Over the past week, the media speculation has been about the Government's plan to introduce tax relief for childcare.
There are two stories circulating about these plans. The one that has appeared in most of the papers is that the Government intends to introduce tax relief worth up to £2,000 per child. This would be a huge increase in the amount of tax relief currently offered through employer supported vouchers which is closer to £600. But it's also been suggested that this will be done largely by recycling the money currently invested in vouchers - around £700 million a year. A huge extension of tax relief without a big injection of funding doesn't add up.
That makes the second version of what the Government plans to do seem more plausible. That is, to offer tax relief on £2,000 of childcare costs to all parents rather than to those whose employers choose to provide vouchers. This would be £400 of tax relief rather than £2,000. The unlikely thing about this version of the Government's plan is that it would seem like a cut because tax relief would be lower than you can currently get as a basic rate tax payer, just spread far more widely. Clearly we won't know what the plan is until the actual announcement. Either way, if it is based on tax relief, it will primarily benefit parents in better off households - the same parents who currently benefit most from vouchers. Parents who get tax credits are barely better off if they apply for vouchers on top and those who don't earn enough to pay tax aren't eligible for relief at all.
Parents on middle incomes who fall just outside the tax credit system do get less support than those on lower incomes. They deserve help. But things are not rosy for lower income parents despite valuable support from tax credits. A second earner with two children on the minimum wage is only £4 better off a week if she works full-time than if she didn't work at all, in part because of childcare costs. One test of the plan should be whether it offers some help to households in the bottom half at the same time as extending support to the more affluent.