families said they are sceptical about the proposal for the Childcare Contribution Scheme.

'Although we welcome the proposal as an interesting contribution to the affordability debate, it doesn’t do what it says on the tin. It doesn’t help the most vulnerable families access childcare as I understand that both parents must be in work, it isn’t progressive in that it shares the costs between the families who can’t afford childcare, and it creates potential conflict by having a single earner rather than joint responsibility between parents.
 
'Ultimately there is no evidence to suggest that the scheme will bring down the cost of childcare, improve quality or make childcare more flexible – it simply addresses the “how do we pay for the rising cost” question.  And in answer, it suggests adding to the personal debt of already struggling families. It seems counter-intuitive in a climate of high personal debt to introduce another loan scheme when we know many families struggle to understand their finances. Expecting parents to assess the risks of acquiring a loan when they have young children seems unrealistic. Few people can say if they will remain in the same job, with the same hours, by the time the loan is repayable.
 
'We also have reservations about the proposal that the higher earner in the family becomes liable to repay the loan. If the higher earner doesn’t want debt, and many lower income families hate the prospect of debt, then they may discourage their partner from working and using the scheme – this could become a further barrier to low income women returning to work.  Why not have joint liability to repay as in so many other benefit areas?'